Statutory and contractual redundancy pay

In a redundancy situation, an employee might be entitled to both statutory and contractual redundancy payments.

How much is statutory Redundancy pay?

Statutory redundancy payments are calculated using age, length of service and weekly pay (currently capped at £525).

Contractual Redundancy Payments

Contractual payments can be more generous. What happens when a contractual sum isn’t paid, and the employee brings a breach of contract claim to recover it? Does the statutory redundancy element form part of the £25,000 cap for a breach of contract claim in the employment tribunal?

What happens when Contractual Redundancy Payments aren’t paid?

In Uradar v Lancashire Care NHS Foundation Trust, the employee's contractual redundancy pay was about £44,000, including the statutory element of around £6,000. The employee was dismissed but the employer said he had refused suitable alternative employment so refused to pay the redundancy pay.

Is statutory redundancy pay included in the contractual sum?

The employee brought a tribunal claim and won. The tribunal said the statutory redundancy element was part of the breach of contract claim and awarded him £25,000 (the maximum allowed), rather than £25,000 plus £6,000 for the statutory redundancy pay. The employee appealed.

Redundancy Pay and Breach of Contract

The EAT agreed that the tribunal had got it wrong. The employee had two separate claims: one for statutory redundancy pay and one for breach of contract. He should have been awarded both sums.

Breach of contract claim caps in the EAT

This is a logical decision. More concerning to employers is the EAT's criticism about the statutory cap of £25,000. As in this case, the cap often prevents full recovery of breach of contract sums in the employment tribunal. The EAT noted the potential injustice and said that the current cap had been in place since 1994. They queried whether it should be raised.  Although higher value breach of contract claims can be brought in the civil courts, tribunals are attractive to employees because they are faster and there are no fees.

Chris Dobbs says "Many employers are not aware of the £25,000 cap in the employment tribunal for breach of contract claims.  It is the one downside for employees bringing such claims in the employment tribunal, other than that it is generally faster and cheaper to do so.  However, employers should be aware that there is a growing call for the £25,000 cap, which has been in place for 25 years, to be significantly increased.  The EAT has now joined its voice as well and therefore it is more likely it will happen soon.  Watch this space."

At Frettens, all of our solicitors offer a free initial meeting or chat on the phone to answer your questions. If this article raises issues for you or your business, please call us on 01202 499255 and someone from the Employment Team will be happy to discuss it with you.