Liability for statutory redundancy pay
Under the Employment Rights Act 1996 (ERA) an employer may be able to avoid liability to make a redundancy payment if an offer of suitable alternative employment is made to an employee whose existing job has become redundant.
It will be important to actually make the offer of suitable alternative employment to the employee. This is so even where the employee has stated that they have no interest in being offered another job.
Merely inviting employees to re-apply for available jobs is not sufficient. If an employee fails to apply for any of the jobs on offer and is made redundant, the employer is unlikely to be able to escape the liability to make a redundancy payment.
If such an offer is accepted before notice of dismissal on grounds of redundancy has been given, this will be viewed as a mutual variation of the terms of the contract.
However, if the alternative employment is offered after notice of dismissal for redundancy has been given certain statutory rules apply that give a right to amongst other things a statutory trial period of four weeks.
Requiring notice to have been served before the job offer is made is arguably out of step with modern practice in some workplaces. It would not be unusual for employers to make offers of alternative employment during the consultation process, which in many cases will take place before notice is given.
Also in some cases, redundant employees are dismissed with payment in lieu rather than with formal notice being given, in which case there is no opportunity for job offers to be made after notice. In those circumstances any offer made at an earlier stage should ideally be repeated at the time dismissal is confirmed if the employer wishes to argue that no redundancy pay is due.
Furthermore, an employer that leaves it to the last minute to make an alternative job offer will gain little from doing so. The amount of time given to the employee to consider the offer will be relevant to the question of whether the employee was reasonable in refusing it and therefore whether they should retain their entitlement to a redundancy payment, notwithstanding that the alternative employment might have been suitable for them.
The form of an offer
An offer of alternative employment need not be in writing. However, a written offer is advisable for evidential purposes in the event of a dispute as to the suitability of the alternative employment or whether the employee unreasonably refused the offer.
It will be for the employer to show that its offer was effectively communicated so it may be preferable to write to each employee individually.
The offer must be reasonably precise and, as such, must:
- Be recognisable as an offer of a new job and more than a general statement of intent on the employer's part to find alternative employment
- Set out the material terms in sufficient detail, explaining where the proposed employment differs from the employee's current employment
If the employee is to be offered a choice of several different jobs enough detail will be needed for the employee to be able to distinguish between them and to accept one.
For the purposes of the statutory scheme, the new employment must start no later than four weeks after the employee's existing employment ends. If the employee's employment ends on a Friday, Saturday or Sunday, as long as the alternative employment takes effect on the Monday following the four-week period, it will be treated as having taken effect immediately at the end of the employee's previous contract.
If an employee accepts an offer of alternative employment they are treated as not having been dismissed at the end of their previous contract for the purposes of the statutory redundancy pay scheme. They will, therefore, have no entitlement to a redundancy payment.
The alternative employment being offered will be subject to a statutory four-week trial period
The purpose of the trial period is for both the employer and employee to assess the suitability of the alternative employment for the employee. In deciding whether the terms of the proposed alternative employment differ from an employee's existing employment, it should be noted that:
- All differences count unless they are trivial or insignificant.
- Each employment term is considered individually; a contract is not considered on the basis of its overall effect.
- The fact that the new terms may be more favourable than the old terms is irrelevant.
The only time there will be no statutory trial period is if the employee's contract is renewed on the same terms, in that situation, there is no need for a trial period and no statutory right to one.
A statutory trial period starts when the employee's employment under their old contract ends and lasts for four weeks. This has been interpreted as meaning "four consecutive calendar weeks" it may not necessarily be four working weeks.
A statutory trial period may be extended to last for longer than four weeks only for the purposes of retraining the employee in the alternative employment.
The statutory scheme requires the employer and employee to agree to extend a trial period and their agreement must:
- Be in writing and finalised before the employee begins work under the new contract.
- State the date on which the employee's retraining will finish.
- Identify the terms of employment that will apply after the employee's retraining has finished.
There is no express limit on the amount of time for which an extension to a trial period can be agreed although it is implied that it will be no more than is needed for the purposes of retraining the employee.
If the trial period is successful and the employment continues, the ending of the original contract is deemed not to have been a dismissal for statutory redundancy pay purposes.
If the trial is unsuccessful, the employee shall be regarded as dismissed, for statutory redundancy pay purposes, at the date when the original contract ended. However, the time limit for claiming any redundancy payment runs from the date of the termination of the trial, not from the date of the dismissal.
In practice, disputes are unlikely to arise between the parties where the trial period is successful, resulting in continued employment, or where, although the trial period is unsuccessful, the employee receives a statutory redundancy payment and notice monies.
Most difficulties arise where the redundancy monies are withheld on the grounds that the statutory trial period had expired when the employee rejected the offer. In order to avoid these potential difficulties, the end date of the trial period should be made clear to the employee as should the consequences of working on past that date in the new position.
Reasonableness of refusal
If an employee refuses the offer of new employment either immediately or during the trial period, the right to a redundancy payment will be lost if the offer constituted an offer of suitable employment in relation to the employee and his or her refusal was unreasonable
It is important to stress that a two-stage test applies in relation to the refusal of an offer of alternative employment.
The first test is an objective one – the employment must be suitable alternative employment in relation to that employee – and, the second, subjective, test is that it must be unreasonable for the employee to refuse it.
It is possible for an offer to satisfy the first test but for refusal of it not to be unreasonable.
Suitability is not statutorily defined and will be a question of fact in each case for the Employment Tribunal. It is up to an employer to show that the job offered was suitable and that the employee's refusal was unreasonable. Suitability is to be determined in relation to the employee in question. In practice, this will be assessed by the Employment Tribunal looking at the terms of new employment and how these suit the particular employee. A prudent employer would discuss all proposed changes with each employee and ask for their views and suggestions.
Reasonableness of refusal is looked at from the employee's point of view at the time of the refusal. The test is subjective because 'it is the situation of the employee that matters not of an employer'.
The suitability of the employment and the reasonableness of the employee in refusing it are interrelated issues. So a factor may reflect both on the suitability of the work for the particular employee and also be something which the employee can take into account when deciding whether s/he can properly accept the employer's offer.
Factors affecting suitability may include:
- loss of status
- loss of fringe benefits
- place of work
- hours of work
It is difficult to lay down any guidelines as to what would constitute a reasonable refusal of suitable employment bearing in mind the subjective test and each case will be decided on its own facts. If an Employment Tribunal does find that an employee has unreasonably refused suitable alternative employment they will be disentitled from claiming a redundancy payment although s/he will still be treated as having been dismissed by reason of redundancy.
The fact that an employee has already obtained a job elsewhere by the time the offer of alternative employment materialises does not necessarily make refusal of that offer reasonable but it is a factor which has been described as being of 'great importance'. In the case of Thomas Wragg & Sons Ltd v Wood , uncertainty about the company's future and the lateness of the offer were held to be relevant factors which a tribunal was entitled to take into account. The fact that Mr Wood had obtained another job was of great importance although not decisive.
In Readman v Devon Primary Care Trust  Mrs Readman was employed by Devon Primary Care Trust in community nursing from 1985 until 2008. In November 2007, she was told that she was at risk of redundancy because the trust was reorganising its leadership structure.
Mrs Readman worked a statutory trial period in the lower grade position of community nursing team manager, but she did not think that it was suitable and resigned. She was offered a role at her original grade as modern matron. Mrs Readman turned down the job offer because she did not want to work in a hospital setting
The employer disputed that she was entitled to a redundancy payment as she had unreasonably refused suitable alternative employment.
It was held that when determining whether or not a potentially redundant employee has unreasonably refused an offer of alternative employment which has been found to be suitable employment for that employee, the particular circumstances of the employee should be taken into account to assess whether it was unreasonable for that particular employee to have refused the alternative employment. The question was not whether a hypothetical reasonable employee ought to have accepted the alternative employment.
Alternative work and fairness of dismissal
The employee's entitlement to redundancy pay is not the only consideration. The question of alternative employment is also a factor in determining whether the dismissal of a redundant employee is fair or unfair.
The decision to dismiss must be found to be in the band of reasonable responses following a fair procedure. Dismissing the employee as no longer required and redundant will likely be unfair if there is a suitable alternative role that he or she could carry out.
If the alternative work only becomes available after the dismissal it will be irrelevant to determining whether the dismissal was fair as only those matters which were known to the employer at the time of dismissal are relevant to the fairness of the dismissal.
However, if alternative work becomes available between notice of dismissal and the date it expires, then a failure by the employer to offer such work to the employee may be taken into account by an Employment Tribunal in determining the reasonableness of the employer's decision to dismiss.