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January Employment Bulletin – Redundancy pay

In a redundancy situation, an employee may be entitled to both statutory and contractual redundancy payments. Statutory redundancy payments are calculated using age, length of service and weekly pay, and is currently capped at £525. Read more...

In a redundancy situation, an employee may be entitled to both statutory and contractual redundancy payments. Statutory redundancy payments are calculated using age, length of service and weekly pay, and is currently capped at £525. Contractual payments on the other hand, may be more generous. 

What is to happen whenever, 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?

In Uradar v Lancashire Care NHS Foundation Trust, the employee’s contractual redundancy pay was around £44,000, including the statutory element of around £6000. The employee was dismissed but the employer claimed they had first refused suitable alternative employment, and so refused to pay the redundancy pay. The employee brought forward a tribunal claim and won. The tribunal said the statutory redundancy element was part of the breach of contract claim and awarded the employee £25,000 (the maximum allowed), though not the £25,000 plus £6000 in statutory redundancy pay. The employee appealed. 

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

This is a logical decision. More concerning to employers is the EAT’s criticism of 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 this brings and stated that the current cap had been in place since 1994; querying whether it should be raised.  Although higher value breach of contract claims can be brought in the civil courts, tribunals are often chosen by employees for their speed and absence of fee.