Worried about your job? Know your rights if you are made redundant

By LIZ PHILLIPS, FINANCIAL MAIL ON SUNDAY

Updated: 08:28 EST, 3 March 2013

Shock: Laura Tapp, pictured with her baby Matilda, says she felt dealt with fairly but redundancy was a surprise.

Despite a drop in the number of jobless, few employees feel secure. Nearly 1,400 stores have closed

this year, with high-profile casualties including Comet, HMV and Blockbuster. Companies are collapsing at a rate of 18,000 a year.

But it isn’t only those working for failed firms that can find they are facing redundancy. To survive, many businesses are trimming staff.

This is what happened to Laura Tapp, 33, who worked in business development for chartered surveyor Jones Lang LaSalle in Central London.

She was on maternity leave looking after her first child, Matilda, who is now 14 months old, when the firm contacted her last October.

Laura, who had worked there for five years, says: ‘They were making others redundant too. They showed me a list of jobs available but none of them was comparable.

'My payoff included statutory redundancy, plus a month’s wages and holiday pay. I felt they were fair, but it still came as a shock.’

She is still jobhunting. ‘If you are employed, the employer has an obligation to look at your part-time needs, but now my options are limited and I can’t afford to be picky about the sort of job I take,’ says Laura, who lives in Hammersmith, West London, with husband Chris, 35, who works for a recruitment agency.

Your redundancy rights

Payments

You have the right to a redundancy payment if you have worked at the same firm for two years or more.

For those aged between 22 and 41, this amounts to one week’s pay for every complete year of employment, but last month a cap of £450 a week was introduced. Older workers get one and a half week’s pay.

Statutory redundancy is the minimum to which you are entitled. Many employers are more generous and offer one month’s pay per year with the company. The terms should be laid out in your employment contract.

You are entitled to work out your notice period, go on paid ‘gardening leave’ or be paid in lieu of notice.

You will also be paid for any unused holiday.

What if a firm goes bust?

If the firm cannot pay because it is insolvent, you can apply to the National Insurance Fund for any outstanding salary, notice, holiday and redundancy pay.

But if the firm goes into administration and you are fired within 14 days you become an ‘ordinary creditor’ alongside everyone else owed money. If the administrators don’t dismiss you in that time, you become a ‘preferential creditor’, giving you a better chance of recovering any money owed. 

Consultation and other jobs

In normal circumstances you will be consulted by your employer before being made redundant and the reasons explained in writing.

If 20 workers or more are being shed, the firm must consult a union or an employee representative at least 30 days before giving staff notice. When more than 100 people are being axed, notice should be 90 days.

You should also be offered a list of other positions available to consider. You can try out the new job for four weeks before accepting it. You should also be given time off to go job hunting or take up training.

If you feel you have been unfairly selected for redundancy, you must make an official complaint and can follow it up by going to an employment tribunal within three months. 

Settlement agreements

New employment laws are being introduced under the Enterprise Regulatory Reform Bill later this year. It will bring in settlement agreements, which will speed up the process and remove the risk of going to tribunal.

Settlement agreements can be used when any employment is terminated, not just in redundancy. They will outline the payout you will receive and give you an extra amount as an incentive to sign, as you are waiving your rights to take the company to an employment tribunal.

You must take legal advice before signing, which will be paid by  your employer. You cannot be ‘forced’  to sign.

Make the most of a redundancy payout

When negotiating your redundancy package, make sure the payout is tax-efficient. Only the first £30,000 is protected – the rest is taxed at your highest rate.

If this money is paid once you have received your P45, you will be taxed at 20 per cent initially. The payout must be included in your annual tax return, but you will have a year’s breathing space.

Use your pension to reduce your tax liability. Ask for part of your redundancy payment to be paid direct into your pension. As the employer won’t have to pay National Insurance on this amount, you may be able to negotiate a higher payment.

Check your insurance policies. If you have accident, sickness and unemployment cover (ASU), you could make a claim. These policies are notorious for having tricky exclusions – chiefly they won’t pay up if your employer had already announced it would be making redundancies when you bought it.

If you have an Income Protection policy, which mostly covers you if you are unable to work following an accident or due to illness, you may have added on unemployment cover too. IPP will pay out until you are able to work again.

Check your home insurance policy to see if it includes legal expenses cover. You can use this to pay the cost of a solicitor if you want to take legal advice.