What are the main legal claims brought against employers in relation to redundancies?

Various types of claims can be brought against employers if they do not follow a fair and reasonable redundancy process. In this blog post I will explain the main ones companies need to be aware of, including compensation levels where a Tribunal finds in an employee’s favour.

In addition to any awards made by a Tribunal there will also be a significant legal bill, both for the individual that brings the claim and for the employer who defends it.

Although the Tribunal service was set up with the intention of being more informal than a court and open for employees to bring claims and employers to defend them without accumulating large legal fees, in practice this has not happened and most Tribunals are handled on both sides by lawyers and barristers.

This means that many employees are dissuaded from bringing a legal case due to the costs involved. Legal aid for this purpose is very difficult to obtain and unless the employee has legal insurance or cover through e.g. membership of a union, it can be a very expensive gamble as Tribunal outcomes can be unpredictable, with legal costs often running in to thousands of pounds.

Often, employees can add legal expenses cover to a home insurance policy covering employment matters such as redundancy for as little as £25 for £100,000 of cover although, as you would imagine, insurance companies have quite a high bar for which cases they will accept.

Bearing in mind it is highly unusual for a Tribunal to award costs against either party irrespective of the result, if there is a reasonable prospect of success for the employee it is often worth considering settling a case before racking up significant legal bills, especially if the employee has legal insurance. In fact, if a reasonable settlement offer is made, often the insurer will withdraw cover if the employee refuses to accept it.

We are currently involved with a case where an employee has legal insurance. The insurer would only accept the case once a solicitor and also a barrister had assessed it and confirmed that all allegations had at least a 51% chance of success based on the evidence. Cover would have been refused for any elements with a lower likelihood of success.

Also the potential value of the case needed to be higher than the anticipated cost of defending it. In this case the barrister estimated costs at £25-35,000 so clearly a trivial case or one where an employee is simply chancing their arm would not be accepted by their insurer.

This example illustrates why a large number of cases are not pursued by disgruntled former employees after their initial complaint.

Where a case does reach Tribunal following an employee being made redundant, the main legal claims that an employer may need to defend are as follows:

Protective award

If you have read my free guide 8 Steps to Making Redundancies or my previous blogs on redundancy matters you will be aware that there is a requirement for employers to consult collectively where they propose 20 or more redundancies at any establishment within a 90 day period.

A Protective award is made by a Tribunal when employers do not follow this requirement. Claims can be brought against an employer at any point up until 3 months after the final redundancy dismissal.

The Tribunal’s start point with regards to compensation is 13 weeks actual pay (not the capped statutory redundancy pay rate of £538 per week in the 20/21 tax year) per employee who is affected by the employer’s failure to follow the requirements.

The Tribunal may reduce the level of compensation it awards if the employer can show they had a justifiable reason for not following the requirements.

Unfair Dismissal

To bring an unfair dismissal claim, employees need to have at least 2 years’ service with the employer. Please note, as explained below, they do not need 2 years’ service to bring a discrimination claim.

Generally, there is no compensation available for injury to feelings in unfair dismissal cases, Tribunal awards are normally restricted to two elements; a basic award which is calculated in the same way as redundancy pay i.e. one week wages per year served, capped at £538 per week up to a maximum of £16,140; and compensation for financial losses due to the unfair dismissal e.g. loss of wages, including loss of wages while the individual was unemployed, and / or where the individual had to take a job that is lower paid than what they earned with the employer. A Tribunal may also make an award for potential future loss of wages e.g. if it feels the individual is likely to be unemployed, or in a lower paid role, for a period following the Tribunal.

Generally the basic award is not paid if the employer has previously paid a redundancy payment of at least statutory redundancy pay, so individuals would only receive compensation for financial losses.

The maximum award for unfair dismissal is limited to the higher of one year’s pay or £88,519 this tax year and the average award last year was just under £14,000 as per Morton Fraser solicitors.

Discrimination

As touched on above, there is no minimum length of service needed to bring a claim of discrimination against an employer on the grounds of sex including pregnancy / maternity, sexual orientation, race, ethnic origin or nationality, religion or belief, age, disability, being a part-time worker, being on a fixed-term contract or carrying out union duties such as acting as an employee representative in a redundancy situation.

Clearly it is unlawful to select candidates for redundancy or treat them differently due to any of these grounds or ‘Protected Characteristics’ i.e. direct discrimination, but employers also need to be very careful not to indirectly discriminate against employees by applying selection criteria for redundancy that treat particular groups less favourably – whether they meant to or not – e.g. using a ‘last in first out’ criteria, which has been found to indirectly discriminate against younger workers, who tend to have less service than older workers.

Discrimination awards made by Tribunals fall in to 3 bands depending on the severity of the discrimination suffered. Very serious cases receive between £26,300 and £44,000; serious cases between £8,800 and £26,300 and less serious cases receive £900 to £8,800.

Awards over £44,000 are reserved for exceptional cases. The average compensation awarded for race discrimination is around £12,500 as per Morton Fraser solicitors.

The above compensation figures may increase if you have a contractual enhanced redundancy scheme. A scheme will be deemed to be contractual either if it is specifically included in the contract of employment or if it is paid as a matter of custom and practice.

With regards to public sector redundancies please remember that the government have confirmed that, from 4 November 2020, a £95,000 cap will be placed on exit payments for operators in the public sector.

There are several other less common claims raised by redundant employees such as breach of contract and also injunctions that we’d be happy to discuss further if relevant.

Based on the cost of getting it wrong and, often as important, the time it takes to defend a Tribunal claim in terms of building a case, witness statements and time at the Tribunal, clearly it is important to carefully plan any redundancy exercise and act reasonably and fairly to try and avoid such claims. See our free guide to 8 Steps to Making Redundancies for further information on how to do this.

As well as advising on the redundancy process, 186hr can help with any settlement discussions you have with redundant employees who are raising a claim against you. We have handled literally hundreds of exit negotiations over the years and drafted numerous legally binding Settlement Agreements to ensure that the matter is closed once and for all once agreement is reached. Contact us today

Thanks to the CIPD for the majority of the factual information contained in the above article