Redundancy pay under the statutory scheme

Under section 135 of the Employment Rights Act 1996 (ERA 96), an employee who has worked continuously for the same or an associated employer for at least two years, regardless of the number of hours worked in a week, has the right to statutory redundancy pay unless:

• they have accepted or unreasonably refused suitable alternative employment (see Chapter 6);

• they were dismissed for gross misconduct; or

• they were dismissed for taking strike action prior to the statutory notice period (section 143 of the ERA 96).

The following categories of worker have no right to statutory redundancy pay (sections 155-161 of the ERA 96):

• employees with less than two years’ continuous employment;

• the self-employed;

• individuals without a contract of employment (e.g. temporary agency workers);

• civil servants and other public employees who are covered by their own agreements;

• foreign government employees;

• seafaring workers paid by share of the catch;

• domestic workers employed by close relatives; and

• employees married to their employer.

Since 1 October 2006, an employer can no longer reduce a redundancy payment to an employee because they are getting a pension.

Employees lose the right to statutory redundancy pay if they leave work before being given notice that their employment is to end because of redundancy (see chapter 1). However, employees under notice of redundancy can agree with their employer to extend their notice (in the hope of work picking up, for example) without jeopardising their redundancy entitlement (Mowlem Northern v Watson [1990] IRLR 500).

Since only employees qualify for a redundancy payment, they will also lose their right to statutory redundancy if they agree to become self-employed or if they sign up to a “zero-hours” arrangement that takes away their status as an employee (see Docherty v SW Global Resourcing Limited [2013] ScotCS CSIH/72).

Statutory redundancy payments are a form of pay (Barber v Guardian Royal Exchange [1990] IRLR 240). This means that employees can pursue equal pay claims where redundancy payments discriminate on grounds of sex.