But confidence that schemes remain discretionary could be misplaced
Redundancy, sadly, is a situation faced from time to time by many organisations. The law endeavours to offer a limited financial cushion for those employees affected through the statutory redundancy payments scheme. Employers are at liberty to exceed these statutory minimums, although whether they are willing or able to do so is a matter for organisations’ individual discretion.
We recently conducted a short employer poll in a bid to identify any industry or sector norms in terms of organisations choosing to offer enhanced redundancy pay. The results suggest that a large proportion of employers do choose to exercise their discretion to enhance redundancy pay and many do so with the intention of retaining flexibility on this – although this can be a tricky path to pursue legally.
Among survey respondents, two-thirds offered enhanced redundancy terms over and above statutory minimum requirements. Size of organisation was not necessarily a determining factor in this, except that fewer than half of businesses employing under 100 staff had enhanced redundancy schemes. Otherwise, there was not a huge divergence among the remaining respondents; organisations employing between 5,000 and 10,000 staff were most likely to enhance redundancy pay (83 per cent) and between two-thirds and three-quarters of other organisations (those employing 100 or more) were likely to do so.
Responses according to type of business or sector were more varied. All the chemical and pharmaceutical companies said they were likely to offer enhanced terms, while business services and manufacturing organisations were more likely to stay with the statutory scheme (36 per cent and 60 per cent respectively). The financial and transport sectors also tended to offer enhancements.
Unsurprisingly, affordability was the primary reason given for not offering enhanced redundancy pay. Other considerations included a concern among a quarter of respondents that enhancing pay might set an unwelcome binding precedent for the future (expressed particularly by those in manufacturing), and a perception by a further 25 per cent that statutory terms were appropriate, whether from a market forces or sector norms viewpoint. Interestingly, other employers from the same sectors were choosing to offer enhanced redundancy pay, suggesting individual perceptions of the market differed considerably – or, possibly, that market forces operate much more narrowly than across sectors, for example, according to role or seniority.
Those organisations offering enhancements were not motivated by industry-wide pressures to any degree. Instead, key motivations revolved around supporting staff, both in terms of morale but also through the sense of financial security enhancements can offer (45 per cent). That’s not to say, of course, that competitive pressures do not affect specific roles within an industry or sector.
The majority of employers (60 per cent) offering enhanced redundancy terms considered they did so at their own discretion, not through contractual commitment. Two-thirds said they had opted to exercise that discretion occasionally – and, presumably, they had been largely unchallenged on this. But it is important to note that ‘discretionary’ policies can be considered to be contractually binding in the eyes of the law, whatever the beliefs or intentions of the employer.
Whether enhanced schemes are discretionary or not will depend on the organisation’s circumstances, but potential indicators include:
- Where and how the redundancy policy is recorded, if at all. Provisions in a staff handbook, for example, may inadvertently become incorporated into the terms and conditions of individual employees
- How the terms are described. Employers need to ensure messages concerning the nature of enhanced payments are consistent – both in terms of their actions and the words they use – so employees are clear they are not considered, or intended, to be binding in every case
- To what extent employees are aware of any enhanced redundancy pay scheme. Depending on how a scheme is communicated, employers could potentially create a reasonable expectation on the part of employees that enhancement will be available to them
- How often the organisation has enhanced redundancy payments in the past and over what period. Organisations that have not varied their approach from one redundancy exercise to the next, but which believe they have retained the right of discretion over whether to enhance the payments or not (one third of respondents), may find they have created a binding ‘custom and practice’ for enhancement. The greater the frequency that they have followed the same approach, the greater the risk that this will have happened.
Gillian Watkins is a senior associate professional support lawyer at Eversheds LLP
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