- The Observer,
- Sunday July 27 2008
Redundancies are back in the news: 6,000 a week in housebuilding alone and a steady flow of dismissals from the financial services sector as more and more employers fall victim to the credit crunch. There is a fear that the situation could deteriorate further if Britain goes into recession.
About 22 per cent of employers expect to make redundancies this summer, according to the Chartered Institute of Personnel and Development. Last week Professor David Blanchflower, a member of the Bank of England's interest rate committee, told the Guardian that recent rises in unemployment were 'the tip of the iceberg'. Just over 5 per cent of the UK workforce is currently unemployed, but Blanchflower expects this to rise to more than 7 per cent.
'Redundancy is the number one employment law issue for employers right now,' says Jon Taylor, of Milton Keynes-based Emw Law. 'Companies right across the board, not just in those sectors hardest hit by the credit crunch, are looking for ways to trim the fat.'
If you are facing redundancy, having some knowledge of your rights can make all the difference because employers are often open to negotiation. These are some of the main issues to consider.
Fighting the decision
Recent anti-ageism rules should mean that redundancies are handled very differently than in the past, but workers need to be on their guard for employers that ignore the rules. Since 1 October 2006, employers should no longer select for redundancy on the basis of age. The criteria should instead be based far more on merit - achieving targets, getting good appraisals, turning up to work on time and avoiding disciplinary problems.
But smaller businesses in particular may still be operating uncompromising 'last in, first out' redundancy regimes, according to Taylor. 'Before 2006 "last in, first out" redundancy regimes were legally perfectly acceptable,' he says. 'However, it is now no longer that simple. Where the age profile of the workforce means that the majority of those selected for redundancy on this basis are younger workers, employers could expose themselves to the risk of claims.'
Conversely, if employers were to decide on a redundancy policy that affected mainly older workers, they could similarly put themselves in the firing line for claims, adds Taylor.
If a group of people are being selected for redundancy, it is possible to ask to see your rating (because the employer has to use measurable criteria) and to check that errors have not been made in calculating it.
'Employers don't always have the records to back up their decisions and views can be subjective,' says Naeema Choudry, employment specialist at law firm Eversheds. In such cases, you may be able to embarrass them into negotiating with you.
You can never expect to see the scores of named colleagues, however - although you might request anonymous information on the average, top and bottom scores, for instance.
By law, you should also be consulted on your lay-off and your employer should try to redeploy you if at all possible. But, says Michael Burd, employment lawyer at solicitor Lewis Silkin: 'Plenty of employers are not going through the procedures, laying themselves open to unfair dismissal claims.'
Try, if you can, to negotiate rather than ending up taking your employer to an employment tribunal. Citizens Advice Bureaux see a constant stream of employees who have right on their side but cannot get their employer or ex-employer to pay up.
The basic package
Under the law, employees with two years of service or more have the right to a 'termination' payment which is tax free up to £30,000. The statutory minimum is not generous - a week's pay (capped at £330) for each year of service (up to a maximum of 20 years). You are entitled to half the weekly amount for each year you served below the age of 22, and 1.5 times the weekly amount for years served over the age of 41.
Improving your terms
Some organisations give more than the statutory minimum - for instance, a month's pay for each year of service. And there are lots of add-ons (usually taxable) to be negotiated over, such as notice periods and accrued holiday leave. Employers will often throw in the employee's laptop or mobile phone or let them stay in the company medical scheme until the end of the year. 'Or your employer might be prepared to keep you on their books a bit longer,' says Choudry.
Making use of any outplacement consultancy scheme offered by your company 'can be enormously helpful, and it'll do you no harm', says Michael Carroll, Professsor of Industrial Psychology at Bristol University.
Tax traps
Revenue & Customs is careful to check on these payments, says Ronnie Ludwig, Edinburgh-based tax partner in accountant Saffery Champness, and it will seek tax on payments that you have earned - such as signing a non-competition clause with your former employer - rather than been given as compensation.
'To avoid overpaying tax, golden handshakes and payments for signing a restrictive clause should be paid in separate transactions [from the compensation],' he says.
What to do with the money
Put it in a cash Isa (tax-free individual savings account) or a high-interest deposit account at least until you stabilise your financial position and future employment status, advises financial adviser Lorna Robertson of Skipton Financial Services. Paying off debts, particularly high-interest credit or store cards, is usually the best thing you can do if you can spare the cash. Paying down your mortgage is a good move, but you need to be sure of your cash flow.
Many lenders allow you to overpay your mortgage, says David Hollingworth of London and Country Mortgages - but only a few let you draw out the overpayments easily again.
Signing on
Unless you start a new post quickly, you should sign on at a jobcentre, not least to protect your entitlements to the state pension and other benefits. But people with capital (including redundancy payments) of more than £16,000 are ineligible for income support or income-related jobseeker's allowance - and those with between £6,000 and £16,000 receive reduced amounts.
However, contributions-based jobseeker's allowance is available to those who have paid enough National Insurance, whatever the size of their redundancy pay-off, at the weekly rate of £60.50 for a single person aged 25 or over (£47.95 for younger people). If you make mortgage payments, you may be eligible for state help after nine months of unemployment.
Moving on
More than 90 per cent of people leaving the armed forces land new jobs within six months, according to the Career Transition Partnership, and most civilians should be equally successful. British unemployment rates are relatively low, varying between 2.5 per cent in parts of Surrey and West Oxfordshire to 12.9 per cent in London's Tower Hamlets, and averaging 5.3 per cent overall.
'The thought of redundancy activates our insecurities,' says psychologist Michael Carroll. 'You begin to fear you will never get another job. When people get into that mind-set they lose their competencies.'
Talking to others in the same situation can help - and asking friends or, if you have access, outplacement consultants to assist you in working out what your marketable skills are can help you devise a way forward much more quickly. Many people discover that they dislike their present job and that redundancy brings its reliefs.
Carroll, who has done redundancy counselling, says: 'I am amazed at the number of people who go into a crisis but two years later ring me up and tell me that redundancy was the best thing that ever happened to them.'
· This article was amended on Tuesday July 29 2008. Lorna Robertson works for Skipton Financial Services, not the Skipton building society as we said in the article above. This has been corrected.