UK: Age discrimination: Redundancy

The Employment Equality (Age) Regulations 2006 make some important changes to the provisions concerning statutory and enhanced redundancy payments from 1 October 2006.

To view the full article on the impact of the new Age discrimination Regulations on redundancy, please see below:

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Age discrimination: Redundancy

Statutory Redundancy Payment ("SRP")

Despite the formula for SRP containing age related criteria, the SRP formula deliberately has not been changed under the Regulations. The Government has stated it is objectively justifiable as well as being lawful under the specific exception at Regulation 27 for compliance with a statutory authority. (Please click here to view a PDF version of our note on general exceptions in a new window).

However, although the Government has not altered the formula itself, it has made some minor changes to the formula, which are:

1. removal of the upper age limit of 65 for eligibility for SRP;
2. removal of tapering of SRP if the redundant employee is 64 years old;
3. removal of the lower age limit for calculating continuous employment for the purposes of SRP entitlement.

Despite these changes, the limit of 20 years continuous service for calculating SRP remains, counted backwards from the date of termination of employment.

Enhanced Redundancy Payments

It has become reasonably common practice for employers to make payments to employees on redundancy that are greater than the employee’s entitlement to SRP. Usually employers either modify the SRP formula or adopt their own formula based on a multiple of weeks pay per year of service completed by the employee at the date of termination.

Regulation 33 deals specifically with enhanced redundancy payments and sets out three variations that can be made to the statutory formula for SRP to allow for enhancement. An enhanced redundancy payment calculated on this based will be lawful under the Regulations. The variations that can be made are:

1. removal or raising of the cap on weekly pay; and/or
2. applying a multiplier of more than one to the "appropriate amount"; and/or
3. applying a multiplier of more than one to the overall figure after either 1. and/or above has been applied.

These changes are complex and employers should think carefully when putting together any formula for enhanced redundancy payments.

A redundancy enhancement formula used by an employer, which is not based on the formula for SRP, will need to be objectively justified under the Regulations. (Please click here to view a PDF version of our note on objective justification in a new window) Regulation 32, which contains an exception from the Regulations in relation to the provision of certain benefits based on length of service, specifically excludes benefits awarded on termination of employment. Therefore, enhanced redundancy payments based purely on an employee’s length of service will not be covered by this exception and will need to be objectively justified. (Please click here to view a PDF version of our note on general exceptions in a new window).

Employers should take the opportunity now to review any formula for making enhanced redundancy payments to its employees, and if it is not based on the formula for SRP should consider either amending it or considering how it can be objectively justified.

For full listings on our Age Discrimination series, please click here to view in a new window.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 05/05/2006.