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Facts
B was dismissed on the grounds of redundancy after 17 years' employment with S. She received a statutory redundancy payment plus an additional contractual redundancy payment of just under £4,000.
B brought a claim of unfair dismissal against S on the grounds that it had failed to establish that she was genuinely redundant and had failed to follow a fair procedure in relation to her dismissal.
Her claim succeeded and the tribunal calculated her losses to be in excess of £200,000.
Unfair dismissal compensation
Where an employee successfully claims unfair dismissal, an employment tribunal may make an award of compensation comprised of:
(i) a basic award that is calculated according to a statutory formula based on age, length of service and the amount of a week's pay; and
(ii) a compensatory award based on the individual's loss as a consequence of the dismissal up to a statutory ceiling (currently £56,800).
Employment tribunal's decision
B was awarded the then statutory maximum of £53,500 by way of compensation. The tribunal deducted from the basic award the statutory and contractual redundancy money paid by S on termination.
EAT's decision
On appeal, the EAT held that this approach was wrong. A redundancy payment (contractual or statutory) can only be offset against a basic award if the employee was redundant. Here, B had been unfairly dismissed and her position was not redundant. The basic award could therefore not be reduced by the redundancy payments she had received.
The EAT explained that the compensatory award could be reduced by the amount received, but as B's loss was in excess of £200,000, offsetting the redundancy payment against the actual loss still meant that B received the statutory maximum compensation applicable at the time.
Employers beware
This area of the law is unlikely to present itself very often. However, the case does illustrate that employers should not be cavalier in classifying a dismissal as a redundancy where this is not, in fact, the case.
Employers should be wary of making ex-gratia payments disguised as redundancy payments without perhaps concluding a compromise agreement or staggering the payment so that it falls outside the unfair dismissal limitation period.
Employers should also be aware that falsely classifying a dismissal as a 'redundancy' could be construed as assisting the employee in committing a fraud against their insurers where they have redundancy or income replacement insurance in place. It could also be construed as a fraud in relation to eligibility requirements for social security benefits.
Finally, employers must follow the new statutory dismissal procedure in the context of an individual redundancy dismissal. Failure to do so will lead to the dismissal being automatically classified as unfair.
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