Redundancy pay - contractual, statutory and the £25,000 cap

Ugradar v Lancashire Care NHS Foundation Trust

Statutory redundancy pay doesn’t count towards the £25,000 cap on contractual claims in the employment tribunal as it is a separate cause of action – one is contractual and subject to a £25,000 cap and the other is statutory which is not subject to the cap.

Background

Mrs Ugradar worked for the NHS and was engaged under its Agenda for Change (AfC) terms and conditions which provided for an enhanced contractual redundancy payment to supplement the employee’s entitlement to a statutory redundancy payment. The AFC terms stated: ‘NHS contractual redundancy is an enhancement to an employee’s statutory redundancy entitlement; the statutory payment being offset against any contractual payment’.

Mrs Ugradar role was placed at risk of redundancy and although she was offered an alternative role, she did not accept it because she didn’t consider it suitable. She did not receive a redundancy payment as her employer concluded that she had unreasonably declined an offer of suitable alternative employment. She brought a tribunal claim for breach of contract and a statutory redundancy payment. The tribunal held that the alternative employment offered to her was unsuitable and she was therefore entitled to a redundancy payment.

Mrs Ugradar’s contractual redundancy payment under the enhanced scheme was £43,949, inclusive of a statutory redundancy payment of £5,868. Mrs Ugradar was awarded £25,000, the tribunal holding that her statutory redundancy pay was subsumed into the contractual claim and therefore curtailed by the statutory cap, i.e. not £25,000 + £5,868 but just £25,000. Mrs Ugradar appealed against the amount awarded.

EAT decision

The appeal was allowed.

Mrs Ugradar was entitled to a statutory redundancy payment in addition to the contractual redundancy payment on the basis that there were two separate causes of action, one contractual and one statutory.

In line with the terms of Mrs Ugradar’s contract, the employer was entitled to set off the statutory redundancy payment against the contractual redundancy payment. However, the set off was against the full amount of the contractual entitlement of £43,949, not at the capped level of £25,000. However, due to the cap, the EAT was only able to award the statutory award together with the contractual award, capped at £25,000 to a total of £30,868 and as such Mrs Ugradar had to forego a substantial part of her contractual redundancy entitlement.

The EAT went on to comment that the statutory cap on contractual claims in the tribunal has remained unchanged for a quarter of a century and, at its present level ‘is capable of producing real injustice’ which could have been avoided if it had been increased in line with inflation.

Link to judgment: https://www.bailii.org/uk/cases/UKEAT/2019/0301_18_2006.html

Comment

This decision is of interest because it’s the first time that the EAT has considered the interaction between claims for statutory redundancy payments, enhanced contractual redundancy payments and the statutory cap of £25,000 compensation a tribunal can award in a breach of contract claim.

The decision makes it clear that a claim for statutory redundancy pay is essentially a claim in its own right and employers should be aware that if they operate an enhanced contractual redundancy pay scheme which will result in a payment in excess of £25,000 that they will have to pay statutory redundancy pay on top if the claim is brought before the employment tribunal. Please bear in mind that such a restriction would not apply to claims before the county court.

The decision also makes it clear that the statutory cap of £25,000 is something that is likely to be given scrutiny moving forward.