Guide to redundancy in the NHS and universities

Highlighting the issue

Once a redundancy situation is declared there is a clearly defined process as set out in the Employment Rights Act 1996 (ERA 96) that needs to be followed. The key areas are described below. This does not mean the BMA accepts that redundancy is inevitable. We will do all we can using our expert staff in member relations and our press and parliamentary unit to publicise the absurdity of making medical and other clinical staff redundant when the NHS is struggling to meet the needs of patients.

Making medical staff redundant is yet another example of putting in short-term solutions that are inconsistent with longer-term needs. It also takes no account of the cost of the investment the NHS has made in training doctors. The average cost of training a doctor to PRHO level is £250,000.

Section 139 of the Employment Rights Act 1996 (ERA 96) defines redundancy. Redundancy has two different elements for the purposes of UK employment law:

• To establish entitlement to redundancy payments 
• The right to be consulted

 

Definition of redundancy

Section 139 of the Employment Rights Act 1996 (ERA 96) defines redundancy. Redundancy has two different elements for the purposes of UK employment law: - to establish entitlement to redundancy payments - the right to be consulted.

Redundancy is defined as a situation where:

• the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was so employed or
• the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed or
• the requirements of the business for employees to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish or
• the requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish.

A redundancy situation can occur even if there is a demand for the work or service that is being provided. An employer can decide for business reasons that they wish to reduce or stop providing a service. There will be a strong moral argument that this is not desirable but if the correct procedures are followed a service can be closed, services reduced and redundancies take place.

 

There are legal obligations on employers to consult employees; the minimum arrangements are set out below. NHS Trusts and PCTs should have agreed local policies with the trade unions setting out the procedure to be followed by management when redundancies are likely to occur. You can get a copy of the policy from your Human Resources department.

 

Collective redundancies where there are 20 or more redundancies

An employer proposing to make collective redundancies is required to consult in advance with representatives of the affected employees and to notify the projected redundancies to the Department of Business.

A collective redundancy situation arises where 20 or more employees are to be made redundant at one establishment within a period of 90 days or less. Consultation must be completed, before any notices of dismissal are issued to employees. A complaint of failure to consult may be made to an employment tribunal and must normally be brought within 3 months of the last of the dismissals. Where a complaint is upheld, the tribunal may make a protective award to employees of up to 90 days’ pay.

An employer proposing to make collective redundancies must first consult appropriate representatives of any employees who may be affected by the dismissals (or by measures taken in connection with them). Where those affected are represented by an independent trade union recognised for collective bargaining purposes, for doctors this would be the BMA, the employer must inform and consult an authorised official of that union. This would normally be the BMA Industrial Relations Officer.

 

Consultation where there are less than 20 redundancies

Employers are under no specific legal obligation to consult employee representatives or notify the Department of Business in cases falling below the 20-redundancy threshold.

However, they will be at risk of successful unfair dismissal claims if they fail to warn and consult individual employees who are to be dismissed in such cases, fail to apply dispute resolution procedures when required or fail to adopt a fair basis for selection or to take reasonable steps to redeploy such employees.

Locally agreed policies should include a requirement to consult in situations where there are fewer than 20 redundancies. It is good employment practice to involve the trade unions and those affected in consulting on redundancy no matter how many jobs may be affected.

 

What information must be disclosed?

The employee representative, who is most likely to be the Industrial Relations Officer with responsibility for the Employer, will need enough information about the employer’s proposals to be able to take a useful and constructive role in the process of consultation. An employer must therefore disclose certain information in writing. This must be:

• handed to each of the appropriate representatives or
• sent by post to an address notified to the employer, or in the case of a trade union, to the address of the union’s head or main office
• handed to each of the appropriate representatives or

The employer must disclose:

• the reasons for the proposals
• the numbers and descriptions of employees it is proposed to dismiss as redundant
• the total number of employees of any such description employed by the employer at the establishment in question
• the proposed method of selecting the employees who may be dismissed
• the proposed method of carrying out the dismissals, taking account of any agreed procedure, including the the period over which dismissals are to take effect
• the proposed method of calculating any redundancy payments, other than those required by statute, that the employer proposes to make.
• the reasons for the proposals

 

Scope of consultation and avoiding redundancy

The consultation is to include ways of avoiding the redundancy situation or dismissals, of reducing the number of dismissals involved and mitigating the effects of the dismissals.

Consultation should be genuine and must be undertaken with a view to reaching agreement with the employees’ representatives. Employers and employee representatives should work together to try to find common solutions. Where possible the rationale for redundancies should be challenged and the Employer is obliged to explain and justify the business decision.

The measures for minimising or avoiding compulsory redundancies may include:

• natural wastage
• restrictions on recruitment
• retraining and redeployment to other parts of the organisation reduction or elimination of overtime could include reduction in PAs and SPAs.
• retirement of those employees already beyond normal retirement age
• seeking applicants for early retirement, or voluntary redundancy and
• termination of the employment of temporary or contract staff.
• natural wastage

 

Selection criteria

Under the ERA 96 dismissal for redundancy comes within one of the ‘fair’ reasons for dismissal. Where the selection was unfair, an individual can pursue an unfair dismissal claim.

This can occur where the employee has been:

• selected contrary to the criteria set down in the agreed policy
• selected for trade union reasons
• selected because they have been, or stood as, an appropriate employee representative
• been the victim of discriminatory selection
• selected because they are pregnancy or on maternity leave.
• selected contrary to the criteria set down in the agreed policy

This list is not exhaustive.

 

Equality impact assessment

As part of the redundancy process, the employer must carry out an Equality Impact Assessment. This is a legal requirement and must be carried out to ensure the redundancies proposed will not have a negative impact on one particular group more than any other.

Legally an Equality Impact Assessment must include gender, race and disability. It is good practice that the assessment also covers age, sexual orientation and religion as well.

It is the employer’s duty to carry out the Equality Impact Assessment, but the BMA will ensure that the process is rigorous in its data collection, methodologies and conclusions. The results of the Assessment may be grounds for challenging the redundancy.

 

Voluntary redundancy and early retirement

Many employers will trawl for volunteers first although in this situation an employer will have the right to decide which volunteers it will accept for redundancy.

If you were to seek this you should ensure that you get an accurate estimate of the redundancy benefits being offered and if you are of pensionable age (currently over 50) you should also get a pension estimate. These are both available from your employer but if you wish to enquire anonymously, you can contact the pension provider directly and request that your enquiry is kept confidential. The pensions estimate may be less accurate as records are normally checked with your employer for latest information. If you think that there are errors in your records and you are unable to resolve them, you can contact the BMA Pensions department or call 0300 123 1233 for advice.

 

Compulsory redundancy

Where voluntary redundancy or early retirement have not produced suitable volunteers, employers, in consultation with trade union, or employee representatives, should consider the criteria to be used when enforcing redundancies.

As far as possible, objective criteria, precisely defined and capable of being applied in an independent way, should be used when determining which employees are to be selected for redundancy.

The purpose of having objective criteria is to ensure that employees are not unfairly selected for redundancy. Examples of objective criteria are attendance record, experience and capability. The chosen criteria must be consistently applied by all employers, irrespective of size. The agreed employer policy covering redundancy should set out the selection criteria.

 

Where an employer identifies potential redeployment opportunities, they need to discuss this with staff who are at risk of redundancy to determine whether such posts constitute suitable alternative employment (SAE).

It is impossible to be precise as to what constitutes SAE as every case will have different circumstances and what one deems suitable another will not. However, if the employer believes they have made a genuine offer of SAE, there is a risk that if the employee unreasonably refuses it, the employer may then terminate the contract and the employee will not be entitled to a redundancy payment.

It is therefore important that you involve your local BMA adviser in any discussion of suitability and that you do not refuse an offer of SAE without having taken advice. In the event of termination without a redundancy payment, it is possible to make a claim to an Employment Tribunal depending upon the circumstances.

 

Right to a trial period

Where an offer of suitable alternative work has been made an employee is allowed a trial period to see if the work is really suitable. The trial period will normally continue for four weeks after the employee starts work but may be extended by agreement between employer and employee in order to retrain the employee for the new work.

 

Appeals procedure

A redundancy policy should include a procedure for an employee to appeal against the decision to make their post redundant.

 

In the unfortunate situation where a doctor is made redundant from their post there are essentially two types of redundancy payment which may be made. It is important at the outset to differentiate between the two types of payment as the criteria for payment and the level of payment differ.

The two types of payment are:

• Statutory Redundancy
• Contractual Redundancy

 

Statutory redundancy payment

A doctor will be entitled to a statutory redundancy payment if he or she has been continuously employed for a period of not less than two years. This would normally be employment with the same or an associated employer. The dismissal by the employer must be by reason of redundancy.

The calculation of a statutory redundancy pay is based on:

• How long you have been continuously employed
• Your age
• Your weekly pay, up to a limit of £400 per week (from 1 February 2011)

If a doctor satisfies the criteria for a statutory redundancy payment then they will receive the following:

• 0.5 week’s pay for each full year of service where their age was under 22
• 1 week’s pay for each full year of service where their age was 22 or above, but under 41
• 1.5 week’s pay for each full year of service where their age was 41 or above.

You can find an online redundancy calculator at www.direct.gov.uk

Doctors should be aware that if they do not have two years’ continuous employment with their current employer or Trust then they may not be entitled to a statutory redundancy payment. The rules for continuous employment are different to most NHS contractual schemes.

 

Contractual redundancy payment

Most doctors who are made redundant within the NHS will also have access to a contractual redundancy payment. However it is important to take advice on which redundancy scheme applies to your situation. In general contractual redundancy schemes are far more beneficial than the statutory schemes.

In December 2006 a new redundancy scheme was introduced for most NHS employees. An example of this can be found in Schedule 26 of the new consultant contract (insert NHS employers link).

The key features of eligibility for the scheme are:

• The employee must have 104 weeks of continuous full time or part time service with the present or any previous NHS employer. If the employment is with more than one NHS employer there must not have been more than a week (measured Sunday to Saturday) between employments.
• The dismissal must arise by reason as redundancy as set out in Section 139 in the Employment Rights Act 1996.

However members should be aware that there are a number of very important exclusions to the contractual scheme. Employees are not entitled to redundancy payments or early retirements on grounds of redundancy under this scheme if:

• They are dismissed for reasons of misconduct, with or without notice or
• At the date of the termination of the contract have obtained without a break, or with a break not exceeding four weeks, suitable alternative employment with the same or other NHS employer or
• Unreasonably refused to accept an offer of suitable alternative employment with the same or another NHS employer or
• Leave their employment before expiry of notice, except if they are being released early or
• Offered a renewal of contract (with a substitution of a new employer for the previous NHS one) or
• Where the employment is transferred to another public service employer who is not an NHS employer.

 

Calculation of redundancy payment

The redundancy payment will take the form of a lump sum depending on the employee’s "reckonable service" at the date of termination of employment. “Reckonable service” is calculated on the basis of the service up to the date of termination of the contract and means continuous full time or part time employment with the present or any previous NHS employer with the following additions:

• Where there has been a break in service of twelve months or less the period of employment prior to the break will count as reckonable service
• Periods of employment as a trainee with a general medical practitioner in accordance with the provisions of the trainee practitioner scheme will count as reckonable service
• At the employer’s discretion, any period or periods of employment with employers outside the NHS where these are judged to be relevant to NHS employment can be included in reckonable service. However it should be noted that employment that has been taken into account for the purposes of a previous redundancy or loss of office payment by an NHS employer, or where the employee has previously been given pension benefits, any employment that has been taken into account for these purposes will not count as reckonable service.

The redundancy lump sum payment will be calculated on the basis of one month’s pay for each complete year of reckonable service subject to a minimum of two years (104 weeks) and a maximum of 24 years’ reckonable service being counted. Fractions of a year’s reckonable service will not be taken into account.

 

Early retirement on grounds of redundancy for employees entitled to pension benefits

It may be possible in some circumstances for members of the NHS Pension Scheme who are made redundant to choose to retire early without reduction in the value of their pension benefits in alternative to receiving the full lump sum benefit set out above.

To qualify for early retirement the member of staff must:

• Be a member of the NHS Pension Scheme
• Have at least two years’ continuous service and two years’ qualifying membership
• Have reached the minimum pension age

The Finance Act 2004 allows for protection of a minimum pension age of 50 for members who had the right to take reduced benefits at that age on 5 April 2006. This protection may continue as long as members retiring early after 6 April 2010 take all their benefits payable under scheme rules. In the NHS scheme for those without this protection, members who joined and some who returned to the scheme after 6 April 2006, minimum pension age will change from 50 to 55 from 6 April 2010.

If the doctor chooses to take early retirement with an unreduced pension under these arrangements they will receive immediately the full value of their qualifying pension benefits at the point of redundancy without actuarial reduction that would occur with voluntary early retirement.

Their employer will pay the relevant NHS pension scheme a sum equivalent to the capitalized cost of paying the pension and lump sum early. If the cost of the employer of paying by single payment for early retirement is less than the value of the redundancy payment that the doctor would have received as a lump sum then a redundant employee will also receive from the employer a redundancy payment equivalent to the difference between the two sums.

However, if the cost of early retirement is more than the redundancy lump sum payment the employer will be liable to pay the additional costs.

 

Re-employment

An employee who is re-employed having been made redundant can keep his or her statutory redundancy payment whether or not he or she is immediately re-employed or returns to work for the same employer at a later date.

However, Section 214 of the Employment Rights Act 1996 means that the receipt of the statutory redundancy payment will break the employee’s continuity of employment for the purposes of a future statutory redundancy payment under the scheme. Therefore if an employee is made redundant again in the future, he or she will not be entitled to a statutory redundancy payment until he or she has accrued another two years’ service.

 

Other contractual schemes

It is important to note that Universities, private employers and possibly some GP practices will have their own contractual scheme. Doctors should call the BMA on 0300 123 1233 for further information and advice on their contractual entitlements.

Medical academics employed at universities can refer to the guidance on medical academic redundancies.

 

Taxation of lump sum payments

If a redundancy payment is paid, the first £30,000 of this amount is tax free.

Under the NHS pension scheme, a lump sum is payable which is normally three times pension. This lump sum is tax free, except where there is an enhancement element resulting from early retirement (section Enhancement of lump sum refers - go there now). This enhanced portion of the lump sum is tax free only within the £30,000 limit mentioned above.

If, in addition to a redundancy payment, a further amount is paid by way of an ex-gratia payment, this is tax free, but only within the £30,000 limit.

Pay in lieu of notice is taxable in full unless it is paid as a result of breaching a requirement to give notice in which case it is tax free within the £30,000 limit (other payments may fall within the £30,000 limit if they are shown to be damages for breach of contract).

The information given should be taken as general guidance only and is not intended to cover every situation. The taxation of termination payments is a complex area.

If you have any concerns that you may be faced with redundancy please call the BMA as soon as possible 0300 123 1233 – we will provide you with advice and refer your case to an adviser in Member relations if representation is required.

If you are a medical academic employed within a university then you may be subject to differing terms and conditions determined by the type of contract you have. Refer to the guidance on medical academic redundancies.