Civil service redundancy: when money's too tight to mention

No doubt many HR directors outside the public sector, let alone those in it, will be watching developments in civil service redundancy arrangements as the government seeks to change them. John Charlton reports.

Permanent and sustainable redundancy scheme
Negotiated redundancy settlement
Consequences of changing redundancy terms
Avoid the voluntary redundancy

Efforts by the Government to trim the circa-550,000 civil service workforce, like those of its Labour predecessor, have been stymied by union opposition and its reluctance to meet severance terms. These are generous and are based on provisions set out in the 1972 Superannuation Act and the Civil Service Compensation Scheme.

For example, civil servants who have been employed for 20 years or more are entitled to two years’ pay if they take voluntary redundancy and three years’ pay if it is compulsory. Civil servants older than 50 can get up to six years’ salary as a redundancy lump sum if they joined before 1987.

Francis Maude, the Cabinet Office minister who is leading Government efforts to cut civil servants’ redundancy pay, says it is too expensive to make some civil servants redundant. And, following the previous Government’s failure to impose redundancy pay cuts, Maude is using a twin-track approach: last month he introduced the Superannuation Bill to Parliament that should be enacted by November. This would allow the Government to cap redundancy payments for civil servants to 12 months’ pay for compulsory and 15 months’ for voluntary.

Permanent and sustainable redundancy scheme

Nick Hobden, partner at Thomson Snell & Passmore, says: “The new bill, once it becomes an act, is proposed to expire 12 months after coming into force as the Government hopes to agree with the unions a ‘permanent and sustainable scheme that is appropriate to the times’.”

Hobden adds that the bill gives the Government the power to shorten or extend the lifetime of the proposed 12 months and 15 months caps.

Maude’s second track is to negotiate with civil service unions and these talks are ongoing with the five unions in the Council of Civil Service Unions.

Labour tried the same approach but the Public and Commercial Services Union (PCSU) refused to accept the two-year cap the Brown government proposed, and took the matter to the High Court. It ruled the last Government’s attempts to reform the Civil Service Compensation Scheme were illegal – they were contained in statutory instruments, a form of secondary legislation that can be challenged for compliance with the original primary legislation.

The Coalition Government would, like its Labour predecessor, prefer a negotiated settlement, but is unlikely to get one if the PCSU sticks to its guns. General secretary Mark Serwotka says: “Members are furious. They feel that earlier this year they won the moral argument when the previous Government tried to force through cuts without agreement and without any debate in parliament, and then in May and June they won the legal argument.

“The plans set out in the Superannuation Bill are unacceptable to us. But beyond that, the government has not given us any detailed proposals yet. We are prepared to enter into discussions, but the government has indicated that any concessions will still be less than the previous Government’s imposed plan, which was quashed by the court. We want what the court said were our legal entitlements: accrued rights; no detrimental changes without agreement; and a decent scheme for new entrants.”

Negotiated redundancy settlement

The PCSU adds that it may challenge the new act in the courts – assuming no negotiated settlement is reached – on the grounds that it may breach the Human Rights Act. Given that it viewed the better terms offered by the last Government as unacceptable, then it is likely a negotiated settlement will be difficult to achieve, although the Government may be able to strike deals with other civil service unions.

But Vicky Bennett, associate at Weightmans’ employment team, says: “As long as cuts are made in accordance with legislation, the Government should be able to impose them unhindered. Resistance is likely to come in the form of industrial action.”

The bill and negotiations will be watched with interest by public-sector employers, even though its scope is restricted to the civil service.

Hobden says: “By taking a hard line though, the Government may be sending a message to other public-sector bodies whose redundancy schemes are regarded as too expensive for the public purse and in need of reform.”

Private-sector employers will usually have more room for manoeuvre when it comes to changing redundancy payments, but must still tread warily. “How easily private-sector employers can change redundancy terms to the detriment of their employees will depend on whether employees have a contractual right to the package,” says Kate Barker, associate at Hogan Lovells.

Consequences of changing redundancy terms

“If the redundancy terms are not contractual, the employer should be able to change them as it sees fit, although it is worth noting that there may be employee relations consequences in doing so.”

HR directors should note that a contractual right should be expressed in employees’ contracts. But employees may also have an implied right to redundancy terms. This can arise via custom and practice if redundancy pay has been calculated in a formulaic way over several years.

Employers will also have to negotiate with trade unions if they are recognised, which may be easier than dealing with employees individually.

Barker says there are other options for employers wishing to cut redundancy lump sums:

  • obtain the consent of employees, though this is unlikely if they’re offered nothing in return;
  • announce the change and take a lack of objection as implied consent;
  • if employees refuse to accept lower terms, the employer could terminate their contracts and hire them on new terms and conditions, including reduced redundancy payments.

“However,” she says, “This approach would expose the employer to the risk of unfair dismissal claims by employees. To minimise this risk, the employer would need to have a sound business reason for the change and follow a fair process, which would include giving employees sufficient notice and consulting them about the variation.

“Furthermore, if the exercise involved at least 20 employees, the employer would be obliged to inform and consult representatives of the affected employees.”


Avoid the voluntary redundancy bear traps

Openness and clarity of purpose is essential if a voluntary redundancy exercise is to meet its objectives of shedding staff who wish to leave and whom the employer wishes to let go, while retaining those it wishes to retain.

Employers must give employees all the relevant information they need to make a decision as to whether to apply for voluntary redundancy. This will include giving the reasons for the redundancies; the number of redundancies required; how redundancy payments will be calculated; that all applications for redundancy will be considered; and that the employer has the right not to accept all of the applications.

Kate Barker, associate at Hogan Lovells, says: “Such an approach is crucial so employees can make an informed decision about whether to volunteer. A voluntary redundancy is normally considered to be a dismissal, even though the employee has agreed to the termination of their employment. If sufficient information is not provided, the employee could bring an unfair dismissal claim against the employer, provided that the employer has at least one year’s service.”

Anna Harris, solicitor at Blandy & Blandy, says employers should ensure that an employee “can change their mind and withdraw their application for voluntary redundancy at any time before the date when both parties enter into a formal written agreement to effect the terms of the voluntary redundancy”.

She adds that employers must tell those who volunteer for redundancy, but who aren’t selected, that the fact of volunteering will not affect “any aspect of their future employment with the company”.

Bennett says managers must be wary of age discrimination and the cost of offering older, long-serving staff redundancy.

“A senior manager may consider either disallowing employees over 55 to take redundancy as it is too costly and instead select those under 55, or allow those over 55 to retire on a voluntary basis at a substantial cost to the employer in terms of pension but reduce the redundancy pay entitlement to the statutory limits.

“As the courts will consider each scheme on a case-by-case basis, it is important that employers demonstrate a careful consideration of the objective justification for the discriminatory treatment. This must include careful considerations of overall fairness of the combined benefits, the cost, and whether that cost if justified, and the fairness of the extent of the discrimination proposed.”
She adds: “An employer would be expected to show clear statistical evidence of the analysis it has performed.”

Public-sector employers should also note that employees who have moved in the sector may well have accrued service elsewhere that counts towards their redundancy payment.