Redundancy payments and procedures in local authorities

This article looks at the framework for making compensation payments on redundancy and local authority redundancy policies in general. It also looks at various Government proposals for reforms to public-sector exit payments.

Payment of pension

The Local Government Pension Scheme Regulations 2013 (SI 2013/2356) provide for immediate payment of pension benefits for those staff who are over age 55 who are made redundant.

Effect of the "Modification Order"

For the purposes of calculating the redundancy payment payable to a local government employee, the Redundancy Payments (Continuity of Employment in Local Government, etc) Modification Order 1999 (SI 1999/2277) provides that employing authorities (listed in sch.1 to the Order) must count continuous service as including all continuous local government service and service with other relevant public authority employers. The relevant public authority employers are listed in part II of sch.2 to the Order. Thus where a local authority employee is made redundant after six years' service and had been previously employed by, for example, a planning and development agency for four years, the statutory redundancy pay calculation will use a total of 10 years' service.

Additional payments

The Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006 (SI 2006/2914) provide local government employers with powers to consider making a one-off lump-sum payment (that must not exceed 104 weeks' pay) to an employee whose employment is terminated in the interests of the efficient exercise of the employing authority's functions.

Under the Local Government Pension Scheme 2014, employers can augment a member's pension by making additional pension contributions, at whole cost to the employer, subject to limits to the amount that can be awarded.

Under reg.5 of the 2006 Regulations, local authorities have the power to base a week's pay for those made redundant on an amount up to the actual weekly pay of the redundant employee.

Local authorities also have discretion to increase the number of weeks' pay that can be given for each year of service up to a maximum and in accordance with statutory provisions.

The historic practice of local authorities' enhancing redundancy packages, often in order to attract volunteers, was challenged successfully in Allsop v North Tyneside Metropolitan Borough Council [1992] 90 LGR 462 CA. The Court of Appeal dismissed the local authority's contention that there was an inherent discretionary power under s.112 of the Local Government Act 1972 to dismiss and to fix terms for dismissal (including payment terms in the event that dismissal is on the grounds of redundancy). A local authority may pay to a dismissed employee only what it is specifically empowered to pay. The difficulties created by this judgment in restricting the ability of authorities to make enhanced severance payments were overcome, albeit with limitations, by a succession of regulations, of which the current are the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006.

The 2006 Regulations are complex and, while the Local Government Association guide on Compensation, Severance and Redundancy Payments provides an extremely good starting point to understanding the complexities, it would be unwise for a local authority employer to seek to discuss specific figures with employees facing redundancy without having checked with the administering body of the relevant Local Government Pension Fund. This is particularly important, not just in terms of human resource management but also in terms of financial management, as there are also provisions relating to the funding of such payments, particularly the actuarial strain on a pension fund of making payments in advance of an employee's normal retirement date and of paying for added years.

The actuarial figures should be taken into account when decisions are being made about the costs and cost benefits of redundancy packages.

Policies on discretionary compensation payments

Regulation 7 of the Local Government (Early Termination of Employment) (Discretionary Compensation) (England and Wales) Regulations 2006 requires local authorities to formulate, publish and keep under review their policies on compensation.

Similarly, the Local Government Pension Scheme Regulations 2013 require each local authority to formulate and keep under review its policy concerning the exercise of discretionary functions including in relation to awarding additional pension contributions.

Redundancy policies

Most local authorities have a policy on handling redundancies. While the existence of a redundancy policy does not relieve an employing authority of its statutory obligation to consult with trade union representatives on an impending redundancy situation, such a policy can provide the background and general principles against which the statutory consultation can take place.

Historically, employing authorities may have had policies that declared that they were committed to, for example, a "no redundancy" policy, ie that they would ordinarily seek to deal with a redundancy situation through natural wastage, volunteers for redundancy and early retirements; or a LIFO policy - "last in, first out". However, such polices have become rare - or they are rarely followed - in recent years, due to staff reorganisations and cutbacks being commonplace. Further, the use of LIFO may in some circumstances be contrary to discrimination legislation.

Care should be taken when selecting employees for redundancy who are on fixed-term contracts. Selecting fixed-term employees over permanent ones should be avoided unless there is objective justification for this approach, as the Fixed-term Employees (Prevention of Less Favourable) Treatment Regulations 2002 (SI 2002/2034) require fixed-term employees to be treated on an equal footing with permanent employees in relation to contractual terms. Fixed-term employees whose terms are to expire within the redundancy consultation period can be excluded from the headcount when determining whether or not the collective consultation duty under s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 applies.

Policies may list the various steps that an authority will take following consultation, for example:

  • the abolition of the use of consultancy, contracting and agency services so far as practicable, where this would create employment opportunities for employees whose jobs are at risk;
  • approaches to nearby local authorities to see whether or not potentially redundant staff could be employed on work that their own staff cannot undertake;
  • reviewing instances of regular overtime, where this would provide alternative employment opportunities;
  • cessation of normal recruitment in the employee categories concerned and in any other areas where employees might be redeployed;
  • practical training in the skills of new jobs for staff who could then be redeployed;
  • temporary secondment and transfer of displaced staff, where it is foreseen that they can be absorbed in a permanent post within a reasonably short time, subject to periodic review;
  • counselling and advice on alternative employment and further training opportunities;
  • general criteria to be adopted for selection of staff, if compulsory redundancies cannot be avoided;
  • assistance in finding employment outside local government.