202: Employment Appeal Tribunal considers interplay between contractual and statutory redundancy payments

In Ugradar v Lancashire Care NHS Foundation Trust, the Employment Appeal Tribunal (the EAT) considered the interplay between contractual and statutory redundancy payments in the context of the NHS standard terms and conditions and the £25,000 cap on breach of contract claims in the Employment Tribunal.

Mrs Ugradar was an NHS employee, engaged under NHS’s Agenda for Change terms and conditions of employment. These terms provided for an enhanced contractual redundancy payment as well as a statutory redundancy payment and stated that:

‘NHS contractual redundancy is an enhancement to an employee’s statutory redundancy entitlement, the statutory payment being offset against any contractual payment.’

Mrs Ugradar did not receive a redundancy payment as her employer believed that she had unreasonably refused an offer of suitable alternative employment. She brought a claim for breach of contract and a statutory redundancy payment. The Tribunal held that the alternative employment offered to Mrs Ugradar was unsuitable and that she was therefore entitled to both redundancy payments.

Mrs Ugradar’s contractual redundancy payment under the enhanced scheme was £43,949, inclusive of a statutory redundancy payment of £5,868. The Tribunal awarded her £25,000 – the maximum compensation for a breach of contract claim. Relying on the wording of the NHS terms and conditions, the Tribunal held that her statutory redundancy payment was subsumed into her contractual payment. Mrs Ugradar was therefore not entitled to the statutory redundancy payment of £5,868 in addition to her contractual redundancy payment. Mrs Ugradar appealed to the EAT.

The EAT allowed the appeal, ruling that the NHS terms provided only that the statutory payment must be offset against any contractual payment. Mrs Ugradar’s contractual entitlement after the offset was £38,071. The cap on the amount that can be awarded by a Tribunal reduced this to £25,000, but this cap did not affect her statutory claim. She was therefore also entitled to her statutory redundancy payment of £5,868. The EAT held that although the two claims overlapped and were pursued together, it was the Tribunal’s duty to give judgment in a way that best reflected the obligation to the employee in respect of both statute and contract.

This case confirms that the £25,000 cap on contractual claims will not apply to a statutory redundancy payment. Employers should review the terms of any contractual redundancy schemes to ensure that it is clear how the statutory element of the payment should be dealt with. The EAT also noted that the statutory cap of £25,000 has not changed since 1994 and that it can result in real injustice. For example, in this case, Mrs Ugradar had to forgo more than £18,000 of her contractual redundancy entitlement. As the EAT pointed out, if the cap had been increased in line with inflation, she would not have suffered this loss. The statutory cap is also out of step with the Tribunal’s powers in other areas of its jurisdiction.