Mark Ellis Blog

Well the timing of a caucus of Labour MPs and a coalition of 10 Unions could not be worse. During the week when the “official” unemployment figures rose above 2 million and to a ten year high and at a time when companies the length and breadth of the UK are shedding labour, implementing 3-day weeks and laying staff off, the Statutory Redundancy Pay (Amendment) Bill, a Private Members’ Bill, was successfully read for the second time before the House of Commons on 13 March 2009 and will now proceed to be read in Committee.

The Bill provides for the Government to introduce regulations linking the calculation of statutory redundancy pay to average weekly earnings within 12 months of it coming into force. Estimates are that it will increase statutory redundancy payments by some 40%.

The Minister for Employment Relations and Postal Affairs, Pat McFadden MP, noted that the Government already had the power (under section 14 of the Work and Families Act 2006) to make a one-off increase to the maximum amount of a week’s pay, including for the purposes of calculating statutory redundancy payments. He voted against the Bill, questioning whether businesses could afford the increased cost of higher redundancy payments and commenting that an increase in the maximum amount of a week’s pay would not assist those whose pay did not reach the current maximum. However, it has been suggested that the Government is considering imposition of a legal minimum week’s pay for the purposes of redundancy calculations.

From my experience with struggling companies, when they look at redundancies one of the important elements within the redundancy equation is the amount of payments that they will be forced to pay out. Increasing the sums a company will be forced to pay out will simply lead to more redundancies, more company closures and a real reluctance by firms to look at buying ailing businesses due to the throttling grasp of TUPE.

In short, short term gains for an individual are offset by longer term considerations and a vicious circle ensues.

What the MPs and Unions have clearly failed to grasp is some company’s inability to meet these costs. Similarly, they fail to understand the purpose of redundancy payments in that Redundancy payments are simply arbitrary payments based upon an employee’s length of service and are paid as a seemingly one-off loyalty payment on the event of a redundancy. They are in effect a bit of a “freebie” paid to employees with over 2 years service. They are not a payment made to see an employee through any period wherein they might be unemployed, surely this is the purpose of Job Seeker’s Allowance and Income Support, and therefore I fail to see why they should be index-linked as with other payments that are clearly designed to “support” an individual.

So at a time when a company is clearly struggling, increased redundancy payments will do no more than kick a company when it is already down. I don’t see the logic.
 

This entry was posted on Tuesday, March 24th, 2009 at 9:40 pm and is filed under Employment Law. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.