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Ben Jones
Ben Jones, UK Lawyer
Category: Employment Law
Satisfied Customers: 50488
Experience:  Qualified Employment Solicitor
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I need some advice on termination v redundancy. And why my

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I need some advice on termination v redundancy. And why my company is not prepared to call it redundancy and therefore I wont receive the first £30k tax free.

Hello, my name is***** am a qualified lawyer and I will be assisting you with your question today.

Can you please explain what has happened?

Customer: replied 4 months ago.
I was called to a meeting and told that following a review of the structure they could no longer see a role for me. And they have explored other options to no avail. Following that HR came into the room with some paper work as said that the conversation was without prejudice. And showed me a package. The opening paragraph states that it is on a without prejudice basis and is the enhanced termination arrangements..I have a number of concerns firstly the enhanced termination doesn’t refer to my contract which clearly states 12months notice. Secondly the sum total of them releasing my share bonus and 6 months salary lump some does nearly equate back to 12 months salary. However they make no reference to any tax free 30k sum. And I believe that in the past they have also avoided this...

The tax free element does not relate to all payments payable under a redundancy. The redundancy payment itself will be included but things like shares, bonus, and any other contractual benefits will be subject to tax.

In the end it is not the employer who decides whether the payments are taxed or not - this is decided by law. So even if they tax you when you receive the payments, a claim for the refund of taxes on any payments made in error can be reclaimed from HMRC

Customer: replied 4 months ago.
Ok thats helpful. This is the note from someone else’s settlement at the same company.
termination date: 28 February 2017;
• six months’ pay: £73,401
• six months’ car cash allowance: £4,050
• six months’ pension (employer contributions and tax relief on employees’ contributions): £10,800
• a discretionary lump sum payment of £2,200 in full and final settlement of any entitlement to the PSP awards made in 2014 and 2015;
• a discretionary lump sum payment of £13,500 in full and final settlement of any entitlement to bonus for 2016/2017 bonus scheme year;
• a recommendation to the Remuneration Committee with regard to your client’s share awards, that her awards under the deferred share bonus plan are released in full (with an indicative value of £21,060); and
• an amount in respect of accrued untaken holiday (amount tbc).
Total = £125,011 + holiday pay
We are of the opinion that all of the sums listed above are taxable and will not therefore pay £30,000 of any of the payments tax free.Why would they say that ? Also, not sure if my contract is terminated rather than being made redundant, whether my income protected will be invalidated in anyway ?

The way this works is that the first £30,000 of a payment which is paid in connection with the termination of employment is tax free, as long as it is not otherwise taxable as earnings.

That is why it only usually includes the redundancy payment itself and an ex-gratia payment given for loss of office, basically a golden handshake.

The figures you listed above are unlikely to fall within the tax exemption as they are all going to be considered earnings.

Customer: replied 4 months ago.
Why wouldn’t they want to say that its redundancy is there a benefit or downside for the company ?
Also, do you know if an income protection plan would make a distinction between the two ?

It should actually be beneficial to them as they won't have to pay some taxes or NI if it was redundancy, so I cannot say why they are not going down that route.

Income protection plans could potentially distinguish between the two but as each plan has its own terms you need to check the exact wording. I would usually only expect the distinction to be between dismissal for misconduct and any other dismissal, i.e. when you were at fault for the dismissal

Customer: replied 4 months ago.
What would it cost for you to read my contract, and termination and review my response ?Rgds

it depends on how long they are?

Customer: replied 4 months ago.
My contract is 18pages, termination notice 1 page and my response letter page and a half .

I will make a proposal, it won't be until tomorrow though if that's ok

Ben Jones and other Employment Law Specialists are ready to help you
Customer: replied 4 months ago.
Can you send me your email address as I cant seem to be able to upload the files

could you please use a third party file sharing site, for example and then upload the links


Customer: replied 4 months ago.
Customer: replied 4 months ago.
Does that work for you ?

It says access denied as I need permission

mediafire or dropbox maybe?

Customer: replied 4 months ago. attempt

all good now thanks, ***** ***** tomorrow once I have had the chance to review them

Hi, just an update, I have been called in court today so I will try and look at these throughout the day when I am not actually having to represent in the court room, many thanks

Hello again. First of all it is important to stress that a settlement agreement can basically include anything and does not have to reflect your contractual rights and benefits. Sometimes it can be more than what you are entitled to, other times it can be less. It depends on the reasons for termination and how much the employer is willing to negotiate a clean break. For example, the more they have been in the wrong leading up to the termination, the more incentive there is on them to offer you a more lucrative package so you accept it and leave without being able to make a claim in the future. On the other hand, if the reasons for termination are not so much their fault there would not be such an incentive to offer you more than the contract and it can even be less. Basically the settlement agreement is an agreement by itself which can overrule the contractual rights of both parties. However you do not have to accept anything you are not happy with.

So if you have not done anything wrong to prompt this termination, I would always suggest that you stick to at least what the contract would have entitled you to in normal circumstances, plus then potentially negotiate more based on how strong your position is in terms of challenging the reasons for dismissal (i.e. If there were no misconduct or performance issues and they simply want you out without there being a fair reason for dismissal, you may have more leverage to ask for this).

Under Clause 16 of the contract the employer does have the right to end your employment earlier than at the end of the notice period, but they would be required to pay you the basic salary and bonus and benefits to which you would have been entitled to had you been allowed to work that full period. At present they are asking you to work until March 2018 which is 2 months and then giving you pay to cover a further 6 months. You can request that they cover the full 12 months as per contract, although bear in mind that if they do then they are not obliged to stick with the current offer of an additional 6 months pay. Therefore they can say they will pay you 12 months pay and benefits as per contract but remove the 6 months offer which currently stands.

Also remember that provisionally accepting any offer does not bind you to it - you are still legally required to take formal legal advice from a solicitor before it is all signed off. Often, once the solicitor starts advising you they may find certain factors in the relationship and the circumstances of the case leading up to termination which may give rise to re-negotiate the existing terms of the agreement. So the terms could still be improved once you have spoken formally to a lawyer even if you had provisionally said you agree to them. The agreement is not legally binding until you have signed it off after you have been advised by a solicitor and the employer then also signs it.