Employers offering enhancements to any statutory benefits may wish to review the terms of those schemes to ensure that it is clear how the statutory element of the payment or benefit should be dealt with.

In the case of an enhanced redundancy payment, rather than simply offsetting the statutory payment against the overall contractual sum, it may be prudent to explicitly state that the statutory element is satisfied first before meeting the contractual obligation.

Ugradar v Lancashire Care NHS Foundation Trust

Mrs Ugradar was an NHS employee, engaged under NHS's Agenda for Change (AfC) terms and conditions of employment which provided for an enhanced contractual redundancy payment to supplement the employee's entitlement to a statutory redundancy payment.

The AFC terms referred to the interplay between contractual and statutory payments are follows: "NHS contractual redundancy is an enhancement to an employee's statutory redundancy entitlement, the statutory payment being offset against any contractual payment".

Mrs Ugradar role was placed at risk of redundancy during a reorganisation and although she was offered an alternative role, she did not accept it on the basis that she did not consider it suitable. She did not receive a redundancy payment as her employer concluded that she had unreasonably declined an offer of suitable alternative employment. Mrs Ugrader brought a claim to the employment tribunal (ET) for breach of contract and a statutory redundancy payment. The ET concluded that the alternative employment offered to Mrs Ugardar was unsuitable and she was therefore entitled to a redundancy payment.

Mrs Ugardar's contractual redundancy payment under the enhanced scheme was £43,949, inclusive of a statutory redundancy payment of £5,868. However, the ET's jurisdiction under the Employment Tribunals Extension of Jurisdiction (England and Wales) Order 1994 (1994 Order) meant the maximum amount the ET could award on contractual claims was capped at £25,000.

Mrs Ugradar was awarded £25,000. The ET held that Mrs Ugradar was not entitled to the statutory redundancy payment of £5,868 in addition to the award in relation to the contractual redundancy payment. The ET relied on the wording of the AfC terms which they interpreted as the statutory redundancy payment being subsumed into her contractual payment.

Mrs Ugardar appealed against the amount awarded to the Employment Appeal Tribunal (EAT).

EAT's Decision

The EAT, allowing the appeal, held that Mrs Ugradar was entitled to the statutory redundancy payment as well as the contractual redundancy payment on the basis that there were two separate claims - a contractual claim and a statutory claim which allowed for separate awards.

The EAT found that, although the two claims overlapped and were pursued together, it was the ET's duty "to give judgment in a way which best reflected the obligation to the parties in respect of both statue and contract".

The EAT also found that Mrs Ugradar met the conditions under the Employment Rights Act 1996 (ERA) for statutory redundancy payment, and if the provisions in the AfC had purported to restrict Mrs Ugradar's rights to it, section 203 of the ERA would have rendered the provision void.

In the EAT conclusions, Mrs Ugradar's contractual redundancy payment due was £43,949. NHS was entitled to deduct from this amount the statutory redundancy payment of £5,868 - bringing the total amount to £38,071.04. However, due to the cap, the contractual payment had to be limited to £25,000, but the cap is not applicable to the statutory payment so Mrs Ugradar was entitled to receive the £5,868 in addition to the £25,000 - making the total contractual award £30,886.

The EAT went on to comment that "the statutory cap in the 1994 Order has remained unchanged for a quarter of a century. It seems only necessary to pass a statutory instrument to provide for a higher cap……this case demonstrates that at its present level the cap is capable of producing real injustice".

In this case, Mrs Ugradar had to forego more than £18,000 of her contractual redundancy entitlement. In the EAT's view, "if the cap had been increased in line with inflation they [Mrs Ugradar] would not have suffered these losses", and "the statutory cap is also out of step with the very much wider powers of the ET".

This case suggests that the £25,000 cap on contractual claims in the ET could soon be subject to review.