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Unnecessary Redundancy Payouts in the NHS

By Amanda Trewhella, Solicitor, Fisher Meredith

July 21 2013 - At a time of uncertainty in the economy it is no surprise that redundancy remains a topical subject in the world of HR. The latest issue involves the NHS and the recent widespread reform of the health system in England.

According to a report by the Government spending watchdog, the National Audit Office, large sums of money have seemingly been wasted on unnecessary redundancy pay-outs in the NHS.

The reforms are reported to have cost £1.1 billion to 31 March 2013, 15% more than expected at that point but this is outweighed by savings in administration costs achieved by the reforms. However, it appears that additional vital funds could have been saved had there been more careful planning before making large numbers of staff redundant at significant cost to the public purse.

Between March 2010 and March 2013 more than 10,000 NHS staff were made redundant as part of the reforms, at a cost of more than £430million. This effected 19% of the total employed at the start of the period.

The redundancies included 44 senior staff who were board-level managers in strategic health authorities or chief executives of primary care trusts who each received an average of £277,273. The highest payout being £578,470.

The Health and Social Care Act 2012 provided for the abolition of primary care trusts and strategic health authorities with responsibility for commissioning healthcare now resting with new bodies NHS England and 211 clinical commissioning groups.

The National Audit Office said that some of the newly created clinical commissioning groups, led by GPs, lacked credible financial planning. The new bodies underestimated how long some activities would take, including organisational design and staff recruitment.

After the changes, which came into effect on 1 April 2013 it was found that the new NHS organisations were left with major gaps in staffing. On the implementation date 9% of posts remained vacant across the health system.

Given the gaps in staffing it became necessary to recruit further staff, including the re-recruitment of staff that had been made redundant and received redundancy payouts. It is estimated that almost a quarter of the staff made redundant were subsequently re-employed by the NHS - approximately 2,200 people. The amount of money wasted on redundancy payments which were entirely unnecessary is therefore significant.

Although the NHS tried to reclaim the redundancy payouts that had been made, which averaged £43,000 per person, a clause in the employees' contracts prevented them from doing this unless the staff were re-employed within 4 weeks.

Once a redundancy payment has been made to an employee the company has no general legal right to reclaim these monies from an employee if they are later offered re employment. In order to claw back this money an agreement would need to be made with the returning employee in negotiating the new contract. Alternatively, and particularly if you are making an enhanced redundancy payment, you could consider adding a clause to any compromise agreement (soon to be known as a settlement agreement) entered into, giving you the right to claim repayment of the redundancy monies if the employee is re-employed within a certain period of time.

The knee jerk reaction made by the NHS, seemingly without due consideration to the future needs of the service, shows how important it is for employers to fully consider the requirements of their business going forward before going through an expensive redundancy process.

This will be less important for companies without an enhanced redundancy payment scheme given that the maximum statutory redundancy payment is currently £13,500 for an employee who has 20 years of service while they were aged 41 years or over. Whereas for bodies with enhanced redundancy payment schemes such as the NHS and as has recently been widely reported, the BBC, payouts for long serving employees can be significant.

When a company finds itself in financial difficulty redundancy is often the first solution which comes to mind. However, if there is a possibility that a business' fortunes may improve in the near future, and that they will need to increase staff numbers again, it is advisable to consider all other options before letting staff go. In any event, as part of the redundancy consultation process, employers should always consider whether there are alternatives to compulsory redundancies.

Alternatives could include either offering or imposing a reduction in days or hours until work levels improve or offering staff the opportunity to take an unpaid career break or sabbatical for an agreed time period.

The ways in which we all work today are changing and for many people flexible working and the opportunity to take a career break are attractive propositions. Offering these alternatives can therefore save your business money in the short term and may mean that you retain valued staff.

Amanda Trewhella, Solicitor, Fisher Meredith

Amanda Trewhella

Amanda qualified as a solicitor in November 2008 and joined Fisher Meredith's Dispute Resolution department in June 2012. She is an employment law specialist with experience of advising on all aspects of the employment relationship, from recruitment and the drafting of HR policies and employee handbooks through to advising on business reorganisations, disciplinary and grievance procedures and drafting and negotiating compromise agreements and severance packages. She has advised on the bringing and defending of a variety of Employment Tribunal claims including unfair dismissal, breach of contract, flexible working, whistleblowing and discrimination claims. Amanda is a member of the Employment Lawyers Association and author of the chapter on Agency and Temporary Workers in the Workplace Law Handbook 2012.


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