Thursday 2 March 2006

Variable Multiplier to be retained in Statutory Redundancy Payments

This information is taken from a Newsflash distributed by Wragge & Co.

The Government has today announced that it will NOT move to a single multiplier for statutory redundancy payments when the Age Discrimination Regulations are introduced in October. The existing variable multiplier based on age will remain on the basis that it reflects a legitimate employment policy and as such exempt from the Framework Directive.

For the full text of the written statement to parliament, please see below. For information on Daniel Barnett and Kate Palka's 150 page analysis of the new age discrimination regulations, please click here.


The Government has been considering what amendments might be needed to the statutory redundancy payments scheme to bring it into line with the EU Employment Directive, which requires Member States to outlaw discrimination on the grounds of age, among other things, in the employment field. The current scheme contains three age bands and directs greatest financial support to older workers and those with long service.

We have been discussing the way forward with key stakeholders over the last few months, including the CBI, EEF and TUC. In the course of those discussions the Government became concerned that a system using a single multiplier might not meet our overall policy aims. We have therefore carefully examined the rationale for the current scheme, and come to the conclusion that this provides the best fit with our aims.

Evidence the Government has gathered demonstrates that younger, prime age and older workers fall into three distinct economic categories, with older workers facing a particularly difficult position in the employment market. Young workers tend not to be out of work for long, and see only a small fall in pay when switching jobs. Older workers are much more likely to become long-term unemployed, and to experience a substantial fall in pay when finding a new job. Prime age workers fall into the middle. We therefore believe that it is sensible for the level of support provided through the scheme to reflect these three categories. A system using a single multiplier would leave a significant group of older workers substantially worse off than at present, and we believe this would be unacceptable. Even if a substantial amount of money were injected into the scheme so as to leave older workers no worse off, the enhanced benefits to younger workers are not justified by their position in the employment market.

The Directive provides for the possibility of Member States providing for different treatment on the grounds of age, where this difference of treatment is objectively and reasonably justified by a legitimate aim, including employment policy. We have looked at this question very closely and are confident that retaining the age bands is permitted by the Directive.

The Government has however decided to remove the lower and upper age limits in the redundancy scheme (at 18 and 65 respectively) and the taper at the age of 64 because it believes, as employees are living and working longer, these cannot be justified under the Directive. A small group of amendments to the scheme will be set out in the forthcoming age regulations, which will be laid before Parliament shortly.

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