The difference between directors and employee redundancy claims

Understanding the difference between director and employee redundancy claims is important if you are thinking about making someone redundant. The legal process for a director redundancy is different to that of an employee as there are key differences between how directors and employees can be dismissed during this process. Therefore, it can often be beneficial to employ a professional to help in either case. Below we discuss the key differences between the two types and what you need to be aware of for each.

Employee redundancy:

Redundancy occurs when an employer no longer has a need for a particular role or roles. Redundancy can occur in one of two ways – either through the complete closure of a business or through a reduction in the number of employees required for a particular job. Employers must follow a set of procedures to make sure that redundancies are handled fairly and lawfully.

Employee redundancy claims are a claim against the company, not the directors, in their personal capacity. All employees must be given notice of dismissal by law. Their redundancy package is based on length of service and is capped at 20 years. Employees are entitled to statutory redundancy pay if they have been employed by your employer for 2 years continuously.

If you are an employee with a redundancy claim, it is worth exploring your options if you feel you were made redundant or dismissed unfairly by your employer.

Director redundancy:

Directors fall into a special class of employee but are, generally speaking, entitled to the same rights and responsibilities as other employees. Not all directors receive a salary, but those who do will be eligible for redundancy pay.  (Please note that dividends are not salary)

To begin the redundancy process for directors, you need to prove that the director's role has become redundant and that the employer is unable to offer them alternative work.

A company can choose to immediately terminate a director’s contract without notice if it has ‘just cause’. If there is no just cause, but the director’s contract includes a provision allowing instant dismissal without notice, they are still entitled to receive their notice pay. Directors cannot claim unfair dismissal – but they can take their company to court for wrongful dismissal if they feel it was not done fairly.

Directors will receive statutory redundancy pay if they have two years of continuous service with the company. Although there are no specific rules on how redundancy payments should be calculated for directors, their payments are subject to the same regulations as normal employees.

Conclusion:

Directors and employees have different rights when it comes to redundancy. Redundancy payments can have serious implications for the employer/business owners' cash flow and are often considered a last resort in the event of business closure or insolvency.

The redundancy process can be complicated, particularly when dealing with a business closure, so speaking to an expert can really make all the difference.

Speak to our team now for a free consultation: https://www.frostgroup.co.uk/contact

‍