Can you re-engage an employee a few months after you made them redundant? Esther Smith, partner at Thomas Eggar, and Martin Brewer, partner at Mills & Reeve, advise.
The question:
We made a few redundancies in November 2007 based on restructuring and the need to reduce headcount in a certain area. As a result, a team of four was reduced to three and the work fairly distributed.
Now, one of the remaining employees has resigned leaving a team of two. The backfill (back to three heads) has been approved and we are thinking about potentially re-employing the person we made redundant; this will reduce costs (recruitment) and they would be up to speed from day one (no training requirements).
We have no formal policy about this and have re-hired in the past. I would be interested in hearing others views about this as its only been a few months since the redundancy.
Also, I am not sure whether this makes a difference, but although ‘redundant’ the individual was in fact compromised out to speed up the process. I couldn’t find anything on HMRC about its views, given the person received a tax-free payment. Any advice/thoughts would be appreciated.
Legal advice:
Esther Smith, partner, Thomas Eggar
Given the period between the two terms of employment, if you do now re-engage, and the fact that the individual entered into a compromise agreement on termination, there should not be any issue with re-engagement now.
The employee should not get continuity of service, given the circumstances and the period that has elapsed since he left, and you should ensure that any correspondence issued to him regarding his re-engagement is clear as to the commencement date being 2008.
This means that effectively he will have to work for a further year before securing any protection against unfair dismissal, which may give you some flexibility should work levels vary again in the near future.
It also means that his previous service will not count if there are redundancies in the future, which seems fair given that he has already been compensated for the loss of this service under the earlier compromise.
From a taxation point of view, the revenue may be suspicious of his re-engagement but that is really a matter for him and the revenue to sort out, and if they take the view that the payment made under the compromise is taxable, I would expect that there is an indemnity from him under the agreement covering any tax subsequently deemed to be due.
Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information please visit Thomas Eggar.
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Martin Brewer, partner and employment law specialist, Mills & Reeve
It seems to me that provided what you say is genuine, and in particular that the original ‘transaction’ was genuinely redundant, no tax issue arises.
The employee having been dismissed as redundant is entitled to his tax-free redundancy pay as a matter of law. The fact that he will be lucky enough to re-engage with you after such a short time is just good fortune on his part and makes business sense for you.
Martin Brewer can be contacted at: martin.brewer@mills-reeve.com
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