ISOLAS Partner Mark Isola KC and Senior Associate Nick Isola, experts in employment law, provide
a comprehensive analysis of statutory redundancy compensation in
Gibraltar highlighting both the similarities and key differences to
England and Wales.
In the lead-up to the last General Election on 12th October
2023, the Gibraltar Chronicle published an article on the election
wish list of Unite the Union (“Unite”), which Unite said
was to benefit members, workers and employers alike in delivering a
better-paid, supported, motivated and trained workforce and which
would ultimately aid the economic growth of Gibraltar.
Whilst there may be wide support, and even cross-party political
support, for certain initiatives (in parts or in full) in the wish
list such as amending the laws on maternity and paternity leave
which many in the community will consider to be outdated or
inadequate, other proposals may be viewed with real concern by
employers, particularly businesses in the private sector, that are
still recovering from the dual effects of the Covid-19 pandemic,
and the continuing uncertainties of the post-Brexit era in the
absence of any treaty with the European Union.
One proposal on Unite’s wish list is to increase the
statutory redundancy payment (“SRP”) ceiling from 52
weeks’ pay to 78 weeks’ pay, which employers would
naturally view as materially increasing their costs and negative to
economic growth in Gibraltar.
It is important to highlight the protections and advantages that
Gibraltar’s employees already enjoy on redundancy which provide
them with greater statutory redundancy packages than their
counterparts in England & Wales, and the cost of such
redundancies, always an important factor when outside businesses
consider the competitiveness, and attraction, of setting up in
Gibraltar rather than competitor jurisdictions. There are material
differences between Gibraltar and England & Wales when
considering entitlements to SRP and which are already far more
favourable to employees in Gibraltar than their counterparts in
England & Wales for the following reasons:
Eligibility for SRP
1. The qualifying period to be entitled to claim SRP for
eligible employees in Gibraltar is only 1 year’s continuous
employment whereas in England & Wales it is 2 years’
continuous employment.
Calculation of SRP
Length of service and age
2. The amount received in SRP depends on length of service and,
in Gibraltar, an employee is entitled to 2 weeks’ pay for each
of the first 5 years of completed years of service; 3 weeks’
pay for each of the next 5 years of completed years of service; 4
weeks’ pay for each additional completed year of service
thereafter; and, where an employee is aged 41 years and over, 2
weeks’ additional pay for each completed year of service after
the age of 40. In England & Wales, an employee receives 0.5
week’s pay for each completed year of service under the age of
22, 1 week’s pay for each completed year of service aged 22 or
over, and under 41, and 1.5 week’s pay for each completed year
of service aged 41 or older.
A week’s pay
3. The maximum weekly amount of pay in England & Wales for
the purposes of calculating SRP is capped by statute, at £643
per week even if the employee enjoys a greater weekly wage. No such
maximum statutory weekly cap applies in Gibraltar.
Capping
4. The maximum length of service considered in England &
Wales is 20 years, and as a result of such capping an employee in
England & Wales can only be paid up to a maximum SRP of
£19,290 based on the capped weekly wage. In Gibraltar, there
is a statutory cap of 52 weeks’ pay, but as previously stated,
no cap on the weekly pay that applies, so an employee earning, by
way of example, £90,000 annually, would receive the full
£90,000 if they were so entitled to the maximum capped SRP,
far in excess of the £19,290 cap applicable in England &
Wales.
5. The whole of the SRP is normally exempted from income tax in
Gibraltar unlike in England & Wales where it is subject to a
cap of £30,000 tax exemption. The Income Tax (Allowances,
Deductions and Exemptions) Rules 1992 (“Rules”) of
Gibraltar expressly provides that certain classes of income are
exempt from tax with, in particular, Rule 3(9) applying to an
amount paid on redundancy where the Commissioner of Income Tax
considers the amount payable to be “appropriate, having regard
to, but not limited to, the employee’s length of service with
the employer who made them redundant and their rate of pay”.
This is in addition to the separate exemption that exists under
Rule 3(8) of the Rules for unfair dismissal where, for example, the
employer makes an ex-gratia award as part of the redundancy
process. As a consequence,
and continuing with the example in paragraph 4 above, that employee
would receive the £90,000 tax free upon being made redundant
in Gibraltar whereas the same employee in England & Wales would
only receive tax free the first £30,000 on termination of
their contract of employment, and the balance would be subject to
deductions for income tax.
6. In England & Wales an employee would not be entitled to
SRP if (a) the employer offers to keep the employee on; and (b) the
employer offers suitable alternative employment which the employee
refuses without good reason to accept. No such similar caveats
exist in Gibraltar to preclude payment of SRP where an employer can
provide and offer the employee suitable alternative employment to
avoid the redundancy in the first place.
Similarities between Gibraltar and England & Wales
There are additional protections that are common to both
jurisdictions in a redundancy situation including:-
1. In a contested redundancy, a claim for unfair dismissal, and
a protective award where the provisions relating to collective
redundancies are not complied with and which require an employer
that is proposing to dismiss as redundant a minimum of five
(minimum of 20 employees in England & Wales) or more employees
within a period of 90 days or less to comply with various
consultation provisions, including providing information and
beginning consultations at , in Gibraltar, the earliest opportunity
or at least 60 days (at least 30 days for 20 to 99 redundancies,
and at least 45 days for 100 or more redundancies in England &
Wales) before the first of those dismissals take effect with the
giving of the minimum notice of termination.
2. The employee is also entitled to his notice period in
addition to any SRP with statute in Gibraltar prescribing minimum
periods of notice between one to three months’ depending on the
length of service of the employee, and leaving aside any greater
notice that may be agreed under the contract of employment.
Conclusion
There is of course an important economic balance that needs to
be struck between businesses and the protection of employees in
Gibraltar. Gibraltar already has significant employee protections
in the area of redundancy, with the unemployment figure at the end
of the second quarter of 2023 recording a new record low of only 26
Gibraltarians being registered as unemployed according to the GSLP
Liberal Manifesto 2023 before their recently re-election as His
Majesty’s Government of Gibraltar. It is therefore difficult to
understand how the increase proposed by Unite will actually aid the
economic growth in Gibraltar and not impose a disproportionate and
additional burden on the private sector in Gibraltar, when
eligibility and entitlements to statutory redundancy compensation,
including their tax treatment, are already materially better and
more favourable in Gibraltar than in England & Wales. However,
and to avoid effecting redundancies in the first place by providing
greater flexibility to employers when faced with the difficult
decision of cutting costs in the workplace, a more balanced change
to employment law would be to introduce a statutory provision
similar to that in England and Wales to allow employers to offer
suitable alternative employment to employees to avoid the necessity
of effecting job losses in the first place, with the hardship and
difficulties that entails for all concerned.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
#Redundancy #Compensation #Gibraltar #RedundancyLayoff
