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Cite as: [1991] UKSSCSC CU_21_1991

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[1991] UKSSCSC CU_21_1991 (05 November 1991)

R(U) 5/92

Mr. R. A. Sanders CU/21/1991
5.11.91

Compensation for termination of employment - severance payment calculated entirely by reference to years of service - whether "remuneration paid in respect of the period before termination"

The claimant's employment terminated on the ground of redundancy and he received, amongst other payments, a sum of £14,229.24 stated to be a severance payment. This payment was calculated entirely by reference to the claimant's years of service before the termination. His contract of employment entitled him to twelve weeks notice of termination, but in the deal by which his employment was brought to an end he agreed to waive all but about two weeks' notice.

The local adjudication officer decided that the severance payment was compensation within the meaning of reg. 7(1)(d) of the SS (U,S & IVB) Regs. 1983, and the claimant was not entitled to unemployment benefit from 1 May 1990 to 10 July 1990.

The social security appeal tribunal upheld the disentitlement. The claimant appealed to the Commissioner.

Held that:

the severance payment made was a payment "made . . . in respect of the termination of the employment" (para. 4);

the fact that the severance payment was calculated by reference to past years of service did not bring it within head (a) of reg. 7(6) (remuneration paid in respect of the period before the termination) (para. 5);

none of the other heads (b) to (f) of reg. 7(6) applied, to allow the payment to be exempted, therefore the payment was compensation within the meaning of reg. 7(1)(d), and unemployment benefit could not be paid for any days within the ineligible period (i.e. 1 May 1990 to 10 July 1990).

DECISION OF THE SOCIAL SECURITY COMMISSIONER

My decision is that the decision of the social security appeal tribunal dated 25 October 1990 is erroneous in law and I set it aside. That does not avail the claimant however as my decision, given in substitution for theirs, is to the same effect namely that the days falling in the period 1 May 1990 to 10 July 1990 (both dates included) fall to be treated as not being days of unemployment by virtue of regulation 7(1)(d) of the Social Security (Unemployment, Sickness and Invalidity Benefit) Regulations 1983.

The claimant worked for the Central Electricity Generating Board and then National Power PLC for nearly 30 years. His services were terminated on the ground of redundancy with effect from 30 April 1990. Under his contract of employment he was entitled to twelve weeks notice. In the deal by which his employment was brought to an end he agreed to waive all but about two weeks' notice and a payment was made to him of £20,400.63 made up as follows:

Statutory Redundancy pay £ 4,558.00
Accrued wages £ 141.97
Holiday pay £ 1,471.42
Severance payment £ 14,229.24

The last item, the severance payment, was calculated entirely by reference to the claimant's years of service before the termination. On 1 May 1990 the claimant made a claim for unemployment benefit. An adjudication officer took the view that the severance payment was "compensation" within the meaning of regulation 7(1)(d) of the 1983 Regulations and that accordingly the claimant was not entitled to unemployment benefit because the days within the period 1 May 1990 to 10 July 1990 were to be treated as not being days of unemployment by virtue of that provision. The claimant unsuccessfully appealed to the tribunal. He now appeals to the Commissioner. At the hearing of his appeal he was represented by Ms. A. Ryde of the Transport and General Workers Union. The adjudication officer was represented by Mr. J. R. Witham of the Office of the Chief Adjudication Officer.

Regulation 7(1)(d) of the 1983 Regulations was significantly amended, indeed rewritten, as from 9 October 1989, see regulation 4 of the Social Security (Unemployment, Sickness and Invalidity Benefit) Amendment No. 2 Regulations 1989 which substituted and inserted the new provisions. The new regulation 7(1)(d) provides as follows:

"7(1)(d) where in any case the employment of a person is terminated and he receives compensation, a day shall not be treated as a day of unemployment if it is a day -

(i) which falls within the ineligible period as defined in paragraph (5), and

(ii) which falls within the period of 52 weeks beginning with the day following the termination of the employment;"

Paragraph (5) defines "ineligible period" but I do not need to be concerned with that. The definition of "compensation" is in paragraph (6), as follows:

"(6) In this regulation –

'compensation' means any payment made to or for a person in respect of the termination of the employment other than -

(a) any remuneration paid in respect of the period before the termination;

(b) any holiday pay;

(c) any payment not falling within paragraph (a) or (b) of this definition which is paid (in respect of any emolument of the employment (whether in money or in kind) and which has accrued before the termination of the employment;

(d) any redundancy payment within the meaning of section 81(1) of the Employment Protection (Consolidation) Act 1978; and

(e) any refund of contributions to which he was entitled under an occupational pension scheme within the meaning of section 66(1) of the Pensions Act;

(f) any compensation payable by virtue of section 178(3) or (4) of the Education Reform Act 1988;"

The issue in this case is whether the severance payment of £14,229.24 falls within the definition of "compensation" in paragraph (6). It is not in dispute that if it does the claimant's "ineligible period" as ascertained in accordance with regulation 7(5) was correctly ascertained with the consequence that unemployment benefit would not be payable from 1 May 1990 to 10 July 1990.

It will immediately be seen that a payment will be caught by regulation 7(1)(d) if and only if it is made "in respect of the termination of the employment" and is not on the paragraph (6) list. Ms. Ryde and Mr. Witham rightly in my view both agreed that the severance payment in this case was a payment "made . . . in respect of the termination of the employment . . ." and was therefore within the primary meaning of "compensation". It seems to me that that definition of "compensation" is wide enough to include all payments made on and with reference to the termination of the employment. One must then consider whether the severance payment is within any of the items on the paragraph (6) list. Item (a) is the only possibility.

Item (a) might at first glance seem to be directed primarily at wages, salary, bonuses, commission and "remuneration" of that kind already accrued under the contract at the date of termination; such are certainly rightly described as "paid in respect of the period before the termination". What then does item (c) which excludes "any payment not falling within paragraph (a) or (b) . . . which is paid in respect of any emolument of the employment (whether in money or in kind) and which has accrued before the termination of the employment" refer to if item (a) is limited to wages, salary etc. owing at the date of termination? It is to be noted that in contrast to the words of (a), (c) uses the words "which has accrued before the termination of the employment". It seems to me that (c) must be there in case there may be some kind of payment (money or kind) in the nature of wages or holiday pay not caught by (a) or (b) e.g. rights under a share option agreement; on balance, the last ten words of item (c) do not suggest that item (a) must necessarily go wider than the wages etc. to which I have suggested it is directed. Indeed those last few words might underline the fact that items (a) and (b) are also to do with payments which have accrued before the termination of the employment. So is the payment in question in this case, the so-called severance payment whose principal connection with "the period before the termination" is that it is calculated by reference to years of service, within item (a)? It is to be noted that, in contrast to the word "payment" in the primary rule, item (a) refers to "remuneration". And even if I were prepared to accept that a payment the amount of which is calculated by reference to a past period can be said to be within the words "in respect of the period before the termination" the whole phrase, "remuneration paid in respect of the period before the termination", seems to me to be inappropriate to describe a payment the terms of which are negotiated in anticipation of the termination. "Remuneration" means primarily, (according to the Shorter Oxford English Dictionary) "reward" or "recompense" and "in respect of" means "with reference to, as relates to" or "regards". Giving the words in question those meanings (and I see no reason not to) in my view it would be stretching language to include the severance payment in this case within them. Ms. Ryde referred to a number of cases including R v. National Insurance Commissioner, ex parte Stratton [1979] QB 361, R(U) 1/80 and R(U) 4/80 which directed consideration to "the true nature" of the terminal payment. But those cases concerned the previous and very different version of regulation 7(l)(d) and do not seem to me to be of assistance in relation to the meaning of "compensation" in the new provisions.

The tribunal's decision is undoubtedly erroneous in law because they did not consider the meaning of "compensation" nor whether the payment fell to be excluded from the operation of the primary rule by reason of regulation 7(6)(a). So I set their decision aside though, as I have said, this is of little comfort to the claimant because the outcome is the same, the tribunal reached the correct conclusion but for the wrong reasons.

It is common ground that the claimant was entitled to twelve weeks notice and that that entitlement was waived, at least in part. The provisions relating to the preclusive "ineligible period" are somewhat complex but it is not disputed that if the payment in question in this case is caught by regulation 7(1)(d) then the claimant is precluded from benefit for the period of the notice starting from 17 April 1990 when he was given notice that his employment would terminate on 30 April 1990. Accordingly he is precluded from benefit up to and including 10 July 1990.

Date: 5 November 1991 (signed) Mr. R. A. Sanders Commissioner