FREE RESOURCESModification Order
The Redundancy Payments (Continuity of Employment in Local Government, etc.) (Modification) Order 1999
The Employment Rights Act 1996 (ERA) sets out that service with ‘associated employers’ counts for continuous service purposes. ‘Associated employers’ refers to companies that are part of the same group of companies. Under the ERA, local authorities are not considered associated employers as they are clear and distinct employers. However, for the purpose of calculating redundancy payments the ‘Modification Order’ has the effect of making local government, including maintained schools and academies, associated employers.
An employee must have two years continuous service to qualify for redundancy payments (s155 ERA). The Modification Order means that you must count service which is continuous from other modification order bodies.
Redundancy payments are based on the period of continuous service (s162 ERA). The Modification Order means that service with other modification order bodies must be taken into account when calculating redundancy pay.
If your organisation is looking to become. a Modification Order organisation you need to email RMOEnquiries@levellingup.gov.uk
Who is covered by the Modification Order?
The bodies on the Order are split into two lists:
- Part I (Schedule 1 of the Modification Order) When a person employed by one of these bodies is made redundant from that body the provisions of the Modification Order apply as outlined above. The employer must count service with any body on the Order (that is, from Part I or Part II).
- Part II (Schedule 2, Part II of the Modification Order) These bodies are not bound by the provisions of the Modification Order that is, continuous service with any other body on the Order does not count if an employee is made redundant from one of these bodies. In practice this has little relevance as these are almost exclusively bodies which no longer exist, for example, the Greater London Council.
For local authorities the split between the lists has no practical significance as they are on Part I and therefore must apply the provisions of the Modification Order to any body, whichever part of the list it is on. However, we have explained the difference as the split is something that can cause confusion. Many of the bodies on the Order are specifically named. However, there are several generic categories which refer to statutes which can cause confusion. It is impossible to create a list of everybody on the Order by individual name as this would cover several thousand organisations. It is useful to remember that the idea of the Order is that those employers who are in the local government ‘family’ are included. Therefore, non-local authority bodies on the Order are generally those that at some point have been funded wholly or partly by the local authority or provide a service that used to be entirely provided by an authority.
- Housing Associations
- Academies & Free Schools
- Universities & Further Education Colleges
- Civil Service
- Water Authorities
- Parish & Town Councils
Police officers are not covered by the Order because they are independent office holders and therefore not employees. Support staff are covered as they are employees. It used to be the case that support staff in the Metropolitan police were not covered by the Order, as they were employed by the Secretary of State. However, the Metropolitan Police Authority was placed on the Order after it was established in July 2000
Housing Associations are not on the Order but Housing Action Trusts are. Where authorities have transferred their housing stock to an Arms Length Management Organisation (ALMO) it is the DTI’s advice that such an organisation is covered by the Modification Order (under paragraph 6 of Schedule 1).
Academy Trusts are covered by the Modification Order.
The basic rule is that universities which used to be polytechnics are included whereas those that were always universities are not e.g. Leeds Metropolitan University (formerly Leeds Polytechnic) is covered but Leeds University is not.
Colleges which were funded by the local authority before 1992 are included whereas those which have always been independent are not.
Central government bodies are not included.
NHS bodies are not included, except for Care Trusts set up under s.45 of the Health and Social Care Act 2001. Care Trusts are different from Primary Care Trusts which are not included.
One of the generic categories of body included in the Modification Order covers bodies ‘established by or under any enactment for the purpose of exercising the functions of’ a local government authority. In West Midlands Residuary Body v Deebank 1990 ICR 349 it was argued that this covered a regional water authority which had taken over functions previously exercised by Birmingham City Council. The Court of Appeal held that ‘functions’ meant ‘current functions’ and therefore it did not apply to a body established to completely take over the functions of a local authority. Therefore, service with a water authority does not count towards continuous service.
The category of parish councils also covers town councils. This is because a town council is simply a parish council that has resolved to have the status of a town.
What is Continuous Service?
Under the ERA, a week (Sunday to Saturday) in which a person’s relation with their employer is governed by a contract of employment, no matter how much time is actually spent working, counts as a week of service. Therefore, to break continuous service there must be a period of one week of Sunday to Saturday during which no contract of employment is in place.
Charlie resigns from Council A to take up a job at Council B. Their last working day is Friday 31 March 2023.
Council A records Charlies Last day of Service as Sunday 2 April. This means that Charlie will have been working for council A during the week of Sunday 2 to Saturday 8 April.
Provided Charlie’s contract with Council B starts no later than Saturday 15 April, Charlie will not have a break in continuous service for redundancy and other contractual rights.
How does the Modification Order affect redundancy dismissals?
All continuous service with Modification Order bodies must be used to calculate whether a redundancy payment is due, the employee must have two year’s service, and the amount of redundancy pay the person will receive.
However, the bigger impact is potentially at the point of dismissal. The Order provides that where an employee is under notice of redundancy, receives a job offer from another Modification Order employer before their last day of service AND takes up that job within 4 weeks, Sunday to Saturday, the dismissal disappears.
Effectively, the employee has been redeployed to an associated employer. Continuous service is preserved and no redundancy payment is due.
However, if the offer isn’t made until after the last day of service OR the new role does not start until after the 4 weeks, Sunday to Saturday, then the redundancy dismissal remains in place and a redundancy payment is due, but continuous service is broken and the clock starts counting from zero again.
Lets look back at Charlie. Instead of resigning, they’re being made redundant on 31 March 2023 by Council A and 31 March will be the last day of service.
If Charlie receives a job offer from Council B on or before 31 March AND the contract starts on or before 29 April, the redundancy will disappear. If Charlie waits until 1 May to start work for Council B the redundancy dismissal will still stand, Charlie can keep the redundancy payment but will no longer have any continuous service.
If Charlie doesn’t receive the job offer from Council B until after 31 March 2023 then it doesn’t matter when Charlie starts with Council B. The redundancy dismissal stands and the receipt of the redundancy payment means continuity is broken.
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