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Modification 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.

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.

Continuous Service and Redundancy

Where an employee is made redundant from a modification order body there are different rules that apply for the protection of continuous service.

Where a person is under notice of redundancy from Council A and they receive a job offer from Council B before their last day of service and start work for Council B within 4 weeks of their last day of service at Council A, in the eyes of the law there has been no dismissal. The person is not entitled to their redundancy payment (which should be returned to Council A) but their continuity of service is preserved.

If the employee doesn’t start working for Council B until after the 4 weeks have passed or the job offer is received after the last day of service then the dismissal stands and the employee may retain their redundancy payment (subject to Public Sector Exit Pay Recovery rules when they come into force). Continuity of service is broken.

Who's 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.

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.
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 Government’s advice that such an organisation is covered by the Modification Order (under paragraph 6 of Schedule 1)
In the past there was confusion over which academies were covered as the method and reason for academisation determined whether they were a modification order body. However, this is no longer the case. All academies and freeschools 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, for example, 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 s45 of the Health and Social Care Act 2001. Care Trusts are different from Primary Care Trusts which were never 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. Therefore, both parish and town councils are covered by the order.

Modification Order Consolidated List of Bodies

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