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There is no specific legal prohibition on re-employing a former employee, in the absence of a contractual restriction in the original employment contract or the settlement agreement (or a regulatory or sector-specific restriction, which is outside the scope of our materials).
On a practical level, the circumstances of their departure would obviously be relevant in determining whether it is appropriate to re-engage (as well as potentially being relevant from a regulatory or sector-specific perspective if there are rules on re-engagement when there has been a termination in certain circumstances).
It may also be necessary to consider whether there are any tax implications of re-employing the individual if an ex-gratia payment was made under the settlement agreement and paid tax free up to £30,000 under sections 401 to 416 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).
The fact that the employee is re-engaged after redundancy does not necessarily affect the tax status of the redundancy payment. However, if the duties are essentially the same and there is no apparent commercial justification (such as a genuine variation in work), HMRC may argue that this was not a genuine redundancy and re-engagement.
The same redundancy principle will apply despite it not being a redundancy situation. HMRC could consider what the underlying position is and conclude that there is no justification for the termination and re-engagement such that the payment is regarded as earnings and taxable as such.
The employer should also consider whether continuity of service is preserved when the employee is re-employed. There are specific rules on re-employment after redundancy and after an unfair dismissal.
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Partners Employment Lawyers is not a firm of solicitors. Members of Partners Employment Lawyers are consultants at Excello Law Limited and legal services are provided by Excello Law Limited which is authorised and regulated by the Solicitors Regulation Authority under SRA number 652733.
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