May 21, 2020

Covid-19: Life after furlough – Considering Redundancies

On 12 May 2020, the Government extended the ability for employers to claim furlough payments under the Coronavirus Job Retention Scheme until the end of October 2020. Despite this extension, many businesses will be considering a range of cost saving measures, including redundancies. This article considers key practical and legal issues arising from redundancy processes during or following furlough.

Coronavirus Job Retention Scheme (CJRS) was established to avoid redundancies and maintain the viability of businesses during the Covid-19 pandemic, by enabling employers to place employees on furlough and claim up to 80% of their salary as a grant from the CJRS.

Although the CJRS will continue until the end of October, the Chancellor has said that it will operate on a reduced basis from 1 August 2020.  So, after that date, employers will be able to bring staff back to work part-time but will be required to pay a percentage towards the salaries of their furloughed employees.  We are told that more information will be made available by the end of this month. 

Employers' thoughts should now be turning to what happens once the support of the CJRS is reduced and then ultimately removed.

Many employers will be exploring a variety of cost-saving measures to help weather the storm as we move towards the recovery stage. These may include extending furlough on a self-funded basis, reducing hours or pay, lay off and short time working (where there is a contractual right to do so) or unpaid leave/sabbaticals. But unfortunately it is inevitable that some employers will be considering redundancies, through a need either to reduce headcount and costs or to close all or part of their organisation.

Redundancy is one of the potentially fair reasons for dismissal under section 98 of the Employment Rights Act 1996.  In order for dismissals by reason of redundancy to be fair, employers must also ensure that they follow a fair procedure.  This includes consulting with affected employees, applying fair selection criteria, considering alternative employment and offering a right of appeal.

Employers contemplating redundancies arising from the impact of Covid-19 should consider the following:-

  1. There has to be a genuine redundancy situation. This requirement will be met where employers have identified a reduction or cessation in their requirement for employees to carry out work of a particular kind, or a need to close all or part of their business. This will be straightforward for many employers to establish at this time given the blow to the economy dealt by the Covid-19 pandemic.
  2. The usual alternatives to compulsory redundancy should be explored first, including seeking volunteers for redundancy or early retirement, seeking agreement to staff working on reduced hours and/ or reduced salaries on a temporary basis and/ or banning overtime.
  3. Whilst the purpose of the CJRS was to support employers in order to avoid redundancies, the HMRC Guidance on the CJRS makes clear that employers are permitted to make employees redundant whilst they are on furlough or afterwards. If the fairness of a redundancy dismissal during the operation of the CJRS is challenged, it may be necessary for the employer to explain why it proceeded to dismiss whilst that support was still available.
  4. Many employers may wish to commence consultation so that the expiry of notice periods coincides with the end of the CJRS in its current form, stated to be 31 July 2020 as noted above.
  5. It is important therefore to consider the appropriate timing for commencing any redundancy consultation process. If the employer is proposing to dismiss 20 or more employees at one establishment within a 90 day period, the obligation to collectively consult under the Trade Union and Labour Relations (Consolidation) Act 1992 is triggered. In these circumstances, consultation with employee representatives must commence at least 30 days (for between 20 and 99 dismissals) or 45 days (for 100 or more dismissals) before the first dismissal is proposed to take effect (rather than the date the employee actually leaves, as it may be that volunteers for redundancy could leave before the end of the consultation period). Employers may need to factor in time for election of employee representatives (carried out remotely) as well as ensure that they notify the Department for Business, Energy and Industrial Strategy of the proposed redundancies on an HR1 form and provide the information required by statute to the employee representatives. Whether or not collective consultation is required, employers will also need to engage in consultation on an individual basis with employees at risk of redundancy.
  6. Employees on furlough are prohibited from carrying out any work. However, the latest HMRC Guidance on the CJRS clarifies that trade union or employee representatives may participate in collective consultation whilst on furlough. We believe the same will apply to employees engaging in consultation on an individual basis.
  7. As always, employers will need to ensure that any criteria applied to select employees for redundancy is not discriminatory. In particular, employers should be aware that taking into account whether an employee is amongst the highest paid may disproportionately affect older employees. Also, employees who are shielding during the pandemic because of underlying health issues are likely to be disabled for the purposes of the Equality Act 2010 and therefore careful consideration of the risk of discrimination claims should also be given before taking into account their recent absence records or likely level of absence in the weeks and months to come.
  8. Employers cannot claim statutory redundancy payments under the CJRS but can claim notice pay (subject to the usual caps for furlough pay) if an employee's notice period coincides with a period of furlough. Whether the employer is obliged to "top up" pay during the notice period to 100% of the employee's normal pay could depend on whether the employer is required to give only the statutory notice period or at least a week longer, and on whether the employee has normal working hours or not. There are some uncertainties around this point so it is best to seek legal advice as to the appropriate options.

There are therefore a number of matters to be taken into account by any employer contemplating redundancies in the coming weeks and months.  Employers would be wise to put together a detailed timeline at this stage to ensure that these practical and legal considerations are reflected in their preparations, thus maximising the likelihood of a fair redundancy process and, ultimately, fair dismissals.

For a quick and easy reference guide on the basics around managing redundancies, please see our guide.

If you have any questions or would like advice on these issues, please get in touch with your usual Clyde & Co contact.

For more Coronavirus (Covid-19) information please see our Coronavirus hub here.