Furlough and Redundancy
This page was firstly published on 24 September 2020 and the last update was 1 September 2021.
Latest available figures show that at the end of June 2021, nearly 2 million employees remained on furlough, with 28% of employers still using the scheme.
Many of the business owners I talk to who are considering redundancy have never been involved in a redundancy exercise before and find it quite a daunting prospect. Here, I guide you through the key matters you will need to consider if you are unfortunately in the position where the possibility of redundancies is on your HR agenda.
What Is Redundancy?
A redundancy is a dismissal caused by one of three situations:
- the closure of the employer’s business;
- the closure of the employee’s workplace; or
- the employer’s requirements for employees to carry out work of a particular kind have ceased or diminished, or are expected to cease or diminish.
Even though your business is trading, turnover may not be anywhere near pre-lockdown levels, meaning you don’t have enough work for all your employees.
Redundancy is generally part of a planned reorganisation or a change in business strategy, but it may also be an unavoidable response to an external crisis, such as the coronavirus pandemic. A redundancy may also arise simply because the employer cannot afford to continue to employ staff for instance because the business is not trading and has no income.
Where a redundancy was actioned before the end of July 2020 and the employee claims unfair dismissal the employment tribunal may have questioned why it was necessary to take such a step while the wages of the employee were being so heavily subsidised by the Government. From August 2020, employers have to contribute to furloughed employees’ wage costs which allows some employers to show that these costs, given the businesses financial circumstances, made it reasonable to dismiss employees without continuing to take advantage of the scheme through to the end of October.
Without a good reason for not taking advantage of the Coronavirus Job Retention Scheme an employer may be found to be acting unreasonably. In an unfair dismissal claim, it is likely that the compensatory award (to be paid by the employer) would represent at least the amount that the employee would have received while furloughed, with a further sum representing the chance that the job could have been retained beyond the lifespan of the scheme.
What Are The Legal Obligations?
You must consult with staff, even if there is no option but to make redundancies, before formally giving notice. This should include the reasons why they are being made redundant. Consultation meetings during the period of strict lock-down were more challenging than usual but it still had to be done, now the lockdown rules have been relaxed consultation meetings can go ahead in the same way as any other business meeting, taking social distancing rules into consideration.
Some key points you need to remember are:
- The employer has an obligation to behave reasonably in making the employee redundant, as employees with at least two years’ service have the right not to be unfairly dismissed. The length of service requirement does not apply to dismissals on certain grounds, for example if the employee is selected for redundancy having made a protected disclosure.
- Where 20 or more people will be made redundant, at one establishment over a period of 90 days, you must start collective consultation 30 days before giving notice of the first redundancy. Therefore, if you intend to make at least 20 people redundant as soon as the Coronavirus Job Retention Scheme ends on 31 October you will need to start consultation no later than 1 October 2020. If more than 100 people will be made redundant then consultation must be at least 45 days and would therefore need to begin by 17 September.
- In the case of large-scale redundancies (20 or more employees being dismissed at a single establishment over a period of 90 days or less) there is also the requirement to submit form HR1, informing the Government of collective redundancies.
- Pay and other benefits accrue up until the date of termination.
- Consultation with an employee may not be quite so straightforward during the current pandemic and extreme working practices. Never the less, redundancy still means that the position is no longer viable or sustainable from a cost point of view and the position is redundant, if the position is re-instated too soon your former employee may have a case for unfair dismissal with the burden of proof resting on your shoulders, not on those of your former employee.
The extraordinary circumstances that we are all facing does not mean that these obligations can be ignored.
If an employee is unfairly dismissed, the financial circumstances of the employer will not affect the amount of compensation that is awarded. Failing to meet the required standard of reasonableness could, in those circumstances, make the employer’s financial situation even worse.
What Are Redundant Employees Entitled To Receive?
Redundant employees are entitled to receive:
- A redundancy payment based on age, length of service and gross weekly pay, if they have been employed for at least two consecutive years.
- A notice period, either worked or paid in lieu; the notice period will either be as described in their contract of employment or the statutory period on one week’s notice per year of service to a maximum of 12 weeks.
- Payment for accrued but unused holiday entitlement.
The Government brought in a new law on 31 July 2020 that ensures furloughed employees receive statutory redundancy pay based on their pre-furlough wages, rather than the reduced furlough rate. The changes will also apply to Statutory Notice Pay, which is where employees must be given a notice period before their employment ends, varying from at least one week’s notice up to 12 weeks’ notice, depending on how long they have worked for their employer. During this notice period, employees must be paid normal wages rather than their furloughed wages. Other changes coming into force will ensure basic awards for unfair dismissal cases are based on full pay rather than wages under the CJRS.
What Is Consultation?
Individual consultation is a fundamental aspect of a fair dismissal for redundancy, no matter how many or how few employees are at risk of redundancy. Even if there is a genuine redundancy situation, an employment tribunal will look at whether the employer acted reasonably in reaching the decision to dismiss when deciding if the dismissal was fair or unfair. Successful consultation requires the employer having an open mind and being able to discuss and consider the subject matter of consultation. If the employer has already made a decision, there will be nothing to consult on, making the process a sham exercise.
The fact that employees have been placed on furlough under the Coronavirus Job Retention Scheme will not in itself excuse you from the duty to consult and failing to carry out appropriate consultation will make any subsequent dismissal almost certainly unfair.
An individual consultation period gives you and your management team, an allocated period of time during which you can explain to each employee the basis on which they have been provisionally selected for redundancy and give the employee the opportunity to express their views, raise questions and discuss any alternatives to redundancy before the redundancies are formally agreed.
Within this time frame it’s important for you and your team to discuss:
- Who’s likely to be affected i.e. which teams, departments, locations
- How many redundancies you need to make
- Why you need to make them
- How you are going to choose who will be made redundant
- Ways to avoid or minimise the need for redundancies such as restructuring, retraining or offering revised conditions if that is appropriate
- Possibilities for redeployment to alternative work and any assistance you can provide to help the employee find alternative work outside your business.
You will also need to allow employees to express their views and feel their concerns about the process or any other relevant matters have been heard. Uncertainty and fear are normal with any type of change and it’s important to show sensitivity towards others feelings and circumstances.
The requirement to consult does not mean that you have to agree with what the employee says. It simply means considering what the employee has to say and not dismissing it out of hand. Genuine engagement with the employee is required.
To be genuine, Individual consultation must take place before a final decision is made and definitely before the employee is given notice of termination by way of redundancy. If an employee was served notice of dismiss prior to carrying out consultation, there is a grave risk that a tribunal will consider the consultation process to be a sham and the dismissal to be unfair.
How Long Should The Consultation Period Last?
There are no set time scales within which consultation should take place where less than 20 people will be made redundant in a 90 day period. However, the shorter the consultation period, the more likely an employment tribunal will question the fairness and quality of the consultation. Case law suggests that the bare minimum period for individual consultation is 7 days’ but we would advise employers to consider a 14 day period to enhance their prospects of establishing the dismissal process as fair. This allows you to demonstrate that you gave the employee adequate time in which to respond to your proposals and that the employee’s response was properly considered before you reached a final decision. If an affected employee is not consulted until late in the process, an employment tribunal may also question the adequacy of the consultation.
Don’t forget to consult with an employee on maternity leave.
One important effect of the Coronavirus Job Retention Scheme is that it will make it difficult for employers to argue that meaningful consultation was not possible because of the sudden and urgent nature of the crisis it faced. Government guidance on the scheme confirms that employees can participate in any consultation process while furloughed. An employer that believes that redundancies will become necessary when the support of the scheme is withdrawn should be open with employees and seek their views as to any possible alternatives well in advance.
In normal circumstances, an employer would expect to conduct consultations through face-to-face meetings. Clearly, however, that will no longer be possible in many cases. Email, telephone or online meetings may be appropriate, depending on the circumstances. Provided that consultation takes place and is genuine, the form it takes is of less importance.
How Do We Decide Who Will Be Made Redundant?
If you are making everyone redundant you won’t need to select employees for redundancy. But, when you are intending to retain some employees and make some redundant you must use a process of selection. This involves identifying the group, or “pool”, of employees to be placed at risk of redundancy, then selecting the individual employees within that pool who will actually be dismissed. There are no fixed rules about how the selection is to be made but should be based on future needs and the structure of the business. It should not generally take into account temporary factors such as whether or not an employee was placed on furlough. Furloughed staff should not be disadvantaged, and those employees who have not been furloughed should not, on that ground alone, be excluded from the process.
Selection processes always work better when the individuals affected by the process are involved in agreeing the criteria. The emphasis should be on objective criteria where possible, for instance: attendance and disciplinary records. Particular care should be taken to ensure that none of the selection criteria are discriminatory.
Typically, a selection process seeks to assess the skills and performance of the employee in their current role. That may be more difficult when the employee has been on furlough over an extended period, or working under less than ideal conditions as a result of the coronavirus crisis. It may be necessary therefore to look primarily at performance before March 2020, to ensure that a fair assessment is made of the employee’s performance in normal operating conditions.
Employers must also be careful to ensure that any decisions are reasonable and non-discriminatory and should avoid automatically using furlough absence as a selection criterion.
Employees With Caring Responsibilities Or Vulnerability To Coronavirus
Those employees who have been able to continue working are not necessarily more dedicated than colleagues who were furloughed and special care should be taken to ensure that those who have been furloughed are not placed at an unfair disadvantage to those who were not. This is especially so if an employee has volunteered for furlough because of their caring responsibilities.
Attendance and reliability often form an important part of the selection criteria used, but reasonable adjustments must be made to the selection process when these criteria are impacted by an employee’s disability or an absence is related to pregnancy.
Using reluctance to return to work as a negative criterion should be given careful consideration as an employee with an underlying health condition or with concerns about their vulnerability to coronavirus raises the risk of discrimination arising from disability or indirect discrimination based on protected characteristics such as disability, pregnancy, race or age. You may potentially be able to justify such actions, but would need to show compelling evidence of your need to make a choice based on these factors to protect the business. Such an approach should be adopted only when the risks to the business are urgent and you need to prioritise reliable attendance from the reduced workforce.
Another problem facing many employees during the coronavirus pandemic is childcare. Selecting employees for redundancy on the basis of their difficulty in coming into work because of this would create a risk of indirect sex discrimination. Parental status is not in itself a protected characteristic, but women are more likely to be disadvantaged by the unavailability of childcare. Since the childcare issue is likely to be temporary, you would have to show a severe and urgent need for employees to attend work, to be able to justify selection on this basis in response to any allegation of discrimination.
There is no qualifying length of service for a discrimination claim.
Cost is another factor that can play a role in the selection process. Those employees on the highest salaries will make the maximum savings in terms of salary costs but you may prefer to select those employees with the lowest entitlement to a redundancy payment. Although cost saving is one aspect of the overall aim of preserving and protecting the business there is the potential for indirect age discrimination if cost is used alone as the method of selecting candidates for redundancy.
Employees Who Were Re-Employed Prior To Furlough
Some furloughed staff may have been made redundant before the Coronavirus Job Retention Scheme was introduced and then re-employed so they could be placed on furlough. This should not in principle affect their selection for redundancy.
If there was a break in service of more than a week, then the continuity of employment is broken. This means these employees have less than two years’ service so are not eligible to receive a redundancy payment or claim unfair dismissal, so selecting employees in this position presents less of a legal risk.
If the employee was given a redundancy payment when initially dismissed and was reengaged quickly enough that continuity was preserved, their service for the purposes of another redundancy payment will be reset to zero but their service for claiming unfair dismissal would run from their date of commencement. If they had not accrued enough service to receive a redundancy payment and were engaged quickly enough that continuity was preserved, they may now have accrued enough service to make them eligible to receive a redundancy payment and claim unfair dismissal.
Giving Notice Of Redundancy
An employee dismissed for redundancy is entitled to notice in accordance with the contract of employment and subject to the minimum notice period set out in the Employment Rights Act 1996. This provides for one week’s notice per complete year of service, up to a maximum of 12 weeks.
Where notice is served on a furloughed employee and they continue to receive their wages as normal throughout the notice period then the appropriate percentage of the wages can be reclaimed through the Coronavirus Job Retention Scheme just as for any other furloughed employee. Where notice is served and the employee is told they will leave immediately and paid in lieu of notice, the value of the wages cannot be claimed through the Coronavirus Job Retention Scheme.
Notice pay should always be paid at the normal rate i.e. regardless of whether the employee is on leave such as holiday, sickness, maternity etc.
Since December 2020, employers have not been able to claim a grant under the CJRS for the period for which employees are serving notice. Employers must therefore fund any payments in respect of the notice period. Further, the CJRS does not fund any payments in lieu of notice.
Where a furloughed employee is served notice, they can continue to be furloughed during the notice period but the employer will be liable for 100% of the wage costs.
Working During The Notice Period
An employee who has been served with notice remains an employee for the duration of the notice period. You could therefore ask the employee to work for all or part of the notice period and remain at home (with pay) for the days you don’t want them to work.
It may be necessary for an employee to work for a short period to tie up any loose ends before they leave.
If the employee was furloughed when notice was served the ability to instruct them to return will depend on the terms that were written into the furloughed agreement. My recommendation was to state in the furlough agreement that the employee remains at the disposal of the employer and may be asked to return to work without the need for a formal notice to bring the period of furlough to an end. If your furlough agreements stated, the period of furlough would start and end on specific dates and had no clause allowing for an earlier return then you would need to negotiate an earlier return with your employee.
New Employment During The Notice Period
An employee who is served with notice of redundancy might secure other employment before the notice period has ended and the new employer may ask if they can start quickly. If you don’t have a contractual clause that prevents employees taking second jobs you could find an employee who is asked to remain at home during the notice period starts a new job without telling you and gets paid by both of you. If you don’t have such a clause include in your formal notice letters that employees who are offered a job before the notice period ends should request an early release date and the request should be in writing.
If you agree to the early release then the payments due to the employee will be recalculated to the new termination date. As the change of date will affect the holiday and notice pay and potentially the redundancy payment, you should confirm your acceptance in writing and outline how the termination payments are affected.
If you are unable to accommodate the early release you should notify the employee of your reasons and try to reach a compromise, for instance you may have a deadline by which work needs to be completed but could release them as soon as the work is completed.
Subject to any contractual restrictions, there is no rule to say an employee cannot have two jobs at once and there is nothing to stop a furloughed employee from finding work elsewhere, even if that means that overall, they earn more than they would have earned had they not been furloughed.
Employees who are made redundant are entitled to be paid for any accrued but untaken leave. Annual leave continues to accrue during furlough so an employee who has been furloughed since the start of the holiday leave year will have accrued a considerable amount. Legislation was introduced which allows employees who have been unable to take holiday due to the Coronavirus pandemic carry holiday over to the next two holiday years.
It is acceptable to ask an employee to take holiday entitlement during their notice period.
Calculating Statutory Redundancy Pay
Statutory redundancy payments are based on length of service, age and weekly pay.
- The employee’s length of service is based on a minimum of two years continuous service up to a maximum of 20 years
- The employee’s normal “week’s pay” is calculated as at the date on which notice is given (or the date on which the dismissal takes effect if the employer fails to give notice). However, in most cases, this does not mean that an employee who is furloughed on reduced pay when notice is given will receive a lower redundancy payment than they would have received had they not been furloughed.
Legislation was introduced in July 2020 to provide that statutory redundancy payments must be calculated using an employee’s pre-furlough wage. The cap of £544 per week applies for dismissals on or after 6 April 2021.
Calculating a Week’s Pay
For employees with normal working hours, a week’s pay is the amount they would be paid if they worked those normal hours. A furloughed employee will still be employed under a contract with normal working hours, they are just not being asked to work those hours while they are furloughed. Therefore, a week’s pay is not the amount they are receiving while furloughed, but the amount they would receive if they were working normally.
There may be cases where the employee agreed to shorter working hours before furlough took effect. If this was intended to be a temporary change, it is unlikely to affect the employee’s normal working hours. However, a permanent change will affect the calculation of a week’s pay, and therefore the redundancy payment, even if it was introduced a short time before the employee was made redundant.
Where the pay of an employee with normal working hours varies by the amount of work done, or the time at which the work is done, a week’s pay is based on the average amount paid in the 52 weeks leading up to the date when notice is given. But this average must be based on actual hours worked. If no hours are worked in a particular week, that week is disregarded, and the average is pushed back a week until 52 weeks where work is actually done are counted. Therefore, for a furloughed employee, the average week’s pay will be based on the 52 weeks leading up to furlough and not the period of furlough itself.
For employees with no normal working hours the position is less straightforward. A week’s pay must be based on a 52-week average, but a week is only disregarded for this purpose if no remuneration was payable. There is no requirement for any work to have been done for the week to form part of the 52-week average. Therefore, a week’s pay for a furloughed employee with no normal working hours will be calculated on the basis of a 52-week average that includes weeks of furlough. In some cases, this will lead to a lower redundancy payment, but in other cases the employee may be better off as a result.
The key date for all payments due on termination is the date the notice period expires and not the date when the notice was given.
The employer is responsible for paying the redundancy payment to any employee who qualifies for one.
If you are not in a position to pay, the employee can make a claim to the employment tribunal. Ultimately, an employer’s inability to pay its debts can lead to insolvency proceedings.
Coronavirus Job Retention Scheme (guidance collection) can be found on Gov.uk
I can provide step-by-step guidance about when the consultation period should begin and exactly what a redundancy procedure involves. See my Fixed Price HR Project: Provide Support While You Manage a Redundancy Situation
If you have any questions, please call me on 0114 360 0626 or simply email me at firstname.lastname@example.org.
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