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REDUNDANCY VERSUS FURLOUGH… WHICH ONE WILL YOU DO?

It’s true to say that you may NOT want to furlough your staff because your business has changed dramatically and certain roles may no longer exist in the new business model.

So are you permitted to make redundancies now that the government have provided a generous alternative?

The answer is Yes!

An employer can make employees redundant at any time if there is a reduced need for their work. Whether redundancy will be seen by the Tribunals as reasonable given the CJRS (Coronavirus Job retention Scheme) is open to debate.

If employees are made redundant, their entitlements are as follows.

Notice pay: All employees are entitled to paid notice if they are made redundant. Their contracts will stipulate the length of the notice period. If they do not, statutory minimum notice in the UK is one week’s notice for each complete year of service up to 12 weeks.

Statutory redundancy pay: If an employee has two or more years’ service, they qualify for statutory redundancy pay. This is a formula payment of one week’s pay (capped at £538 from 6 April 2020 (slightly less before then)) for each complete year of service (capped at 20 years’ service). It is then increased by 1.5 for years’ service during which the employee is aged 41 or over.

Unfair dismissal compensation: If an employee has two or more years’ service, they can claim unfair dismissal compensation in addition to statutory redundancy pay and notice pay if the procedure by which they were made redundant is unfair. Compensation is capped at a maximum of one year’s pay or £88,519 (from 6 April 2020) if less, per person.

Collective redundancy consultation: Where a business proposes 20 or more redundancies at one place of work in a 90 day period, it must consult with elected representatives of the employees for 30 days (or 45 days if 100 or more redundancies are proposed) before it can issue notice of redundancy.

The desire to avoid unfair dismissal liabilities and the requirement to consult collectively mean that redundancy is not an immediate solution for employers facing the current crisis – on the one hand, any attempt immediately to lay-off employees (absent a contractual right to do so) could result in claim and on the other hand, while it is always possible to make employees redundant, it takes time to do this fairly and in compliance with the legal requirements.

Summary of measures which employers are considering during COVID-19

The government’s Coronavirus Job Retention Scheme is radical and unprecedented. Undoubtedly, it has caused many employers to pause before implementing redundancies.

However, while we await more extensive guidance on how the scheme will operate in practice:

• a priority for business will be to identify which of its employees can be categorised as furloughed for the purposes of CJRS and then to take steps to designate those employees formally as furloughed for the purposes of claims under the CJRS; *(get in touch for a legally written letter template for this)
• if an employer has not already laid-off or furloughed its staff, it should consider carefully how to do so without breaching employment laws (given that furlough or non-statutory lay-off is not recognised by existing laws);
• the first priority is to find out if employment contracts contain a clause allowing the employer to lay-off workers without pay. If there are no lay-off clauses in contracts, businesses should next consider whether and how to implement lay-off with employees’ consent (e.g. as an alternative to redundancy or to enable the employer to claim under the CJRS) *(letter template available) Some employers have certainly risked implementing lay-off without employees’ consent given the circumstances, but this runs the risk of employees claiming damages or constructive dismissal

Other cost reductions that employers can consider are:

• terminating independent contractors, agency or casual workers who are not employees, or by not offering follow-up work to zero-hour workers;
• revoking offers made to new hire employees who have accepted an employment contract, but not started work – while these employees have insufficient service to qualify for statutory redundancy pay or unfair dismissal protection, if they have accepted an offer, they will be entitled to paid notice of termination in the normal way;
• requiring employees to take paid holiday during periods of self-isolation. Notice of double the relevant period of holiday is required under the Working Time Regulations although there have been instances of employers ignoring the notice requirement given the urgency of the current situation;
• asking employees to agree to other changes to their contracts as an alternative to avoid a redundancy situation such as reduced pay or hours; and
• giving notice to terminate any employee who has under two years’ service (and who does not therefore have sufficient service to bring a claim for redundancy pay or unfair dismissal).

So, which will you do, Furlough or make redundant?

Either way, The People’s Partner is here to help, as always.

Drop me an email michelle@thepeoplespartner.com to be added to the hR newsletter to keep up to date with what you need to know and be aware of!

*costs for legally written templates

Michelle