It has been reported that Arcadia Group has been accused of potential breaches of employment law by offering staff redundancy packages that were said to include less favourable terms for their notice periods because of the government’s furlough scheme.
As businesses try to navigate the financial impact of the Covid-19 pandemic, many will continue to look for ways to cut costs. But is what Arcadia is alleged to have done lawful, and what should employers be bearing in mind when planning redundancies at this time?
Statutory rights are the same for furloughed staff
Furloughed workers have the same redundancy rights as any other employee, including in relation to protection from unfair dismissal and discrimination. Therefore, while it may be legitimate for employers to make staff who are on furlough or have returned from furlough redundant, they should ensure the usual redundancy criteria are met; ie that the redundancy is genuine and a fair redundancy process has been followed.
The government guidance is clear insofar as statutory entitlements are concerned: an employee who is made redundant while on or returning from furlough will be entitled to a statutory redundancy payment if they have two years' continuous employment, as well as any contractual redundancy entitlement. That redundancy payment should be based on their normal wage (ie their pre-furlough salary).
The same applies to statutory notice pay. However, it is important to note that the government’s legislation that clarified this came into force on 31 July, and does not apply to any redundancy or notice payments that were made before that date.
Contractual notice periods can be trickier
This is where it gets a little trickier and the guidance is not entirely clear in respect of the calculation of contractual notice pay over and above statutory notice pay. The relevant legislation sets out minimum periods of notice for all employees depending on length of service. Some employees have notice periods set out in their contract of employment that are longer than those statutory minimums. Employees whose contractual notice period is at least one week more than the statutory minimum notice period will be unaffected by the new regulations. In those circumstances, employers may be able to pay a lower rate (eg the rate received during furlough leave) in respect of contractual notice periods. So:
- if an employee is entitled only to the statutory minimum notice period, the employer must pay 100 per cent of the employee’s normal pay in respect of that notice period; or
- If the notice period set out in an individual’s employment contract is at least one week more than the statutory minimum, the employer can pay them their reduced rate of pay in respect of their notice period.
It is this ‘loophole’ that Arcadia is alleged to be relying on with some of their redundancies. If that is the case, it may well be found that they have not, in fact, breached employment law.
While it may be simplest for employers to consider employees on furlough for redundancy before looking to the wider workforce, they should remember that the usual discrimination protections continue to apply. Businesses should follow a proper redundancy selection process and give careful consideration to the criteria applied to minimise the risk of discrimination claims.
Other practical considerations
Finally, employers should consider the potential reputational damage caused by this kind of story appearing in the press. Regardless of whether Arcadia comes out of this unscathed from a legal perspective, it is likely that treating employees in a manner that appears to be taking advantage of the furlough scheme, to their detriment, will damage them reputationally. Businesses should think about what impact this might have on staff morale and loyalty as well as the impression it creates for customers and clients.
Beth Hale is a partner and general counsel and Nick Hawkins a senior associate at CM Murray