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How should employers approach redundancies over the coming months?

18 Jun 2020 By Siobhan Palmer

People Management answers some key questions, including on whether businesses can lay staff off while still using the furlough scheme and how to run remote consultations

Many companies across a variety of sectors are struggling to survive as the third month of lockdown measures continues. With a recession looming, and the UK forecast by the OECD to suffer the biggest economic hit from coronavirus of all developed countries, it’s already apparent that many employers will simply not be able to go back to normal once the furlough scheme concludes, or even once the pandemic has subsided.

However, unprecedented times are no excuse for poor practice. And how firms conduct redundancies will be closely scrutinised over the coming months – as British Airways discovered recently after being branded a ‘national disgrace’ by the transport select committee for its approach to restructuring. 

The firm is consulting on a plan to make 12,000 redundancies – making it one of several employers making large headcount reductions in this sector – and is planning to renegotiate its remaining contracts. While conceding the massive impact coronavirus has had on the sector, Huw Merriman, Conservative MP and chair of the transport committee, said BA’s actions fell “well below the standards expected from any employer, especially in light of the scale of taxpayer subsidy, at this time of national crisis”. (BA said it was acting within the law and doing all it could to protect the maximum number of jobs.)

So as many industries face bleak times and need to consider reducing their workforces, how can they approach this correctly and fairly? People Management asked the experts for guidance on some key questions...

Have there been any special allowances for restructuring made because of the coronavirus outbreak?

Simply put: no. Andrew Crudge, employment and immigration associate at Trethowans, says the government has repeatedly made clear that normal employment rules continued to apply, and any restructuring would therefore be subject to all existing employment laws.

However, Emma Capper, partner at Fieldfisher, notes that social distancing and home working requirements have made some of the required redundancy processes impossible to carry out. “Employers need to give extra thought as to how they run the consultation process,” she warns.

How does remote working affect the way consultations should be run?

“Consultation is unlikely to include face-to-face meetings unless they can be accommodated in a safe manner and in line with your risk assessments,” says Crudge. He emphasises that when consultation meetings have to take place over the phone or via videoconferencing, “employees have the same rights, including the right to be accompanied to certain meetings”. 

However, Capper says it is important for employers to remember that some employees “may not have the technology to participate virtually, especially if they want to have a union representative present”. 

Can a firm make redundancies while still making use of the furlough scheme?

In short: yes. “The guidance for staff who have been furloughed states that employees can still be made redundant while on furlough or afterwards, and employees’ redundancy rights continue to apply while they are furloughed,” explains Jennifer Smith, partner at JMW Solicitors. “However, an employer cannot claim reimbursement of redundancy payments under the scheme.” 

However, she adds, “where the business is continuing, there is the potential for the dismissal to be unfair and it is vital for employers to carry out full and fair consultations to minimise the risk of future claims. 

“There is an argument that it is unfair to make employees redundant when the government-funded furlough scheme is available as an alternative. However, this has obviously yet to be tested in a tribunal.”

What should a consultation process look like for furloughed workers?

Capper says where an employer had furloughed workers, “special attention” is required, particularly when it comes to communicating the process with staff on temporary leave. “Employers should have specified to furloughed workers how they would be staying in touch to update them, so it's best to stick to the pre-agreed form of communication,” she says. 

However, if how to communicate hadn’t been agreed before the employee went on furlough, there is a possibility such workers would be hard to contact, and wouldn’t be checking for company communications regularly, she warns.

Smith adds that issues with communicating effectively with furloughed workers “may be particularly acute” where there are obligations to collectively consult. “Employee and trade union representatives, who may need to be consulted on redundancy during furlough, can perform their duties without breaking their furlough,” she says.

If a redundancy process was to be eventually challenged, a special circumstances defence could be made. But, Capper warns: “This is extremely hard to argue and as a result of the furlough scheme, which was brought in to keep employees employed, it's unlikely to be successful.”

Can staff be kept on furlough after the job retention scheme ends, or do they have to be brought back or made redundant?

As long as this arrangement is agreed with the employees in question, there is nothing stopping employers keeping workers on furlough after the scheme ends. But of course, as Capper points out, “the full cost will be at the expense of the employer, so this is unlikely to be an attractive option”.

Do furloughed staff need to be prioritised for redundancies?

“The focus should not be on prioritising furloughed staff for redundancy,” says Crudge. “Instead, the business should put a plan together to consider what roles it will require going forward. If this is likely to result in dismissals, then all affected staff should be placed at risk of redundancy, and this shouldn’t just include furloughed staff.

“Employers need to be aware of potential unfair dismissal claims when making furloughed employees redundant. For instance, if childcare responsibilities prompted the decision to furlough an employee, this could be seen as unfair when it comes to redundancy.”

At what point can furloughed staff be made redundant if it looks unlikely the business will be able to take them back?

Redundancy is an option at any time, says Shilpen Savani and Paul Ryman, partners at gunnercooke. “You can choose to wait until the end of the job retention scheme if appropriate, but where redundancies are inevitable this can be implemented during furlough.”

But, they add, employers are “under a duty to raise the possibility of redundancies as soon as reasonably possible, so even if you are not going to actually start the redundancy process now, you should be having a dialogue with staff to keep them informed of the situation”.

Capper says employers need to be aware of reputational damage by choosing redundancy over placing employees on furlough while the scheme is still running: “It may be a case for unfair dismissal while the furlough scheme is seen as an alternative option.” 

What notice pay is a furloughed employee entitled to, and can the scheme be used to pay this notice period?

According to Savani and Ryman, if an employee’s contractual notice period is the same as, or up to six days in excess of, the statutory minimum, they must receive “100 per cent pay during their notice period on furlough”. However, if their contractual notice period is one week or more in excess of the statutory minimum, they can be paid at any agreed reduced rate of pay during their notice on furlough.

“You can use the furlough scheme during the notice period, but if an employee is paid in lieu of notice, it’s unlikely this can be claimed under the scheme,” they add.

However, there are potential additional complications, Smith points out. “There are specific legal provisions on calculating notice pay where an employee is ‘ready and willing to work’ but is provided with no work by their employer,” she explains. Where these apply, staff are likely to need to be paid their pre-furlough salary.

“These provisions are likely to apply where an employer has asked an employee to agree to be furloughed. They arguably do not apply to employees who are only on furlough because they requested it, as they are not ready and willing to work,” Smith says.

“Given the spirit of the furlough scheme is to preserve employment, it would seem counterintuitive to allow employers to give notice to terminate furloughed employees and be able to pay reduced notice pay. If employers do pay reduced notice pay, they may end up being liable for making up the shortfall and possibly face tribunal claims. Employers should take advice and think very carefully about whether they should pay full notice pay.”

Does furlough affect the amount of redundancy pay?

“Redundancy pay is unaffected by furlough leave and should be calculated by reference to the employee’s normal, non-furlough pay,” says Crudge, adding that “redundancy payments cannot be claimed by the employer through the job retention scheme.”

What alternatives to redundancies should be considered?

Crudge says employers will be under a “legal duty” to consider alternatives to redundancy. “Failure to do so is likely to render the dismissal unfair,” he warns. “Alternatives may include recruitment or salary freezes, removal of overtime and discretionary bonuses, reduced hours of working or voluntary sabbaticals,” he says, adding that employees’ suggestions for ways to avoid or minimise redundancies should also be sought as part of the consultation process.

Smith says there is a “very real possibility that a number of employees may not want to return to work until much later, because of personal anxiety surrounding the virus, childcare issues such as homeschooling or where grandparents or other carers continue to need to shield”. In these cases, she suggests employers discuss options including using unpaid statutory parental leave or granting unpaid sabbaticals, which could enable some staff to remain employed without pay until the situation improves and redundancies may no longer be necessary.

As ever, she emphasises that “communication is key with staff throughout this pandemic”.

Can furloughed workers’ contracts be renegotiated before they come back?

While employers are free to renegotiate and vary their furloughed workers’ contracts, Savani and Ryan explain, it’s important to ensure this is done by agreement, following a consultation if appropriate, and properly confirmed in writing to avoid the risk of constructive unfair dismissal and breach of contract claims.

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