Advice note – furlough and redundancy

06 May 2020

Although the Coronavirus Job Retention Scheme (“CJRS”) currently offers a short-term alternative to redundancies, when it comes to an end there is no doubt that many organisations will have no alternative but to make some of their workforce redundant. This raises the question of how the redundancy consultation obligations run alongside this period of furlough.  This advice note deals with a redundancy situation involving less than 20 employees being made redundant at any one ‘establishment’ (e.g. at any one site) within a 90-day period.  Please see our separate advice note on collective consultation obligations for a redundancy situation involving 20 or more employees at any one ‘establishment’.

Can an employer consult with employees about redundancy whilst on furlough?

There has been some suggestion that the very strict requirement that furloughed employees should not be performing any work for the employer prevents them taking part in the consultation process. The argument is that, by engaging in discussions about the future of the business and how the employer might reduce the need for redundancies, the employees can be said to be working. However, we don’t think that this is something that employers need to worry about as the government guidance indicates that work involves making money for the employer or providing services for the employer.  It is therefore unlikely that an employee participating in a redundancy consultation exercise would be regarded as carrying out “work” during furlough.  Indeed, the government guidance for employees makes the point that the employer can still make an employee redundant while they are on furlough or afterwards. That guidance also states that ‘rights as an employee’ including redundancy rights, are not affected by being on furlough:- see here.

It is difficult to imagine HM Revenue and Customs seeking the repayment of a grant made under the scheme when it discovers that an employer did its best to consult employees about what would happen when the scheme was brought to an end.

A key practical issue for an employer who wishes to undertake a consultation exercise while employees are on furlough will be whether it has in place effective methods of communicating with the furloughed employees. Many employers will be seeking to remain in regular contact anyway and may therefore be able to contact employees swiftly via email.

Where proportions of the workforce are not on email, or the employer does not have up-to-date email contact details, remedying this will be first step in preparations for consultation. It may be necessary for the employer to rely on postal communications, which will inevitably lead to delays and affect the timescale for the consultation process.  Given social distancing requirements an employer may choose to hold individual consultation meetings via telephone or video conference rather than face to face meetings if appropriate.

If an employee is selected for redundancy can an employer give notice of termination whilst the employee is on furlough?

There is nothing in the current HMRC guidance to say that the employer cannot terminate an employee’s employment while they are on furlough:

The government guidance for employees on furlough above states:-

“Your employer can still make you redundant while you’re on furlough or afterwards.”

The government guidance for employers (when your employees are on furlough) states that furloughed employees still have the same rights at work, including in relation to redundancy payments.

We understand that similar job protection schemes in other countries are conditional on the employer not making redundancies while in receipt of grants under the scheme and/or not making redundancies for a specified period after it ends. The UK government has chosen not to impose any such restrictions in the CJRS, which is another indication that redundancies are permitted.

It therefore seems clear that employment may be terminated during furlough by reason of redundancy; there is no reason to suggest it may not also be terminated for other reasons.

An employer contemplating making redundancies will need to consider the potential damage to the morale of remaining staff, and to the reputation of the business, particularly where employees were told before agreeing to a period of furlough on reduced pay that the measures the employer was taking would help it to manage the business through the Coronavirus lockdown, and save jobs.

Before terminating any employment, the employer will of course need to ensure in the normal way that:

  • there is a potentially fair reason for dismissal and that the employer follows a fair procedure before taking the decision to dismiss, including proper consultation;
  • if the employee is made redundant, they receive their statutory redundancy payment (if they are entitled to one);
  • if the employer proposes 20 or more redundancies at one establishment within a period of 90 days or less, it satisfies the collective consultation obligations
  • the employee receives their contractual notice (or statutory minimum notice, if longer), and payment in lieu of any accrued but untaken holiday

The government guidance for employers states that grants under the CJRS cannot be used to substitute redundancy payments:- see here.

It does not expressly address the question of whether a CJRS grant can be used to pay the employee’s salary during their notice period. This would suggest that the CJRS grant can be used for this purpose, although there is the risk that HMRC might not regard it as within the purpose or ‘spirit’ of the scheme.

The position in relation to whether a claim can be made under the CJRS for payment in lieu of notice is clearer.  Under the terms of the Treasury Direction, the employer can only claim under the CJRS for existing employees and costs of employment can only be claimed if they relate to the payment of earnings to an employee during a period in which the employee is furloughed:- see here.

The employment of an employee who is paid in lieu of notice terminates immediately, and so the employee will cease to be an employee in respect of whom a claim can be made.

Where the employer is able to claim a grant in respect of an employee under the CJRS as an alternative to dismissal, can it ever be fair to dismiss that employee?

As noted above, while the ‘spirit’ of the CJRS is to preserve jobs, nothing in the terms of the Treasury Direction, the employer guidance or the employee guidance prohibits an employer from terminating an employee’s employment while they are on furlough.

In accordance with usual principles, the employer will need to show a potentially fair reason for dismissal and that, in all the circumstances, the employer acted reasonably in treating that reason as a sufficient reason for dismissing the employee. There is always a risk that a Tribunal could find that an employee was unfairly dismissed on the basis that it could be argued that it was unreasonable to dismiss an employee on the grounds of redundancy whilst the CJRS remains in operation. However, in relation to redundancies, for example, it may be that the employer can demonstrate that the structural reasons behind the redundancies (e.g. predicted ongoing downturn in orders, closure of sites) exist now and will persist after the CJRS ends, so that postponing the redundancies until the CJRS is no longer available would just be postponing the inevitable. We predict however that many Employment Tribunal Judges will be sympathetic to employees dismissed during furlough and may want to award compensation in such circumstances. It is therefore likely that the evidential burden on the employer, to justify the need to dismiss while the CJRS scheme is still available, will be high.

If an employee is given notice while on furlough, what notice pay are they entitled to?

If the employer is not required to give at least one week more than the statutory minimum notice, then the employee is entitled, in broad terms, to be paid a week’s pay for each week of the statutory notice period.

If the employee has normal working hours, they are entitled to be paid an average hourly rate (calculated by dividing a week’s pay by the number of normal working hours), for any hour in the statutory notice period during which they were (among other things):

  • ready and willing to work, but no work was provided by their employer, or
  • incapable of work because of sickness or injury

We consider that an employee will be entitled to this pay protection during their notice pay if:

  • they are furloughed because the employer has no work for them to do (or wants to save wage costs), on the basis they are ‘ready and willing to work’
  • they are furloughed because they are on long-term sick leave, on the basis they are incapable of work because of sickness or injury

If the pay of an employee with normal working hours does not vary with the amount of work done or the time of work, a week’s pay is the amount which is payable if they work throughout their normal working hours in a week (i.e. based on their pre-furlough pay).

If their pay does vary (e.g. depending on their performance), a week’s pay is their average pay during those normal working hours over the previous 12 working weeks (pre-furlough), including any commission or similar payment which varies in amount.

If the employer is required to give at least one week more than the statutory minimum notice, then the employee will only be entitled during notice to the contractual rate of pay they would otherwise be receiving, i.e. (depending on the precise terms of the contractual variations agreed with the employee regarding furlough) typically the lower rate of furlough pay. However, if an employee ends up being paid less than their usual, pre-furlough pay they may claim e.g. that the employer is in breach of contract by failing to pay them the higher, usual amount during their notice period. An Employment Tribunal is likely to want to ensure that an employee who is given notice of termination is not financially disadvantaged because they are, or have been, on furlough. In most cases, when agreeing to be placed on furlough under the CJRS, an employee would not be aware of any risk that this might have implications for their notice pay, if they are subsequently dismissed.

What is the effect of reduced furlough pay on redundancy pay?

For employees with normal working hours, a week’s pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.  In relation to an employee with normal working hours, a week’s pay would be calculated on the basis of their usual, pre-furlough, rate of pay, as this is the amount payable ‘if the worker works throughout his normal working hours in a week’.  For employees with normal working hours whose pay varies depending on performance a week’s pay (e.g. employees with a basic salary plus commission) would be calculated on the basis of average weekly pay in the 12 weeks pre-furlough.