Redundancy after furlough: key considerations for employers

The extended flexible Coronavirus Job Retention Scheme (commonly called the furlough scheme) is due to end on 30 September 2021. The scheme has been a lifeline for many businesses throughout the pandemic and as we get closer to its discontinuation, businesses should consider how they will manage employees and whether they may need to restructure their staffing requirements to fit with the new economic environment.

In this article, Keely Rushmore outlines what employers should consider when planning redundancies after furlough.

What process should be followed when making furloughed staff redundant?

Furloughed workers have the same legal rights as any other employee. This means that the same protections apply in relation to unlawful discrimination and unfair dismissal.

Any redundancy must be genuine and fair, with due process followed. This applies to both furloughed staff and working staff. Employers can (and should) consult with employees on furlough, but need to consider the practicalities of this – for example, by ensuring that the meetings take place in a format with which the employee is comfortable, and that their right to be accompanied by a colleague or a trade union representative is respected.

Multiple redundancies at one establishment

If an employer is proposing 20 or more redundancies at one establishment, it will normally need to undertake collective consultation as well as individual consultation (there is a special circumstances defence where consultation is not reasonably practicable, but this is interpreted restrictively). This will involve careful planning, electing employee representatives (if suitable ones are not already in place), and consulting with them regarding various matters related to the proposals for at least 30 or 45 days (depending on the numbers involved). The employer is also required to notify the Redundancy Payments Service ahead of starting consultation, or else face a potentially unlimited fine.

What are the discrimination risks employers face?

Whilst an employer may be inclined to consider staff on furlough pay for redundancy above looking at other employees, employers should bear in mind that usual discrimination protections apply.

Furthermore, employers should take extra care when considering roles which are occupied by disabled workers. This may include workers with long-term health conditions that fall within the definition of a disability under the Equality Act 2010.

A recent Office for National Statistics report found that disabled employees were significantly more likely to be made redundant over their non-disabled colleagues.

In addition, reports indicate that women make up a disproportionate amount of the numbers on furlough leave, leaving open the possibility for discrimination on the grounds of sex.

What are the possible alternatives to redundancies?

Depending on the needs of your business, there may be alternatives to letting staff go.

For instance, could your business institute a hiring freeze? Could you redeploy staff from one area of the business to another? Or could you delay wage increases? Could you even look at a temporary percentage reduction in pay and/or hours across the workforce (ensuring, for employees on low pay, that rates do not fall below the National Minimum Wage)? Are there any provisions in the contract of employment that might help, such as a contractual right to lay-off without pay? Could you continue a flexi-furlough scheme after the official scheme has ended? You will not be able to reclaim payments, but there are advantages in retaining staff in this way if business will increase and it may be difficult and/or expensive to recruit.

Considering alternatives makes commercial sense, but it will also assist an employer in demonstrating that the redundancy is genuine and the process is fair.

Can a business change employees’ terms and conditions of employment?

In order to reduce an employee’s hours or pay (or other terms, such as contractual benefits), you need their consent.

Depending on the business, this may require a collective bargaining process with the union which represents staff. Depending on the terms agreed, this may be either binding on all employers or move towards facilitating individual agreement.

Alternatively, if you do not have a union, you will need to consult with the individual employees. In certain circumstances (depending on the numbers involved), employers need to consult collectively with employee representatives. Making adverse changes to a contract of employment is – for obvious reasons – a sensitive situation which requires careful planning and management. The way in which an employer communicates with employees (for example, in explaining why the changes are needed and taking on board suggested alternatives) is usually vital in securing the workforce’s agreement.

If some or all of the employees are unwilling to accept the proposed changes (and no viable alternative way forward can be found), the employer will need to decide whether to dismiss the employees, and to offer them re-engagement on the new terms and conditions. This is a risky route that could lead to claims of unfair dismissal; to successfully defend any such claim, an employer will need to demonstrate it had genuine and imperative reasons for needing to make the changes (these need to be above and beyond simply making a profitable business more profitable), and that it followed a fair and reasonable consultation process.

What payments are furloughed employees entitled to receive if they are made redundant?

Employees who are dismissed on the grounds of redundancy are entitled to receive a statutory redundancy payment (subject to having two years’ service), and to receive notice of termination (or a payment in lieu of notice) and any accrued but untaken holiday pay.

Furloughed employees may well receive less than their pre-furlough salary, and employers should ensure they calculate their entitlements correctly. Statutory redundancy payments are calculated based on age, length of service and weekly pay, with a cap applied to the amount of weekly pay. The government introduced legislation in Summer 2020 to confirm that redundancy payments should be calculated on the basis of an employee’s normal wage, in this case their pre-furlough salary, and not their (reduced) furloughed salary. Employers are unable to reclaim redundancy payments under the furlough scheme.

Notice pay is a little more complex and will depend on the employee’s contractual notice entitlement. If an employee’s contractual notice is at least a week more than their statutory notice entitlement (normally one week per complete year of service, capped at 12 weeks after 12 years’ service), then notice pay can be based on what the employee would have earned during their notice period, i.e. their reduced furlough pay.

However, for employees whose contractual notice period represents the statutory minimum (or is less than a week more than the statutory minimum) notice pay should be based on normal pay, even if an employee is on furlough. However, given the somewhat arbitrary difference between these sets of circumstances, employers may decide to pay full pay in respect of notice periods for all employees dismissed due to redundancy, irrespective of their length of contractual notice when compared to their statutory notice entitlement.

It is also important to note that employers are unable to make any claim under the furlough scheme in respect of any days (from 1 December 2020 onwards) on which an employee is serving their contractual or statutory notice.

It is certainly possible to dismiss furloughed employees on the grounds of redundancy, but any such dismissals require careful planning and communication, as well as an understanding of the potential pitfalls. Taking these steps in good time will minimise the potential for claims of unfair dismissal and discrimination. These claims are not only expensive to defend, but they will inevitably take an employer’s focus and resources away from the vital process of strengthening its business post-pandemic.

If you are an employer who is considering how they restructure their staffing requirements post-pandemic and have questions on redundancy, please contact Keely Rushmore.