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Dealing with Redundancies Once Furlough Ends

The current flexible furlough scheme has been operating in its current form since 1 November 2020 and is due to end on 30 September 2021. Multiple Treasury directions have stated that one purpose of the extended scheme has been to reduce “damage to economic activity in the UK”.

Once the job retention scheme ends, it is anticipated that there will be increased redundancies across many sectors. This is because the percentage of those on furlough leave has risen between October 2020 and January 2021 and there is evidence that extending the scheme has enabled employers to avoid additional redundancies thus far.

So, what do employers need to know when planning redundancies after furlough?

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 is not unlawful for employers to make staff who are on furlough, or have returned from furlough, redundant, they should ensure the usual redundancy criteria is met. This means that i) the redundancy is genuine; and ii) a fair redundancy process has been followed.

Since July 2020, government guidance has been 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 must be calculated using their normal wage (ie their pre-furlough salary).

As a result of the enactment of the Employment Rights Act 1996 (Coronavirus Calculation of a Week’s Pay) Regulations 2020, the same now applies to statutory notice pay.

Employers should note, however, that a job retention scheme claim cannot be made in respect of any day on which an employee is on notice of termination of their employment between 1 December 2020 and 30 September 2021.

Contractual notice periods can be trickier

What about pay during contractual notice periods? The guidance is not entirely clear in respect of the calculation of contractual notice pay over and above statutory minimum notice pay. Some employees have notice periods set out in their contract of employment, which are longer than the mandatory statutory minimums.

An employee whose contractual notice period is at least one week more than the applicable statutory minimum notice period will be unaffected by the coronavirus calculation 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.

To break it down:

  • 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; but
  • if the notice period set out in an individual’s employment contract is at least one week more than the applicable statutory minimum, the employer can pay them their reduced rate of pay in respect of their notice period.

Some employers, including Arcadia Group, have been reported as paying furlough pay only for contractual notice periods that fall into category ii) above. Others, such as M&S and Primark, are reported as opting to pay normal pay for the duration of the relevant contractual notice periods.

Discrimination risks

While it may be natural to consider employees on furlough for redundancy before looking to the wider workforce, employers should remember that the usual discrimination protections continue to apply. Businesses should not automatically restrict the pool(s) to furloughed employees. Careful consideration must be given to the criteria applied to select employees from the pool(s) to minimise the risk of discrimination claims.

Particular care should be taken when considering roles occupied by disabled employees. A recent Office for National Statistics report, Coronavirus and redundancies in the UK labour market: September to November 2020, found that the redundancy rate for disabled workers was higher than average, and tentatively concluded that “it appears disabled employees were more likely to be made redundant than non-disabled employees”.

What else should be considered? 

A prudent employer must consider the potential reputational damage caused by their redundancy story appearing in the press. Treating employees in a detrimental way, which appears to be taking advantage of the furlough scheme, is likely to cause damage both to shareholder value and reputation. Employers should also consider what impact this might have on the morale and loyalty of those they need or hope to retain, as well as the impact on customers and clients.

It is imperative to consider alternatives to redundancy, such as recruitment freezes, redeployment, freezing or delaying wage increases, not paying a discretionary bonus, or terminating temporary or agency employees in accordance with their contracts. These are all strategies that businesses should think about before deciding to implement compulsory redundancies.

This article was first published by People Management.

If you have any questions in relation to dealing with redundancies once furlough ends, please contact our Partner Merrill April, who specialises in employment and partnership law issues for senior executives, multinational employers, firms and partners.