With the Government’s Coronavirus Job Retention Scheme set to finish on 31 October 2020, many employers are currently being faced with the difficult decision of whether to make workforce cuts in light of a slowdown in consumer engagement across many industries.
From 1 November 2020, employers will no longer be able to furlough employees and claim support from the Government in respect of those employees’ wages, and as many industries are not yet buoyant enough for employers to welcome back (and pay) all members of staff, it is unfortunately inevitable that numerous redundancies will be taking place over the coming months.
Below are some important elements for employers to consider when making workforce redundancies.
A genuine redundancy situation and fair process
The Government’s Guidance Notes accompanying the Coronavirus Job Retention Scheme are clear that redundancies may be a necessity, and employers will need to consider in circumstances where it is not possible for all employees to return to the workplace, whether there are any alternatives or whether, ultimately, termination of employment (by virtue of redundancies) will be necessary.
Notwithstanding the Government’s introduction of the Job Retention Scheme, the usual rules on making redundancies will still apply. There are, however, some additional considerations that employers should bear in mind, and the question of whether a genuine redundancy situation has arisen, by virtue of COVID-19, may not be entirely straightforward.
There are three circumstances in which an employee is able to be made redundant under the Employment Rights Act 1996:
- Business closure (altogether);
- Workplace closure (closure of one of several sites or relocation to a new site); and/or
- A diminished requirement of the business for employees to do work of a particular kind.
If an employer cannot satisfy one of the above criteria, in respect of the dismissal of an employee for the reason of redundancy (whether or not it is coronavirus-related), then there is a risk that the employee may be able to successfully bring a claim against the employer for unfair dismissal.
Considering the three circumstances outlined above, it would appear that by virtue of the coronavirus outbreak there would be, for the majority of businesses, a diminished requirement of the business for employees to do work of a particular kind. However, the situation is not always a straight forward one and consideration must also be given as to whether the reduction in work is temporary and if so, for how long.
Employers will also need to think carefully about ensuring that redundancy pooling and selection processes are undertaken in a fair manner. In particular, employers should be careful if they are considering employees for redundancy based solely on the fact that they have been furloughed, as there is a risk that this approach may give rise to an unfair (or even discriminatory) process or dismissal. This is also likely to be dependent upon the reasons for the employees having been placed on furlough in the first place, and the selection process that was undertaken to do this.
There may also be a risk of further claims from disgruntled employees (including those that have not been made redundant) if employers have not complied with all of their obligations under any employment contract(s). For example, if employers have unilaterally amended employees’ terms of employment to reflect a reduction in salary (to the level of furlough pay that is being claimed for those employees) then there is a risk, if the employer did not have the right to unilaterally amend the employment terms, that the employees may have the basis for a claim in respect of the reduction of salary.
Consideration must also be given to any collective consultancy obligations that must be met in circumstances whereby an employer is making 20 or more employees redundant (within any 90-day single period at a single establishment).
Employers will need to ensure that a fair, and adequate, redundancy process is engaged and that there have been no other breaches of any contractual or statutory rights of the redundant employees.
Calculating redundancy pay for furloughed employees
Employees who are dismissed by way of redundancy are likely to qualify for a statutory redundancy payment (which must be calculated correctly).
In order to qualify for a statutory redundancy payment, the employees must have had at least two years’ continuous employment, and the calculation for the redundancy payments is set out in Employment Rights Act 1996. Employers must also be aware that there may be an express, or implied, contractual right to an enhanced redundancy payment over and above any statutory entitlement.
Consideration must also be given as to what level of pay the redundancy calculation will be based upon in circumstances whereby the employee has had a recent and temporary reduction in wages as a result of being furloughed. From 31 July 2020, the Government has introduced new rules aimed at ensuring that statutory payments, such as redundancy pay, being made to furloughed employee are calculated based upon the employee’s normal pay, rather than any reduced furlough pay.
Below is some information to assist in circumstances whereby a furloughed employee is made redundant on or after 31 July 2020 and before 1 November 2020 (at which time the furlough scheme ends and it is assumed that any employees on a temporary and reduced wage resulting from furlough would assume their normal pay from 1 November 2020).
Employees with fixed working hours
In circumstances whereby employees have normal working hours (and whereby pay does not vary from week to week based upon work done), any redundancy pay calculation shall be based upon that employees’ ordinary wage. In other words, if the employees’ pay has been temporarily reduced as a result of being placed upon furlough leave, the redundancy calculation must be based upon the employees’ wage before the reduction.
Employees with non-fixed working hours
In circumstances whereby an employee’s pay varies based upon the amount of work done, or time spent working, in any given week, the redundancy calculation is based upon the average of the employee’s pay over the 12 weeks prior to the redundancy.
Under the new rules introduced on 31 July 2020, provided that the employee has been furloughed for at least one week during the 12-week calculation period, the employee’s redundancy pay shall be based upon full pay rather than any reduced furlough pay. In other words, the employee must be treated as if they had worked during any weeks upon which they have been furloughed and have worked zero hours as a result of this.
It should be noted that the new rules will not apply to employees whose employment was terminated before 31 July 2020. This is the with exception of those employees whose statutory notice would have expired on or after 31 July 2020 had the full statutory notice been given.
The statutory cap on redundancy pay, which is currently based on a week's pay capped at £538.00 (and subject to a maximum award of £16,140.00), is not effected by the new rules.
There are also further new rules concerning the calculation of statutory notice pay whereby notice has been served on or after 31 July 2020. However, this article does not go into further detail on notice pay. The new rules on notice pay appear to only apply to those who fall within the ambit of a statutory notice period or whereby contractual notice does not provide for at least one week above the statutory minimum. However, the Government’s intention in this regard is somewhat ambiguous and it is important to seek advice if in doubt about the calculation of notice pay.
Consideration must also be given by employers as to any holiday pay that redundant employees may be entitled to.
Do you need assistance with staff redundancies? Contact our employment specialists at Lewis Nedas today to see how we can assist and support you through this process