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9-07-2020

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Furlough

The Coronavirus Job Retention Scheme (CJRS) introduced an entirely new concept into UK employment law, Furlough Leave. Rather than dismiss an employee or make them redundant, an employer can place the employee on furlough leave with part of their wages covered by the government in the form of a grant.

  • Until 31 July HMRC will reimburse 80% of furloughed workers wage costs (capped at £2,500 per month per employee) plus employer’s NIC’s and minimum automatic enrolment employer pension contributions on that wage if the employer makes a claim.
  • From 1 August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions.
  • From 1 September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed; and
  • From 1 October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed.

The CJRS was largely welcomed by employers. It has supported the wages of between 8-11 million workers, although concern has since been expressed about the requirement for employers to make a contribution. Some businesses are not currently able to trade and have little or no income and there is a risk of further localised lockdowns. Employers are now having to look more keenly at their staffing requirements. Consequently on 1 July more than 11,000 redundancies were announced.  

Changing Terms and Conditions

Before launching into compulsory redundancies employers may want to consider alternatives. For example employers can reduce employee hours/pay with agreement

If there is a recognised trade union for collective bargaining purposes,  an employer may be able to agree changes to employee terms and conditions with the union.

If there is no union, individual employee consent should be obtained and evidenced in writing. This can be more complicated than expected. If an employer plans to dismiss as redundant anyone who does not agree to the changes, or to force the change through by dismissing and re-engaging if necessary, then the need for collective consultation may be triggered depending upon the number of employees affected (see below).

Redundancy

Employees with two or more years’ service can claim unfair dismissal. 

Redundancy is a potentially fair reason for dismissal, but it must also be reasonable in the circumstances to dismiss for that reason. There is an argument that it is unfair to make employees redundant when the government-funded furlough scheme is available as an alternative. The fairness of a redundancy dismissal depends on all the circumstances at the time and from August, the furlough scheme will have a cost for the employer so redundancy could be fair notwithstanding the fact that an employee is still on furlough.

Individual and Collective Redundancy Consultation

Employers need to consult with individual employees if redundancy is necessary and employers may also need to consult collectively, depending on the numbers involved. The Covid situation does not change this, but it does pose additional challenges.

Collective consultation is required where an employer proposes to dismiss 20 or more employees at one establishment in a 90-day period for a reason unrelated to the individual. This covers redundancies and also the situation where an employee is seeking to impose new terms of employment backed by a threat to dismiss and re-employ if they are not accepted (see above).

Consultation must start “in good time” and at least 30 days must lapse before the first of the dismissals takes effect.

Consultation should take place with the “appropriate” representatives of the affected employees. These will be either recognised trade union representatives, existing employee representatives who have the appropriate authority or representatives elected specially for the purposes of the consultation.

The current Covid situation is likely to make face to face consultation impractical, but technology would permit meetings to be conducted by skype/zoom etc.

Where most employers get into difficulties is that they fail to adequately plan or allow sufficient time for due process to be carried out. In many cases where collective consultation is necessary, there will be no standing employee representatives and so elections will have to be held before the consultation process can even begin. There are rules around the election of representatives so it is a time absorbing process.  Whilst there is a “special circumstances defence” for failing to collectively consult it is unlikely to succeed except in the most extreme circumstances. One advantage with considering the issue of redundancy now is that furlough can help some of the costs associated with it.

 

Sarah Rushton is a partner and head of employment at Moon Beever LLP and can assist with all employment related matters you can contact her at srushton@moonbeever.com. This information is intended as a guide only.

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