The risks of making redundancies in furlough


22nd July 2020

With the closure of the Coronavirus Job Retention Scheme to new entrants, decreasing Government contributions from August, and the scheme ending on 31 October 2020, many employers are turning their minds to the possibility of redundancies in the furlough period.

Please note that since this article was written, new legislation was brought in on 30 July to ensure that furloughed employees who are made redundant will receive redundancy pay based on their normal wage, rather than their furlough pay which is often less. Please see the Government announcement here.

Madeleine Mould has written a piece that was first published in Reward Strategy Magazine (issue 223), providing a summary of an employer’s collective and individual redundancy obligations.

Click here to read the article in full in Reward Strategy.

Collective consultation

Where an employer proposes to make between 20 and 99 redundancies at the same establishment within a 90-day period, they will be required to:

  • Notify the secretary of state, via form HR1 – failure to do so is a criminal offence
  • Commence formal consultation with appropriate representatives at least 30 days before the first dismissal takes effect, or 45 days if the proposal involves 100 or more redundancies

For collective consultation, redundancy has a wide definition (broader than for unfair dismissal claims), which simply is that the reason for dismissal is not personal to them.

The proposed redundancies must be at the same “establishment”, which will be fact-dependent. Employment tribunals will often consider a geographical test (are they located at different sites?) and an organisational test (do they behave as identifiable, distinct entities; are there separate management structures, workforces and tasks, and do they have sufficient permanence or stability?). Often, both tests will lead to the same outcome.

Who are "appropriate representatives"?

Where a trade union is recognised for collective bargaining purposes in respect of the affected employees, the trade union representatives will be the “appropriate representatives”. Without a recognised trade union, the employer can consult with another pre-existing body of representatives (e.g. an employee forum), or allow affected employees to elect representatives. Elections will need to be built into timescales – consultation cannot usually start until the representatives have been provided with the relevant statutory information.

Requirements and penalties

The employer must, in writing, provide appropriate representatives with information about:

  • reasons for proposed dismissals;
  • numbers and descriptions of employees involved;
  • the total number of employees employed by the employer at that establishment;
  • the proposed method of:
    • selecting employees;
    • carrying out the dismissals, including any agreed procedure and the period over which it would take effect;
    • calculating redundancy payments; and
  • “suitable information” about the Company’s use of agency workers.

They must then consult with the representatives meaningfully, with a view to avoiding or reducing the number of redundancies, or mitigating the consequences of the dismissals.

Failure to properly collectively consult can result in protective awards of up to 90 days’ gross pay (uncapped), in respect of each affected employee. The cost of getting it wrong is therefore potentially significant.

Individual employee's rights

In addition to collective consultation, employees must be individually consulted. Those with qualifying service will be able to bring unfair dismissal claims. Whilst “redundancy” is a potentially fair reason for dismissal, its definition is narrower in this context: an employee will be “redundant” if they are dismissed because the business closes, their workplace closes, or the business has a reduced need for employees to do a particular kind of work.

Once a potentially fair reason is established, the employer must show that they have followed a fair process, and the decision to dismiss was reasonable in all the circumstances.

Importantly, collective consultation does not replace individual consultation; failure to consult properly with individual employees could mean they are unfairly dismissed notwithstanding proper collective consultation. Challenges to selection for redundancy must be considered, as well as alternative roles and other options, potentially even continuing furlough if this would avoid the need for redundancy (although the furlough scheme is not necessarily a reason to postpone inevitable redundancy).

Finally, employers should be mindful of claims which do not require a minimum length of service, such as discrimination, whistleblowing and certain automatic unfair dismissal claims. In relation to COVID-19, employers should be particularly alert to the risk of automatic unfair dismissal where the sole or principal reason for the dismissal was that the employee, in circumstances of danger which they reasonably believed to be serious and imminent:

  • left or did not attend their workplace; or
  • took appropriate steps to protect themselves or others.

Furlough and calculating redundancy payments

There appears to be nothing to prevent employees from “working out” their notice whilst they are furloughed and continue to be employed (although whether they should be paid 100% of pay will depend on each case). A Statutory Redundancy Payment (SRP), however, cannot be paid using the furlough grant.

It is also unlikely that employers will be able to base “a week’s pay” for the purposes of an SRP on the reduced pay received during furlough. “A week’s pay” refers to “normal working hours” or variable working hours. If a worker’s normal contractual working hours have not changed, their SRP should be based on pre-furlough pay. Similarly where hours vary, no account is taken of weeks where no work is done (e.g. furlough). If there are no “normal working hours”, it is possible that an SRP could be based on reduced furlough pay, but there is no clarity on this and it is a risky approach.

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