The coronavirus (COVID-19) pandemic poses a significant threat to people’s health and wellbeing as well as having created huge disruption to businesses. People professionals will need to rapidly adapt their practices and procedures to suit the current situation and ensure their business continuity and viability. Part of this response may unfortunately have to include redundancies or other cost cutting measures. The nature of the virus means that employers may need to consider adapting their usual redundancy procedures, taking into account the Job Retention Scheme (known as furlough) and other government schemes. Below, we have outlined how the furlough scheme affects redundancy procedures.
For more specific questions relating to coronavirus, visit our Coronavirus hub.
The Coronavirus Job Retention Scheme and redundancy procedures
In March 2020, the UK Government announced the Coronavirus Job Retention Scheme, to help businesses deal with the economic consequences of the Coronavirus (COVID-19) pandemic and consequent lockdown measures. The Scheme has subsequently been extended and aims to help employers whose operations have been severely affected by coronavirus until it ends at the end of September 2021.
The scheme allows organisations to 'furlough' employees, ie place them on a temporary leave of absence. There have been several phases of the scheme:
- The first phase of the scheme (that concluded at the end of June 2020) enabled employers to reclaim up to 80% of furloughed staff wage costs from HMRC, subject to a cap of £2,500 per month if staff were fully furloughed.
- A second flexible phase of the scheme was operational between 1 July and 31 October. During this phase employees could be partially furloughed, combined with part-time working. Employers need to pay for any working time but can still claim a grant for periods of furlough, subject to certain conditions. Employers need to pay employers' NI and pension contributions from August onwards and contribute 10% and 20% towards furlough pay in September and October respectively.
- The third and fourth extended phases of the scheme applied from 1 November until end of March and then April 2021. The extended scheme will support salaries at 80% up to maximum of £2,500. Employers will pay National Insurance and employer pension contributions for both hours worked and hours not worked.
- The fifth and final phase will last until the end of September 2021. The scheme will continue to provide employees with salaries at 80% up to maximum of £2,500. The government contribution will remain at 80% until June 2021 and will then be reduced and employers will have to top it up. From July 2021, the government will contribute 70% and employers will have to pay 10% for hours not worked. In August and September 2021, the government will pay 60% and employers 20%. In addition, employers will pay National Insurance and employer pension contributions for both hours worked and hours not worked.
Employees have to agree to being furloughed (and to any decrease in salary). Any pattern of working can be agreed and any furlough periods can be claimed for in blocks of at least 1 week.
The usual rules around redundancy have not been changed. However, whilst the furlough scheme is in place and other government assistance is available, there are some additional considerations to be borne in mind, such as:
- Logistical issues which will need to be overcome if redundancy consultation processes take place remotely with staff who are furloughed.
- Organisations will have to think carefully about ensuring that redundancy pooling and selection criteria are fair. In particular, if an organisation is proposing to select staff for redundancy based purely on the fact that they are furloughed, there is a risk that this approach may give rise to an unfair or even discriminatory redundancy process and/or dismissals. The extent of the risk will depend on the reasons for staff having been placed on furlough in the first place, and the selection process that was used to do this.
- Staff are entitled to be paid their full salary during their notice period even if they have only been receiving the relevant percentage of furlough pay during furlough. For furlough periods after 1 December 2020 the furlough grant cannot be used towards a contractual or statutory notice payment or redundancy pay. Redundancy pay should be based on full salary not furlough pay. Any outstanding annual leave should also be paid at the full rate of pay.
- Redundancy dismissals may be an unfair dismissal, if they take place in circumstances where an employer did not properly consider alternatives, including retaining the employee on furlough or any other government scheme available.
An important point to bear in mind is that new government guidance is being published and updated on a regular basis. This means it is important for businesses to keep matters under close review and always read the latest guidance before beginning any processes. This guide will be updated when guidance is available.
The usual obligation to consult staff both individually and collectively about any redundancy proposals and allow them to comment on these before they are finalised, and rules about what a fair consultation should entail, will continue to apply irrespective of whether staff are or have been furloughed or not. While the furlough scheme is still in operation one of the primary issues to bear in mind when undertaking redundancy consultation processes with staff who are furloughed, will be the obvious logistical issues which are likely to arise from consulting with staff remotely. Redundancy consultation meetings will still need to take place individually and/or collectively. Employers will therefore have to consider how best to enable this, which could include an online 'town hall', online meetings or telephone calls. They may also need to build extra time into the consultation process to allow for any logistical issues which may arise.
There is no statutory right for employees to be accompanied at redundancy consultation meetings but it is good practice for employers to allow this under their redundancy procedure. So employees can still be given the right to be 'accompanied' to redundancy meetings (if that is your normal practice), even if such meetings are carried out remotely and/or virtually.
Employees and staff representatives will still be allowed to 'accompany' colleagues to redundancy meetings even if they themselves are furloughed, as the updated employer's guidance on the Coronavirus job retention scheme confirms that 'whilst on furlough, employees who are union or non-union representatives may undertake duties for the purpose of individual or collective representation of employees or other workers.'
If the collective consultation is triggered because an employer will be making 20 or more redundancies in a 90 day period, the employer will need to ensure that they consult collectively with the appropriate Trade Union or existing staff representatives, and that they meet the 30 day (or 45 day for 100 or more redundancies) deadline for commencing consultation. However, the effect of the pandemic, including current ongoing advice that people should work from home where they can, may mean that there are practical difficulties with appointing representatives in the normal way and/or undertaking full consultation. These issues could be more pronounced where there is no recognised Trade Union or existing staff representatives (meaning an election has to take place before consultation can begin). Employers should take every step to ensure consultation takes place, adapting the process to suit their own particular context.
Part of consultation should always include assessing whether there are any other alternatives to redundancy.
Employers should bear in mind that the furlough scheme is due to come to an end at the end of September 2021. Consideration should be given to how this may impact on the timeframe for any redundancy consultation period (whether that be on an individual or collective basis). More information is available in our returning to the workplace guide.
The law provides a rarely used defence for employers who have failed to collectively consult. Employers have to prove ‘special circumstances’ which made it not reasonably practicable to comply with the collective consultation requirements. Whilst unusual, the pandemic does not give employers an automatic excuse to avoid consultation. The defence applies to failures to consult at all, failures to consult in good time or to provide the required statutory information for consultation. The fact that the Coronavirus Job Retention Scheme has been introduced, along with other government support, makes it harder for employers to rely on the special circumstances defence. It therefore seems unlikely that the current situation would qualify for the defence and employers should continue comply with their redundancy consultation duties to the greatest extent possible.
Compassion during a redundancy situation
A redundancy situation can have a significant impact on the morale, mental health and wellbeing of both those employees who are subject to such process (whether they ultimately leave the organisation or not) and other employees in the organisation. Fears about job security and income loss have risen during the pandemic and research indicates that many people’s mental health has been negatively impacted during this time. This is especially true of some groups, including young people and those who already had a mental health condition prior to the pandemic. The economic climate and predicted large-scale increase in unemployment will further exacerbate some people’s concerns about finding another job. More information on supporting the mental health and wellbeing of employees during coronavirus can be found in our guide.
Although it may be impossible to avoid redundancies during this difficult time, it is important that every employer approaches a redundancy process with compassion and treats everyone with dignity, respect and kindness. Handling redundancy in a humane and compassionate way can make a significant difference to how people cope with the process. It will also have an impact on other employees in the organisation, who can be affected by the unsettling experience of seeing their colleagues being laid off and feeling their own job security is at risk - this is sometimes referred to as 'survivor syndrome'.
Regular, honest and two-way communication throughout the redundancy process is vital so that employees don’t rely on the grapevine to hear about what’s happening. Employers should take time to explain the reasons for the redundancy and why it’s a hard business decision, and consult around the possible actions that were taken to avoid redundancy and facilitate redeployment. Employees should be told that everyone knows their contribution to the business was valued and that redundancy selection is in no way a reflection on them personally.
Managers should be prepared to deal fully with people’s feedback and concerns, and ensure that the information given out is clear, and understood by those concerned. Giving notice is a difficult task and managers should be trained to handle redundancies with sympathy and clarity. They should feel confident to have supportive and sensitive conversations with people, listen with empathy and signpost anyone who needs further wellbeing support to the right resources. Employers should remember that being responsible for such processes can be a stressful experience too, and provide support to managers and HR professionals.
Being selected for redundancy can have a significant detrimental impact on someone’s mental health, regardless of their previous health history and personal resilience. Immediate and ongoing support should be available to the individual to support their health and wellbeing. This could include a range of options, including access to occupational health services, counselling and other services via an employee assistance programme (EAP) if this is available. Some EAPs provide continued support for employees who have been redundant for up to three months after employment has ceased, so try to make this available and that people know how to access it. If the organisation does not have access to these services, employers should provide information on external sources of help and support.
Where possible, outplacement advice should also be offered to leaving employees to maintain their morale and help them find alternative employment. Employees may need support to undertake effective job search, including the opportunity for employees to refresh their interview skills, redraft CVs, use social media and other channels for job seeking and make effective applications.
Redundancy selection process and criteria
A key consideration in any redundancy process will be the criteria by which staff are pooled, and selected, for redundancy. To be fair, selection must involve the fair application of objective selection criteria to a reasonably constituted pool of employees. The selection criteria and process must not be directly or indirectly discriminatory in any way. Staff should be consulted about the selection criteria and process at an early stage.
In the case of a redundancy process involving furloughed (or previously furloughed) employees, these requirements remain. The guidance is clear that, for furloughed staff, usual employment law and employee rights will apply, including protection from unfair dismissal and discrimination. So employers must be careful to ensure that selection pools and criteria are fair, objective and reasonable; are not directly or indirectly discriminatory; and that staff are consulted about them before they are finalised.
Automatically selecting employees for redundancy purely on the basis that they have been furloughed could be problematic for a number of reasons:
- First, the question of whether being on furlough would be a fair basis for selection for redundancy will depend on how staff were selected for furlough to begin with, what the process and criteria used were, and whether these were fair in the circumstances. The furlough criteria may not remain a fair basis on which to select for redundancy. It is likely that an employer would have to reassess the fairness of pools and selection criteria (and consult staff about this) at the point that redundancies became necessary, to ensure that any ensuing redundancies were not substantively or procedurally unfair.
- Second, if staff have been put on furlough because they have caring responsibilities, or are shielding for health reasons, subsequently pooling and/or selecting these employees for redundancy is likely to constitute indirect discrimination based on sex, disability or age. If the principal reason for furloughing staff is that they have child-care responsibilities, a health condition or are more vulnerable to COVID-19 because of their age or disability, it will be important that the employer ensures that they are not placed at greater risk of redundancy by virtue of the fact that they have been furloughed.
- Third, as mentioned in above, there remains something of a grey area around the question of whether selecting someone for redundancy when they could remain on furlough may result in the ensuing dismissal being unfair. The government may also put in place a post furlough job retention scheme as was proposed but abandoned in 2020. Employers need to consider whether it would be reasonable in the circumstances (taking their financial position into consideration) to wait until the furlough scheme comes to an end, and/or the organisation was able to claim decreased staff costs under the scheme, before effecting any redundancies.
Employees may argue that it is unfair to implement redundancies when the furlough scheme is available. Employers will allege that they still have to pay NICs, pension, full holiday pay top-ups and possibly increased payments for hours not worked. In addition from July 2021 employers will have to contribute 10% of the furlough salary, rising to 20% in August and September.
A potential grey area under the furlough scheme extension, is if employers can claim furlough for employees where it has already been decided that their roles will be redundant later on. This seems to be contrary to the underlying purpose of the furlough scheme to help employers retain the workforce. If employers are merely delaying inevitable redundancies there is at least a risk that it could be regarded as contrary to the purposes of the scheme.
Employers should therefore bear in mind the duty to explore other alternatives to redundancy and look for suitable alternative employment at all stages of the process. However, it may not be necessarily unfair in all cases to make employees redundant instead of furloughing them.
The guidance has previously indicated that employees may be made redundant while on furlough, but retain their usual redundancy rights and protection from dismissal. The government guidance confirms that if employers must make redundancies, they should follow the normal rules including notice periods and consultation.
Employers must make a decision, as to whether furloughed employees can return to their duties and if not, it may be necessary to consider redundancy after all other options are exhausted. It is therefore crucial that employers only effect redundancy dismissals where:
- there is a genuine redundancy situation, and
- they have followed a fair redundancy procedure (including in relation to consultation, selection, searching for suitable alternative employment, etc.) according to the usual employment law rules.
As discussed above, automatically selecting staff who are (or have been) on furlough for redundancy may give rise to an unfair or discriminatory dismissal. A dismissal effected whilst an employee is on furlough (in circumstances where it may be possible for that employee to remain on furlough rather than being made redundant) may also be unfair. The latter will depend very much on the particular circumstances of the case, including the size, resources and financial position of the employer.
Employees being made redundant are still entitled to:
- redundancy pay (if they have two or more years’ service)
- their contractual notice period (or pay in lieu), and
- any accrued but untaken annual leave (or pay in lieu).
We deal with this in more detail below.
Redundancies around October 2020
The extension of the furlough scheme was notified on 31 October 2020 (the date on which the scheme was due to end). Some employers had already issued notice of redundancy for this date. Where redundancy dismissals have already been confirmed and due process has been followed, as dismissals took place in good faith and in accordance with information available at the time it is likely that such dismissals will still be reasonable, although if challenged, this would only be determined in due course by an Employment Tribunal.
Employers were able to rescind the notice of termination for employees who were made redundant in preparation for the furlough scheme coming to its original end on 31 October. Employees made redundant in the month or so prior to this could be re-employed and furloughed. The general rule was that employees must be on the payroll on or before 30 October. Employees on fixed-term contracts that had expired since 23 September could also be re-hired and furloughed.
For claim periods between 1 November 2020 and 30 April 2021
Generally employers can claim for employees during this period if a PAYE Real Time Information (RTI) submission was made to HMRC for that employee between 20 March 2020 and 30 October 2020. If employees were made redundant, or they stopped working for the employer on or after 23 September 2020 the employee can be re-employed and furloughed as long as an RTI submission notifying payment in respect of that employee to HMRC must have been made between 20 March and 23 September 2020.
If employers decided to offer return employees to the furlough scheme for the duration of the furlough extension the employee’s agreement must be expressly obtained to this. Where employers do so, they should then consider the position again at the revised date. Where employers decide not to rescind notices of termination they should make notes in case their decision should be later challenged.
For claim periods after 1 May 2021 employers can claim for employees if:
- they were employed on 2 March 2021; and
- a PAYE Real Time Information (RTI) submission was made to HMRC for that employee between 20 March 2020 and 2 March 2021.
- Whether employees who were made redundant, or who stopped working for the employer can be re-employed and then furloughed between May and September 2021 has not yet been confirmed in the guidance.
In some cases, the restructuring may be already in place or underway. Some employers already know that employees are very unlikely to be needed next September when the furlough scheme ends and may proceed with redundancies now. This may be influenced by the fact that from July employers will have to contribute 10% towards furlough salary rising to 20% August and September (plus NICs and pension contributions).
Employers do not have to do rehire and furlough, but they can do so. They will need to consider this, if the employee requests it. Redundancy processes which were ongoing or subject to an appeal mean that employees may be able to challenge the fairness of selection for redundancy if furlough was not considered as an alternative. Agreement to re-furlough is always at the employer and employee’s discretion provided they can agree the terms.
In the decision-making process, employers will have to evaluate pressure from existing staff to help previous colleagues as leaving employees unemployed when furlough is at least an option may affect the morale of remaining staff.
Employers can refuse to rehire and furlough because of a number of factors. For example, the costs related to NICs, pension contributions, employer contributions (in July to September 2021) and accrued holiday may be an expense they wish to avoid. Employers who decide to rehire and furlough will also have to agree with the employees what happens to any redundancy payments already made.
Employees with two years’ continuous service are entitled to statutory redundancy payments based on a multiplier of:
- half a week's pay for each year of employment up to age of 22;
- one week's pay for each year between the ages of 22 and 40;
- one and a half week's pay for each year over the age of 41.
There is a maximum of 20 years' service which can be taken into account and a statutory maximum limit on the week's pay (£544 per week from 6 April 2021). For those made redundant on or after 6 April 2021 the maximum statutory redundancy pay is £16,320. Employers may offer more generous contractual redundancy payments.
Redundancy and furlough pay
The guidance is clear that employees' redundancy rights, and other employment rights, will not be affected by being furloughed. So, any employee who is made redundant whilst on furlough will be entitled to a statutory redundancy payment if they have two years' continuous employment, as well as any contractual redundancy entitlement.
Furloughed employees who are made redundant will receive redundancy pay based on their normal wage. Statutory redundancy payments are based on years of service, age and a week's pay. Statutory redundancy payments must be calculated based on an employee’s pre-furlough salary. This was confirmed by government guidance. The pre furlough salary for a week’s pay is currently capped at £544 (previously £538) which means that employees who earn more than this will just have their calculation based on the £544 figure.
Under the furlough scheme extension until the end of September 2021, any calculation of any statutory redundancy pay, or statutory notice pay must also ignore any reduction in wages resulting from the employee being furloughed.
If employees’ pay varies, or they have no normal working hours, then pay is normally averaged over the previous 12 weeks. If this period includes at least one week of furlough then the averaging must be based on full rather than reduced pay.
For other claims a week’s minimum pay also applies. For example, in a claim for unfair dismissal basic awards for a badly handled redundancy or failure to provide written particulars the employees’ normal (non-furlough) salary should be used.
The calculation of any contractual redundancy entitlement will depend on the contractual terms governing that payment (and subject to any valid contractual variation made before the employee was furloughed). The furlough legislation does not affect any agreements about enhanced contractual redundancy pay as it only applies to basic statutory redundancy pay entitlements.
Employees who are made redundant whilst on furlough are entitled to notice of termination in accordance with their contracts. The government have confirmed that statutory notice pay during the notice period is also payable at the rate of the employee’s full contractual normal salary not their wages under the furlough scheme.
The November guidance confirms that if employers must make redundancies they should follow the normal rules including notice periods and consultation.
Employers cannot claim the furlough grant during a furloughed employee’s period of contractual or statutory notice. (Employers were previously able to claim for a furloughed employee serving a statutory notice period before the 1 December 2020.)
Therefore, employers who are thinking about dismissing for redundancy may need to give employees notice before 1 December, or accept that both redundancy payments and full usual notice pay will be payable by the employer in full rather than allocating a portion of the furlough grant towards the notice part of the payment.
Employers cannot reclaim actual redundancy payments or payments in lieu of notice under the furlough scheme. Payments in lieu of notice should be calculated based on pre-furlough pay.
There are some complex legal arguments surrounding notice, especially regarding the distinction between contractual and statutory notice pay.
Holiday: Furloughed employees who are made redundant are entitled to be paid in lieu for any accrued but untaken leave (bearing in mind that annual leave continues to accrue during furlough leave). Employers will not be able to reclaim payments in lieu of annual leave under the furlough scheme. Unless any further guidance emerges employers claim a furlough grant for the cost of any annual leave taken during the notice period, of up to 80% salary subject to the relevant monthly cap. This leave will have to be topped up by the employer to the rate of the employees full (pre-furlough) salary.
Job Support Scheme
Initiatives similar to the abandoned Job Support Scheme (JSS) or Job Retention Bonus, may be introduced when the furlough scheme ends although this is pure speculation at present.
If a scheme similar to the JSS scheme is reinstated employers should, prior to making any role redundant, carefully assess whether this scheme could provide alternatives to redundancy. Employers should therefore, prior to making any role redundant, carefully assess whether this scheme has been revived and if it could provide an alternative to a redundancy situation.
Employees who are working under any government schemes or facing potential redundancy may also experience stress and anxiety and be concerned about their future. The government schemes to date provide for reduced income which is a source of reduced wellbeing in most cases. Employers should aim to support the mental health and wellbeing of employees whilst the government schemes are in operation and beyond.
More information will be added to this guide when further information is available from the government.
DISCLAIMER: The materials in this guidance are provided for general information purposes and do not constitute legal or other professional advice. While the information is considered to be true and correct at the date of publication, changes in circumstances may impact the accuracy and validity of the information. The CIPD is not responsible for any errors or omissions, or for any action or decision taken as a result of using the guidance. You should consult a professional adviser for legal or other advice where appropriate.