Can you make employees redundant during furlough and if so, how?

Although the Coronavirus Job Retention Scheme (CJRS) is designed to help employers avoid redundancies during lockdown by furloughing staff, unfortunately the global impact of the coronavirus means that many of our clients, such as those in the retail sector, have already had to come to the conclusion that some staff cuts are inevitable.

So, understandably, the questions we are being asked are: A) Can employers make employees redundant during furlough and B) if so, how do you go about it?

Let’s start by looking at what we know so far. Please note that the situation is evolving rapidly so it is always best to ensure that any information you are acting upon is up to date. If in doubt, do get in touch with us for advice.

The CJRS guidance

There is no law yet on the CJRS, so the main sources of official information about the scheme that we have at the moment are the official Government guidance for employers, the official guidance for employees and the Treasury Direction. The Treasury Direction doesn’t mention redundancy – it is effectively the Government’s instructions to HM Revenue & Customs regarding how to administer the scheme. However, the other two sources do give some information.

The guidance for employers says:

“Employees still have the same rights at work, including […] redundancy payments. Grants cannot be used to substitute redundancy payments.”

The guidance for employees says:

“Your employer can still make you redundant while you’re on furlough or afterwards. Your rights as an employee are not affected by being on furlough, including redundancy rights.”

So from this we know that employees can be made redundant while they are on furlough, but the employer can’t claim reimbursement under the CJRS for any redundancy payments.

How should employers approach a redundancy process for furloughed staff?

There’s a lot we don’t know at this stage, so it is difficult to be definitive. However, there are some points you need to be aware of;

• The fact that existing employment rights aren’t affected means that you need to bear in mind a fair process in order to avoid unfair dismissal claims (for those employees with sufficient length of service) and if you have 20 or more people who will be made redundant within a 90 day period, your duty to go through a collective consultation process with employee representatives will still apply. For information and advice on these processes, please contact us. Employees will also be entitled to their other contractual and statutory rights in the usual way, including the right to a statutory redundancy payment (although some parts of their contracts may have been amended by the agreement to be furloughed).

• At this stage, the fact that those rights still apply is all we know – how an individual or collective redundancy process will work logistically with people on furlough is not clear. Bearing in mind that people on furlough are not supposed to be carrying out any work for the employer, you will need to think about how best to communicate with them (most of them probably won’t be checking their work emails!).

• Another consideration is whether or not attending consultation meetings constitutes ‘work’ and therefore whether it means an employee should not do it during furlough. Given the guidance referred to above, we have to assume that is not the case, but employees may well resist taking part in such meetings during a time when they have agreed to a reduction in pay in exchange for doing no work, and when it may be better for them to delay matters.

• If consultation does happen during furlough, inevitably it will need to take place remotely. The key thing for employers to think about is ‘reasonableness’. Ideally the process should be as close to the ‘real thing’ as possible, so we’d suggest a secure confidential video call as a first choice, provided that all parties have the relevant technology (and provided that it works!). This is similar to the approach we have suggested for remote disciplinary hearings in our article here. The next best thing would be to conduct it by telephone. Whatever method you go for, it would be a good idea for all parties to be encouraged to communicate their thoughts in writing as well.

• If you are terminating someone’s employment before the end of the CJRS, then you may need to justify why you are doing that rather than keeping them on furlough until the scheme ends. There is a risk that an Employment Tribunal might consider it to be an unfair dismissal in the current circumstances if someone could have been kept on furlough for longer at minimal additional cost.

What happens about notice?

• The Government’s guidance makes clear that employers can’t claim for reimbursement of redundancy payments, but it is completely silent on what happens about notice pay. There is a real division of opinion as to what the correct position is. Some take the view that an employee’s right to notice in accordance with their contract (or the statutory minimum notice, if longer) has to be paid at their normal rate of pay. If that is right, then presumably if notice is given during furlough the employer would need to ‘top up’ the furlough pay to the employee’s full rate for any weeks which represent part of the employee’s notice period (similar to the position regarding holiday – see our recent article on this here). That could be a significant additional cost for some employers, although obviously still much less than it would have been without the CJRS in place. Another analysis though is that by agreeing to be furloughed, the employee has agreed to a reduction in pay for the whole period of furlough and that this applies whether they are on notice or not, therefore for any weeks of notice that fall during furlough they would only qualify for the furlough rate (80% of pay or £2,500 whichever is the lower).

• And unfortunately the position could potentially be even more complicated than that (!) – some commentators are of the view that the position regarding pay for the notice period could depend on the length of the employee’s notice in comparison to the statutory minimum (this is similar to the position regarding notice for employees who are on long term sickness absence, as we covered in our previous article here). If this assessment is right, for someone who is on the statutory minimum notice period (one week for every year of service up to a maximum of 12 weeks) they would be entitled to be topped up to full pay for all of their notice period, whereas someone whose notice period is at least a week longer than the statutory minimum they would only qualify for the furlough rate (unless they have a long notice period, in which case they would get normal pay for the remainder after furlough ends).

• Bearing in mind the above, the safest approach would be for you to top up pay to 100% for the notice period, but do be aware that it may not necessarily be a legal requirement.

We’d always recommend that employers seek advice when they are considering redundancies, but it is particularly important to do so with the additional challenges that apply at the moment. Hopefully there will be some further clarification from the Government soon – we will of course provide you with updates as soon as we have them.