Furlough as alternative to redundancy?

As the scheme for claiming furlough for employees developed over time, employers have questioned whether its existence should affect their decision-making about the timing of redundancies. The concern was whether making an employee with over two years’ service redundant, whilst furlough was still in operation, could amount to unfair dismissal.

Government guidance on using furlough

In our April 2020 article, we noted that Government guidance was clear that employees could be made redundant whilst on furlough, and that employees’ redundancy rights (and other employment rights) would not be affected by them being furloughed. A fair redundancy process includes conducting a meaningful consultation where proper consideration is given to ways of avoiding redundancies. This involves listening to and considering the employee’s suggestions. We surmised in the article above, that if an employer terminated employment before the end of the furlough scheme, that the employer may need to justify why this action was taken. We considered the risk higher where employees could have been kept on furlough for longer, at minimal additional cost to the employer.

Two recent cases

Two Employment Tribunal judgments have been reached which addressed this issue. The decisions are not binding but show the type of judicial considerations taken.

In Mhindurwa v Lovingangels Care Ltd, the dismissal of a care assistant in July 2020 was deemed unfair. The Judge accepted that live-in carer work had diminished, and at the date of dismissal there was no work for the employee. However, the employer’s failure to adequately consider the employee’s request for furlough, and to provide a proper appeal (furlough was again not considered), rendered the dismissal unfair.

The Judge concluded that in July 2020, a reasonable employer would have considered whether the employee should be furloughed to avoid redundancy. The employer was criticised for not considering whether a period of furlough should be granted to see whether demand for live-in carers was restored.

In Handley v Tatenhill Aviation Ltd, Mr Handley was employed as a small aircraft flying instructor for 16 years until 10 August 2020, when he was dismissed for redundancy. The employer was a small business with 12 employees. Before the pandemic the business was struggling financially, and the Judge accepted that with the loss of income from the flight school and aircraft hire during lockdown, the company suffered a cash flow crisis. In April 2020, Mr Handley’s furlough agreement stated that furlough would be for 3 weeks initially or until he could return to work as normal. His claim for unfair dismissal was successful due to unfair procedure, but he did not succeed in arguing that the agreement wording prevented the redundancy, or that the employer should have kept him on furlough rather than dismiss him. The employer projected that in the foreseeable future they could not see that demand would increase, and that even when it did, they anticipated much reduced demand. The Judge accepted that the employer needed to cut costs regardless of the availability of the furlough scheme, and that although another employer might have kept Mr Handley on furlough for longer, it was not unfair to dismiss him in August 2020.

Should redundancies be made before the end of the furlough scheme?

It will not inevitably be unfair to make an employee redundant while the furlough scheme is in operation. However, employees may be able to challenge the fairness of a redundancy dismissal if putting them on furlough was not considered as an alternative, or a good explanation cannot be given as to why furlough was denied. The date of the decision to dismiss, is likely to be an important factor the Judge considers when determining whether the decision to dismiss was reasonable.

With the furlough scheme coming to an end on 30 September 2021, employers should by now have a better idea as to the likely demand for employees after this date, but should still discuss and document their reasons for ending furlough if redundancies are made before the scheme ends. Our team has many years of experience in advising employers on redundancy processes and can assist you if you are unsure of what to do.