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Redundancy during or after Furlough (for Employers)

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Whilst the Government’s Job Retention Scheme was designed to avoid as many redundancies as possible, it is inevitable that some employees will be made redundant during or following Furlough. 

It has been estimated that over 8.4 million workers have been furloughed in light of the coronavirus pandemic. This demonstrates the significant impact it has had on all UK business. The scheme is currently available until October 2020, following which, a surge in redundancies is expected. Despite the uncertain and unprecedented times, employment laws still apply and employers must ensure they follow the correct procedures when carrying out redundancies. 

Can furloughed employees be made redundant?

The HMRC guidance for employers confirms that redundancies can be made whilst an employee is on furlough. An employee’s rights continue during furlough, including the certain rights you are entitled to when being made redundant. This includes the right to redundancy pay, a paid notice period and the right to any money owed by the employer. 

Employers must have due consideration to the rules surrounding redundancy and, in particular, the requirement to consult with their employees. This obligation does not disappear simply because an employee is on furlough with social distancing rules still in place.  

How to consult with employees on furlough?

A key feature to a fair redundancy is the consultation process carried out by employers. The rules surrounding consultation will vary depending on the number of employees being made redundant at any one establishment. Where 20 or more employees are being made redundant, the collective redundancy rules must be followed. As an employer, your obligation to consult continues and, whilst this may have inherent practical difficulties, you should ensure suitable arrangements are made. You may need to consider virtual meetings and, where such facilities are not available, the possibility of conducting consultations by telephone. You should not, by any means, simply avoid carrying out consultations because an employee is placed on furlough. 

Notice and pay

Furloughed employees are still entitled to receive notice in accordance with their contract of employment, or alternatively, the statutory minimum. Notice pay for furloughed employees remains an area of uncertainly and there is currently no clear guidance as to whether employees are entitled to receive their full contractual salary or whether they are only entitled to receive their agreed furlough pay, e.g. 80%. In such cases, employers should consider the contractual provisions and assess how these provisions tie in with the complex statutory framework dealing with payments during notice periods. The starting point is to determine what notice period the specific employee is entitled to. 

If an employee is entitled to at least one-week’s greater notice in their contract than the statutory minimum, then there is no entitlement to minimum guaranteed notice rights under s87(4) of the Employment Rights Act 1996. This would indicate that an employee is only entitled to receive their agreed furlough pay during their contractual notice period, subject to the cap of £2,500. This also means that an employer will likely be able to reclaim some or all of the notice pay under the furlough scheme. Employers cannot however, reclaim payment made in lieu of notice under the current scheme.

In contrast, if an employee is entitled to no more than one-week’s greater notice under their contract than the statutory minimum, then they have a right to statutory minimum notice pay. This is calculated as one week’s pay for every week of notice. The Employment Rights Act 1996 provides varies methods of calculating this and it ultimately comes down to whether an employee has normal working hours or whether their pay varies in accordance with the amount of work done. Depending on the situation, the minimum guaranteed notice rights could be anything between 80% and 100% of their normal pay.

Where an employee works normal hours, which do not vary in accordance with the work done, then they will be entitled to their contractual pay the day prior to notice being given. For furloughed workers, this will likely be the furlough pay of 80%, provided the employees contract has been varied to reflect the contractual change.  

For employees who work normal hours, but whose pay varies in accordance with the work done, a ‘week’s pay’ will be determined by averaging earnings over the 12 weeks prior to notice being given. Depending on the amount of time the employee has been placed on furlough, this could include some non-furloughed weeks at 100% pay and some furloughed weeks at 80% pay. 

The position in respect of notice pay for furloughed workers is far from clear and the above provides only a basic overview. This is a complex area and if you have any uncertainty in respect of notice pay then professional advice ought to be taken. 

Redundancy Pay

Despite the ambiguity on notice pay, the guidance on redundancy pay is somewhat clearer. Employment rights are not affected by being on furlough and, as such, their entitlement to a statutory redundancy pay still applies. This remains subject to the two years continuous service and any other contractual entitlement. 

Whilst some or all of the notice pay can be claimed via the scheme, an employer is unable to reclaim the cost of redundancy payments, whether statutory or contractual, under the government’s job retention scheme. 

It is clear from the above that it remains entirely possible for an employee to be made redundant whilst on furlough. However, in order to minimise the risk of potential claims for unfair dismissal, employers should adopt a fair process in selecting employees and in carrying out the redundancies following selection.

If you have any concerns regarding the redundancy process or require legal advice on any aspect of this note, then please contact the employment team at Monarch Solicitors on 0330 127 8888.

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