How to avoid COVID-19 redundancies

The economic effects of COVID-19 are already starting to affect businesses, which may be considering redundancies even in the wake of the new government “furloughing” scheme. What are the practical steps employers can take to avoid making redundancies?

The option of making employees redundant, which is usually the option of last resort, may be something that employers do not need to utilise, at least until the end of May when the coronavirus employee retention scheme is set to end (unless it is extended). Having said that, if an employee does not agree or objects to being furloughed, redundancy is likely to be considered by an employer who needs to strip out costs from its business. In this case the following should be considered.

Is there a redundancy situation?

As a matter of law, a redundancy situation will arise in the following three circumstances:

• A business closing down; or
• A business closing a site/place of work; or
• Diminished requirement for work of a particular kind.

As such, where (for example) a factory is closed, or where there is massively reduced demand for work (e.g. the 80-90% drop in restaurant reservations), these situations will inevitably fall squarely into the bracket of a redundancy situation and the statutory definition will be met.

However, from a legal perspective, the question is whether the employer acted reasonably in its application of the redundancy process (particularly if the employees have at least two years’ service and can claim unfair dismissal).

Further issues of commerciality  - whether it makes financial sense to react to an undoubtedly difficult, but relatively short term, situation with a redundancy exercise - and morality (is this the best way to treat a workforce that has served the organisation for many years while the going was good?) may also play a part in an employer’s thinking.

The alternatives

There are several options open to organisations before commencing redundancy consultations such as:

Enforcing use of annual leave

• Organisations have the right to dictate the use of statutory annual leave (and, depending on the contract, additional annual leave)
• Useful for short term situations
• The employer must give twice the period of notice as the period of enforced annual leave (so 10 days in advance of a five-day holiday)

Lay-offs or short time working

• Employees are temporarily laid off or work reduced hours (maximum of 4 consecutive weeks, or six weeks in any 13-week period)
• May avoid a redundancy situation if period of lay-off/short time working is less than above, so organisations do not have to budget for statutory and/or enhanced payments
• However, employee can request statutory redundancy payment if lay-off/short time working lasts for longer than four/six weeks (as applicable)
• Employee may have the right to a statutory guarantee payment (up to five days in any three-month period)
• In respect of short time working, days can be sequenced to reduce amount of contact between people; lay-off reduces contact altogether
• Will be a breach of contract unless there is a specific clause in the employment contract or the employee consents (see below)

Deferred salary

• Agreement that the employee will still work, but part of their salary is deferred (care will need to be taken to ensure that pay in the reference period does not fall below the National Minimum Wage)
• Salary can be paid in a lump sum or in instalments, upon conditions being met
• Needs employee consent (see below)

Unpaid leave or a sabbatical

• Agreeing a period of unpaid leave
• Continuity of service is retained
• Needs employee consent (see below).

What can we impose, and what can we agree?

All of these options will involve an assessment of active employment contracts or contractual handbooks, to see if there are lay-off or short time working clauses, for example, as proposed actions may be permitted by contractual terms.

If not, any unilateral change by an employer to an employee’s material terms of employment will amount to a breach of contract entitling the individual to bring claims for breach of contract, unlawful deductions from wages, as well as to resign and claim constructive unfair dismissal.

To avoid the risk of any claims the employer must get the consent of employees to vary their terms, most likely on a temporary basis. In most cases, where the alternative is redundancy, most employees will agree to the change as it will ensure that they keep their job.

However, if agreement cannot be reached, a redundancy exercise will often be the only other option.

As with all employee relations issues, communication is key. Consulting fairly with employees and/or their representatives (depending on numbers at risk) about the situation and being open about the effects that COVID-19 is having on the organisation can often lead to a compromise being reached. Each situation will have its own peculiarities, but with a common objective and flexibility on both sides, there will hopefully be a way.

Conclusion