Whilst the focus of our advice in recent weeks has been on the Coronavirus Job Retention Scheme (“the Scheme”) and how businesses can access the support being offered by the government, it is an unfortunate consequence of the ongoing pandemic that clients are beginning to review their employee resource going forwards and are seeking redundancy advice.
Following the Chancellor of the Exchequer, Rishi Sunak’s announcement that the Government plans to wind down the Scheme, possibly as early as next week, we are expecting to see an increase in redundancy queries.
We are aware that some attendees of our recent webinar asked for a summary of the discussion around redundancy and notice pay for furloughed workers which took place during the webinar. We have set out a summary below which reflects our current understanding although the position is far from clear based on the current government guidance. As we advised during the webinar, it is advisable to take specific advice on your particular circumstances as the position is constantly changing.
1. Can an employer make an employee redundant during furlough leave?
Yes we believe it is possible for an employer to decide redundancies are necessary during a period of furlough leave. The guidance on the Job Retention Scheme (JRS) issued by HMRC for employers states that “employees still have the same rights at work during furlough leave including to….redundancy payments” (albeit that it clarifies grants obtained via the JRS cannot be used to substitute redundancy payments). Similarly, the guidance issued for employees states that “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”.
Whilst it is therefore clear that an employer can still claim under the JRS where it is in the process of making an employee redundant, any dismissal on grounds of redundancy would still have to meet the usual requirements of fairness in order to avoid unfair dismissal claims from those employees who have over 2 years’ service. As a result, an employer needs to consider alternatives to redundancy before any final decisions are taken. It may be that, whilst the JRS is in operation and employers can recover employee wages through the JRS, this provides employers with a viable alternative to redundancies and so to push ahead with dismissals in such circumstances would therefore be deemed unfair. This is particularly so when you consider the purpose of the JRS is to “help employers whose operations have been severely affected by coronavirus to retain their employees and protect the UK economy”. Any employer wishing to make redundancies whilst the JRS is still operational will need to carefully document why this is necessary and why the JRS alone is not sufficient to enable them to postpone / avoid redundancies.
Employers will also need to consider practically how to carry out any consultation when employees are not in the workplace. For example, this could include holding consultation meetings via video calls / skype.
2. Can an employer issue notice to an employee on furlough leave?
The position in relation to notice is not as clear cut and there is nothing helpful in the Treasury Direction or HMRC guidance which says either way. However, given the HMRC guidance refers to employees being made redundant whilst on furlough leave, the presumption is that this also allows for notice to be given to employees who are on furlough leave and for salary payments to be reclaimed via the JRS despite the employee working their notice. That said, as mentioned above, making a final decision on redundancies and issuing notice whilst the JRS is still operational could undermine the fairness of any dismissal. Careful consideration would need to be given on a case by case basis.
3. If notice is issued, how is notice pay calculated?
Whilst it is not dealt with in the HMRC guidance, our view is that notice pay would be based on the entitlement under the contract of employment and the statutory right to notice pay as set out in s.86 – 89 of Employment Rights Act 1996.
The rules on statutory notice pay depend on whether, under the contract of employment, the employer is required to give only statutory notice or at least a week more than statutory notice and whether the employee has normal working hours or not.
- Employees with normal working hours
- where they are entitled to only statutory notice or less than one week more than statutory notice, and they are “ready and willing to work”, they will be entitled to their contractual pay as at the day before notice was given (provided that the reason for them being on furlough was due to a lack of work not because the employee was not ready and willing to do work). Contractual pay will either be the agreed furlough rate of pay (provided they remain on furlough for the duration of their notice) or, where the amount of contractual pay varies depending on the amount of work done, it will be based on a week’s pay calculated as set out in the ERA 1996 (i.e. average earnings over the 12 weeks before notice was given). Depending on the length of the notice period, this may include some non-furlough weeks as well as some furlough weeks. As the employer should still be able to recover payments under the JRS up to the cap, but where some non-furlough weeks are included this could also result in the employer having to “top up” to cover any additional notice pay due.
- If, however, the employee is entitled to at least one week more than statutory notice, notice pay would be based on the contractual pay which during furlough would be the reduced amount (provided they remain on furlough for the duration of their notice). The employer should be able to claim for this (subject to the cap) under the JRS.
- Employees without normal working hours
- where they are entitled to only statutory notice or less than one week more than statutory notice, they will be entitled to a week’s pay for any notice period calculated in the way set out in the ERA 1996 (i.e. average earnings over the 12 weeks before notice was given). Again, this may require the employer to “top up” the notice pay in addition to what can be recovered under the JRS.
- If, however, the employee is entitled to at least one week more than statutory notice, notice pay would be based on the contractual pay which during furlough would be the reduced amount (provided they remain on furlough for the duration of their notice).
As we mentioned during the webinar, it might be the case that a court or tribunal would look to ensure an employee receives all of their normal pay during the notice period. This could be done, for example, by holding that the JRS does not apply where an employee is under notice or by finding that the agreement to reduce salary did not apply during notice (where this is not expressly stated in the furlough letter). On balance, therefore, given the risks outlined above and the administrative burden involved in calculating different notice pay entitlements, employers may simply decide it is easier and morally right to pay all employees full pay during the notice period, topping up the amounts recovered under the JRS. This would also ensure there is no breach of contract which would also preserve any restrictive covenants in the contract of employment.
4. How should redundancy payments be calculated?
Currently, the guidance from HMRC is silent on how a redundancy payment should be calculated for employees on furlough leave, that is, whether the redundancy payment should be calculated using their reduced furlough rate of pay or whether it should be based on their pre-furlough rate of pay. It is interesting to note that separate regulations came into force on 25 April which clarified that for employees on furlough who were to start a period of paid family-leave, the rate of pay for that leave should be based on their normal, pre-furlough, salary. If these regulations reflect the general approach taken by the government, it is likely that a week's pay for the purposes of a redundancy payment would need to be calculated with reference to the employee's normal earnings prior to being on furlough leave. This would certainly be the safest approach for employers to adopt until further clarification is provided. An employer is not able to reclaim redundancy payments through the JRS as these are not part of monthly earnings.