New law: Employers investigating alternative to redundancy for if/when the COVID-19 furlough scheme ends

Employers are making contingency plans to avoid redundancies – or at least make them a last resort – if the government’s furlough scheme is not extended beyond 30 June 2020.

The need to make people redundant has receded for the time being, because employers can send employees home on paid leave (‘furlough’ them) and recover 80 per cent of their pay (up to a monthly maximum of £2,500 per employee) from the government under its Coronavirus Job Retention Scheme. However, this is only set to last until 30 June. Although the government might extend the scheme (again), prudent employers are considering what they will do if it does not.

One option may be making redundancies – provided the employer is closing down a business, a particular place of work or site is being closed, or the need for a particular category of work has reduced. Redundancies should be a last resort, and employers should take not just financial but also commercial considerations, such as reputational damage, into account.

There may be viable alternatives. Specialist advice is strongly recommended.

Other options might include:

• Rearranging existing working patterns.
• Temporary lay-offs.
• Short-time working.
• Making employees take annual leave.

Rearranging existing working patterns

This could include cutting overtime, deferring starting dates for new recruits and freezing future recruitment. Consider job restructuring too – for example, job sharing and secondments of employees to other organisations. Staff may be prepared to take unpaid leave and/or sabbaticals, where their continuity of employment is maintained.

Review all temporary staff and consider whether to end their contracts. Where fixed-term contracts come to an end, consider non-renewal where that might provide an opportunity to redeploy a permanent employee who is at risk of redundancy.

Consider applications for early retirement, taking into account the effect on employees’ pension rights. Also consider whether any employees may be prepared to take voluntary redundancy.

More contentiously, consider retraining and redeploying employees – maybe to lesser jobs. Whether you can do this will depend on the job description in your employee’s contract of employment – it must be drafted widely enough to cover the redeployment. The employer must also act reasonably. For example, certain employees may expect to be offered a role that fits their experience or qualifications, reducing your ability to pay them less in their new role. If in any doubt at all, we strongly recommend that you take legal advice before acting.

If the redeployment is within the contract, and reasonable, the employer can either agree the move with the employee (maybe with a financial incentive), impose it on them (and risk legal action) or (if fewer than 20 employees are involved) dismiss them and offer them the new position on new terms. If 20 or more employees are involved, this last option will require collective consultation with the employees concerned.

Temporary lay-offs

If an employer thinks a downturn in work is likely to be temporary and, importantly, if employees’ contracts of employment allow it (or an employee expressly agrees to it), they may be able to send their workers home temporarily – say for a week or a fortnight - on reduced or no pay, without dismissing them. That is, put them on furlough, but without being able to recoup any of their pay from the government.

Usually, the employer has to pay a statutory ‘guaranteed payment’. To be eligible, employees must have been employed for a month, be available for work and be prepared to carry out any reasonable, alternative work. They must not be off work because of strike or other industrial action. The amount of the guaranteed payment depends on the hours worked, and payments can only be made for five days in any three-month rolling period.

If the temporary lay-off lasts more than four weeks in a row, or six weeks out of 13, the employee can give notice (there are strict time limits) that he wishes to claim redundancy payments.

Short-time working

Short-time working is when employees are asked to work shorter hours – for example, three days per week, or mornings only. If the result is that an employee does not work on a particular day, they may be entitled to guaranteed payments, as discussed above. But where they work part of every day, they are not.

Like temporary lay-offs, short-time working is only allowed if it is provided for in the employees’ contracts of employment, or they expressly agree to it.

If an employee receives less than 50% of their week’s pay for four weeks on the trot, or six out of 13, they may be able to claim a redundancy payment, provided they comply with the strict time limits.

Making employees take annual leave

As a short-term fix, employers could require employees to take annual leave – the employer just has to give the employees notice which is twice as long as the period of leave to be taken, eg a fortnight’s notice to require an employee to take a week’s holiday. However, forcing employees to take holiday during a lockdown is unlikely to be popular.

Operative date

• Now

Recommendations

• Consider alternatives to redundancy.
• Always take legal advice before varying an employee’s contract or when considering redundancies.