Redundancies and furlough: Get the details right – source Accountancy Web

Since the early weeks of the coronavirus lockdown, many employers have been aware of the likelihood they will need to make people redundant. This article addresses the key issues they are going to have to consider.

4th Aug 2020

Since the early weeks of the coronavirus lockdown, companies and their advisers have been aware of the likelihood they will need to make people redundant. 

This article addresses the key issues they are going to have to consider.

CJRS complications

The Coronavirus Job Retention scheme (CJRS) was specifically designed to prevent mass lay-offs and has been intertwined with redundancy issues ever since. With the flexible, second phase of the furlough scheme coming to an end on 31 October, employers facing the reality of letting people go have to confront when and how they are going to do it.

The requirement for consultation periods under employment law, from a minimum of 30 days if 20 redundancies are being made up to 90 days for 100+ employees, has accelerated those conversations. For 20+ redundancies, the employer has to fill in a Department of Works and Pensions form that they are undertaking a redundancy and a consultation exercise and must allow employees to put forward a representative to speak on their behalf. If they are in a union, the union must be involved, or the process will be deemed unfair from the off, Green warned.

Smaller companies laying off fewer than 20 employees do not have to meet the statutory minimum, but still need to consult the affected employees to ensure the process is fair. Although this can be done in as few as five days, it usually takes about 20 days for a smaller employer to go through the process, said Green.

Making people on furlough redundant

One of the most persistent brain-teasers surrounding redundancy at this time was resolved on 17 July when HMRC updated the CJRS rules to clarify that statutory and enhanced contractual notice could be reclaimed under the CJRS as the person in this situation is serving their notice rather than receiving pay in lieu of notice.

“Where you must make redundancies, you should do so in accordance with the normal rules. This includes giving a notice period and consulting staff before a final decision is reached. You can continue to claim for a furloughed employee who is serving a statutory notice period, however grants cannot be used to substitute redundancy payments,” the guidance stated.

“The legislation was rushed through to put beyond doubt that employees receiving redundancy pay, pay in lieu of notice or were serving their notice should have that calculated based on their pre-furlough pay,” said Upcraft.

“There had been split views in the legal community as to whether there was a requirement to do this if the employee’s contract had been successfully varied to reduce it to the 80% required under the CJRS. The requirement to calculate a week’s pay based on the pre-furlough pay looking back 12 weeks prior to the notice of redundancy being served, applies only to statutory redundancy pay/notice. It does not apply to any enhanced entitlements.”

The regulations will also apply to the calculation of compensation in respect to unfair dismissal and other breaches of employment rights which also use a ‘week’s pay’ calculation.

“If an employee is on furlough, and they are currently receiving 70% of their wage under phase two of CJRS, employers may need to ‘top up’ to 100% during any notice period to avoid claims for unlawful deduction of wages and breach of contract from employees,” said Toni Trevett of XPert HR, a regular contributor to AccountingWEB. The severance costs will be higher as a result, so she advises employers to consider asking employees to use up any accrued but untaken holiday during their notice period.

Key questions for employers

The government’s guidance is reasonably robust, and as long as it is applied with some common sense you should be able to steer away from obvious traps. If the issues arising go above your head, it is always worth seeking professional advice.

On HRZone, Richard Thomas from Capital Law set out seven questions employers should ask themselves about their redundancy plans.

First is whether it’s the most legally straightforward way to dismiss employees. Statutory rules kick in on redundancy payments and trying to go through a formal consultation process in the middle of a pandemic will complicate the process.

One key condition the lay-offs need to fulfil is the existence of a “genuine redundancy” situation. A relatively easy exercise in the current situation, Thomas suggests.

The fairness of the process should be paramount, and where the employer needs to identify the pool of employees who will be at risk from redundancy. Fair and objective selection criteria should be applied, based on things such as length of service; disciplinary history; performance, skills, qualifications, experience and appraisals.

An employee’s age, sex or race are NOT suitable criteria and could be considered as discriminatory factors by an employment tribunal, resulting in higher penalties. Nor should absence for family or disability-related reasons, trade union activity or whistleblowing come into consideration.

Has the employer considered alternatives to compulsory redundancy? “Before and during any meaningful process, you should consider other ways in which compulsory redundancies could be avoided, or at least reduced,” Thomas advises. These alternatives could include voluntary redundancies, early retirement, alternative roles, reduced or more flexible working patterns and other cost-cutting measures.

Employers are under a legal obligation to consider these alternatives for employees with more than two years’ service.

Consultation considerations

The obstacles are more significant for organisations looking at 20+ redundancies and take the employer into collective arrangements where they have to abide by the government procedures. If the employer neglects to follow the correct procedures, employment tribunals can award up to 90 days’ uncapped pay per affected employee.

Provided that the employer allows suitable time, takes employee representations on board and is clear about the reasons and criteria for redundancy decisions, consultations processes can be carried out remotely using platforms such as Zoom, Microsoft Teams or Google Meets.

Whatever the size of your organisation, however, David Clarke writes: “Keeping employees informed both in the run-up to redundancies being made and during the process is critical. Businesses should be transparent with staff, and make use of internal communications channels, as well as offering face-to-face contact.”

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