The Coronavirus Job Retention Scheme may have been extended until 31 October 2020, but employers should already be thinking about what their workforce might look like following the end of subsidised furlough and a return to more normal working patterns.
This article answers key questions on options for restructuring workforces, including with regard to:
- ending or extending furlough;
- notice and redundancy payment rights during furlough;
- changing terms and conditions; and
- dealing with redundancies.
Some information on these topics is provided in the government's guidance for employers on claiming for employee wages through the Coronavirus Job Retention Scheme and its separate guidance for employees.(1)
Can employers keep employees on furlough when the government scheme ends?
Yes, the Coronavirus Job Retention Scheme created a form of agreed lay-off even where there was no contractual lay-off provision. As a result, provided that employees continue to agree to being furloughed, it would be possible to extend the period for which they are furloughed. However, employers will no longer be able to reclaim salary or other wage costs from the scheme after it has ended, which will limit its attractiveness.
Can employers keep employees on furlough with reduced terms when the government scheme ends?
Yes, provided that employees agree. Employers would need a new or extended furlough agreement with employees (depending on how the terms of the existing agreement have been framed). This could reduce pay to below 80% or even implement furlough on no pay. Employees may be willing to agree to this as an alternative to redundancy.
If employers have a contractual right to lay off without pay, this could be relied on (although such clauses in contracts are rare in practice). Lay-off provisions are subject to the implied term of trust and confidence which means, for example, that employers should consult with employees first and give reasonable notice of any lay-off to avoid being in breach of contract.
There are also specific statutory provisions which provide a right for employees who have been laid off for four or more consecutive weeks, or six weeks in any 13-week period, to claim a statutory redundancy payment in certain circumstances. However, employees must resign in order to receive their redundancy payment under the scheme.
The government has extended the scheme in its current form until 31 July 2020. From 1 July 2020, employers will be able to bring employees who have been on furlough back on a part-time basis. From August 2020 onwards, employers will be expected to pay all pension and employer national insurance contributions and, from September 2020, contribute towards employees' wages with an increased employer contribution each month. The scheme is due to end at the end of October 2020.(2)
What if employees do not agree to an extended furlough period?
Employers will need to look at other options depending on their workforce requirements, as explained below.
Can employees withdraw their consent to being furloughed?
No, not if they have agreed in writing to a specific period of furlough. Employees could refuse to agree to furlough being extended after the initially agreed period has expired.
Can employers reduce hours and pay for employees?
Yes, with the employees' agreement.
Employers that recognise a trade union for collective bargaining purposes may be able to agree the change with the union – depending on the terms of any collective agreement, this may be binding on all employees or may at least facilitate individual agreements. If there is no union, individual employee consent should be obtained and evidenced in writing (absent clauses permitting employers to impose unilateral reductions, which are rare).
If employers are seeking agreement before they have formulated any proposal to dismiss 20 or more employees, collective consultation will not be triggered. Therefore, employers must not have formulated a definite plan that is likely to result in dismissals if employees do not agree to the proposed change. If a proposal has already been formulated to dismiss as redundant anyone who does not agree, or to force the change through by dismissing and re-engaging if necessary, collective consultation will arguably be triggered.
Alternatively, if there is a contractual right to impose short-time working, this could be used (subject to consultation and notice).
Can employers reduce pay for employees but require them to work the same hours?
Yes, the process is as set out above. It may be more difficult to persuade employees to agree to this. Employers must ensure that they explain the rationale, reasons and business cost in detail to minimise employee discontent.
What if an employee refuses to agree to a proposed change?
Employers must consult with the employee individually and attempt to explain the reasons and necessity for the proposed change. If the employee still refuses after additional time and further discussion, employers must decide whether to impose the change by dismissal and re-engagement on the new terms or adopt different measures.
Dismissals in these circumstances can be fair, so long as there is a clear business necessity for the change and the employer follows a fair process. Dismissal and re-engagement in this way will trigger collective consultation requirements where 20 or more dismissals are proposed.
Redundancy during or after furlough
Are there other options that employers could consider first?
Yes, given the unique nature of the situation caused by the COVID-19 pandemic, employees may be more open to exploring different options.
Many employees may:
- have been personally affected by the pandemic;
- be reluctant to return to work until much later; or
- have childcare issues (eg, homeschooling or grandparents or other carers who must continue to shield).
Employers can discuss options such as using unpaid statutory parental leave or granting unpaid sabbaticals. This might enable some employees to remain employed without pay until the situation improves and redundancies may no longer be necessary.
Can employers make employees who are on furlough redundant?
Yes, the published guidance for employees who have been furloughed states that they can still be made redundant while on furlough or afterwards. The guidance for employers does not state this expressly but does state that employees' redundancy rights continue to apply while they are furloughed.
The underlying purpose of the Coronavirus Job Retention Scheme is to allow employers to maintain their workforce, so there is some risk that Her Majesty's Revenue and Customs (HMRC) will question rapid redundancies. The sooner an employer moves to making redundancies after furloughing employees, the greater the likelihood of scrutiny from HMRC as to whether the employer had intended to make redundancies all along and merely used the furlough scheme for convenience while carrying out consultation.
What notice pay is an employee entitled to on furlough?
As the guidance for employees states that they can be made redundant while on furlough, employees can arguably be given notice or be paid in lieu while furloughed. However, the guidance does not explicitly state this.
The position in relation to notice pay during furlough is complex.
If employers make a payment in lieu of notice under a clause in an employment contract, they should check what the contract says about the amount. If, for example, it states that pay in lieu of notice should be calculated based on basic pay, this is likely to be interpreted as meaning pre-furlough normal pay. (Before making any payment in lieu of notice, see the next question below.)
If an employee is given notice which they are to 'work out' while on furlough, the amount employers must pay them during the notice period is complicated.
If the employee's contractual notice period is at least one week more than the statutory minimum notice period, they can be paid notice at their furlough rate of pay (for all weeks which fall within the furlough period). Statutory notice is one week per year of service, up to a maximum of 12 weeks. For example, an employee who has three years' service and a contractual notice period of four weeks would meet this test.
Employees who specifically requested furlough (eg, because they have caring responsibilities) are also arguably entitled only to notice pay at the furlough rate. If there are reasons why it is important not to be in breach of contract (eg, if employers wish to rely on post-termination restrictions in the employment contract), employers can avoid any risk by paying notice at the employee's usual full rate of pay.
The position is more complex for employees who have been furloughed at their employer's request or cannot work because of sickness, family leave or holidays and whose contractual notice period is less than the statutory minimum plus six days. For these employees, notice may need to be paid based on their usual pre-furlough pay:
- There are specific legal provisions on calculating notice pay where an employee is "ready and willing to work" but is provided with no work by their employer. These provisions are likely to apply where an employer has asked an employee to agree to be furloughed. Arguably, they do not apply to employees who are on furlough only because they requested it, as they are not ready and willing to work. These specific legal provisions also apply to employees who cannot work their notice period because of sickness, family leave or holidays. This might cover some employees who fall sick during their notice period. The position for shielders is less clear because, although they are entitled to statutory sick pay, they are not actually sick.
- For reasons which are unclear, these statutory protections do not apply to employees with a contractual notice period which is at least one week more than the statutory minimum.
- Employees who fall within the scope of these protections are entitled to one statutory week's pay during their notice period. The rules for calculating one week's pay in these circumstances, as explained below, will generally involve looking at pre-furlough pay.
- For employees with normal working hours and fixed pay or salaries, one statutory week's pay is one 'normal' week's pay. Arguably, one week's pay should be the furlough rate of pay because that is what is currently normal. However, one statutory week's pay is based on an employee's normal working hours. As no work is done during furlough, it is likely that normal working hours and pay should be based on the position if the employee was not on furlough.
- For employees with normal working hours whose pay varies according to the times that they work (eg, because they work shifts), one statutory week's pay is calculated by averaging pay for the previous 12 working weeks. As no work is done during furlough, this means pre-furlough weeks.
- For employees who have no normal working hours, one statutory week's pay is based on their pay over the previous 12 weeks. This excludes any unpaid weeks but is not limited to working weeks. For these employees, employers can arguably base the calculation on the previous 12 paid weeks, including weeks on furlough.
For furloughed employees who are entitled to these extra statutory protections, this might mean that employers need to top up the notice pay to usual pay, even if this is more than can be recovered through the government subsidy.
Can employers reclaim notice pay under the government scheme?
The guidance does not directly cover this.
It seems that employers should be able to reclaim notice pay if an employee is given notice during furlough for the weeks of notice which fall within the furlough period. However, employers cannot reclaim any extra top-up to usual pay which may be legally required.
Arguably, a payment in lieu of notice cannot be reclaimed under the scheme because this is a discretionary payment. A payment in lieu is also incompatible with the scheme's underlying purpose of keeping employees employed for as long as possible.
How do employers calculate statutory redundancy pay for employees on furlough?
Statutory redundancy payments are calculated based on years of service, age and one week's pay. One week's pay for this purpose is capped at £538. Many employees will earn more than this even during furlough, which means that there is no need to consider a different calculation.
One statutory week's pay should be calculated in the same way as explained above in relation to notice payments, which depends on how the employee works in practice. For most employees who earn less than the capped week's pay during furlough, it seems likely that one week's pay for statutory redundancy pay purposes will be based on the rate of one normal week's pay (ie, rather than the rate that they are receiving during temporary furlough). This is because the normal working hours of a worker who is on furlough have not changed.
Redundancy consultation during furlough
Can employers carry out individual and collective redundancy consultation during furlough?
Yes. Although the guidance does not explicitly state whether collective or individual redundancy consultation can be carried out during the furlough period or whether it would fall under the prohibition on doing work, it will not generate money for employers or constitute the provision of services, so is most likely permissible. The guidance for employers also states that employee representatives may undertake duties and activities for the purpose of individual or collective representation and that this will not be considered work, which strongly suggests that individual and collective consultation is also allowed.
Why would employers want to collectively consult during the furlough period?
Employers may wish to do this if they know that they are likely to need to make redundancies post-furlough and want to begin consultation in good time as required under the collective dismissal legislation (or at least 30 or 45 days before any dismissals take effect). Providing certainty and clarity for staff as soon as possible is another benefit. Employers may also wish to use the time that employees spend on furlough to absorb part of the cost of the consultation process.
Employers may also wish to use the process to push for other changes (eg, reduced pay) as an alternative to redundancy, but must be able to act quickly if no agreement can be reached with employees.
No part of the HMRC grant can be used to cover the cost of statutory redundancy payments.
Can employee representatives be furloughed and continue in their role as a representative?
Yes, where the employee representative is being consulted only in respect of possible redundancies or related matters. The guidance for employers states that employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers while they are on furlough – so long as they are not providing services or generating revenue. Representatives do not provide services to employers, so this should not fall under the prohibition on doing work while on furlough.
Must employers collectively consult with their workforce?
It depends on the number of employees involved. Collective consultation is required where an employer proposes to dismiss 20 or more employees at one establishment in a 90-day period for a reason unrelated to the individual, which encompasses both classic redundancies and fire-and-rehire exercises aimed at imposing less favourable terms. If fewer than 20 redundancies are anticipated, only individual consultation is required. Employers should seek advice on their particular circumstances before embarking on collective consultation.
What does collective consultation involve?
In summary, consultation must start in good time to allow the relevant discussions to take place, and the minimum period before the first of the dismissals takes effect is 30 days (where between 20 and 99 dismissals are proposed) or 45 days (where 100 or more dismissals are proposed).(3)
Consultation should take place with the appropriate representatives of the affected employees. If employers recognise a trade union in respect of the affected employees, they must consult with the union representatives. Otherwise, employers can choose whether to consult with existing employee representatives who have the appropriate authority (eg, a staff consultative forum, depending on its mandate) or representatives elected specifically for the purposes of the consultation.
The representatives must be given specific information and consultation should cover, as a minimum, ways of:
- avoiding the need for dismissals;
- reducing the number of dismissals; and
- mitigating the consequences of the dismissals (eg, support for dismissed employees).
Minutes of the meetings with the employee representatives must refer to the fact that the consultation covered these main issues.
Consultation must take place with a view to reaching an agreement, but the employer need not agree with the representatives' views.
What issues should employers be aware of when collectively consulting with a workforce who is on furlough or remote working?
COVID-19 has created a situation where many employees are on furlough, working from home, self-isolating or practising social distancing. This makes collective consultation a challenge, as it would normally be done in person.
Previous case law has shown that carrying out information and consultation obligations remotely is permissible, and it is unlikely that this would be regarded as a problem in the current, highly unusual circumstances.
Employers can make use of technology to hold online town halls to inform employees about proposed measures and should prepare to run several of these to ensure that the whole workforce is notified properly rather than via the grapevine.
Collective consultation with employee representatives could be done remotely provided that appropriate technology is in place. It could also be done in person with appropriate risk assessments and protective measures and subject to government guidance.
If done remotely, employers must ensure that all the representatives have the technology required to participate. Employers should also ensure that only relevant parties receive an invitation to the online meeting and that the line or portal for hosting it is secure and compliant for data protection purposes. Employers should set a clear protocol in advance about how the meeting will be run.
If employee representatives have not already been elected, employers will need to consider what arrangements they must make to ensure that any election is fair. This may include arranging online voting. The voting process should be secret so far as is reasonably practicable, which can present a challenge when it cannot happen in the physical workplace. Some possible options include:
- using a third-party online voting platform, which ensures anonymity but may come at a cost;
- designing an internal system. For example, employers could nominate one independent person to run the ballot – although strictly speaking this would not be a secret election; and
- setting up a consultation body in advance, which (provided that its mandate is sufficiently clear) can later be used for redundancy consultation.
Can employers use the special circumstances defence to a failure to consult about collective redundancies?
This is a difficult and fact-sensitive area, so employers should always seek advice on their specific situation.
Section 188(7) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) provides a defence to a failure to collectively consult where there are "special circumstances which render it not reasonably practicable" for the employer to comply with the requirements. The collective consultation obligations apply where there are proposals for 20 or more redundancies at an establishment or changes to that many employees' terms by way of a fire-and-rehire process. This defence applies to failures to:
- consult in good time;
- consult on the required topics with a view to reaching an agreement; and
- provide the required statutory information on which consultation is based.
There is no definition of 'special circumstances', but an impending insolvency situation on its own is insufficient. The case law also indicates that it is difficult to rely on this defence to justify a complete failure to consult except in the most extreme circumstances. If a business has funds to keep it going and is making redundancies to remain profitable (or make a smaller loss), it will be practicable to consult, even though it may be costly – consultation is regarded as a cost of business.
The Coronavirus Job Retention Scheme, coupled with other support for business (eg, guaranteed loans, no business rates for the retail, hospitality and leisure sectors and the deferral of value added tax payments) will make it difficult to rely on the special circumstances defence to justify no or short collective consultation. Therefore, if employers decide to make collective redundancies or changes to terms by way of a fire-and-rehire process, they should comply with the collective consultation requirements under the TULRCA as best as reasonably and practicably possible.
Despite COVID-19 creating a situation where many employers may find it difficult to consult, they should still do what they can to inform and consult taking into account their particular circumstances.
The defence may work best if there is a procedural failing, so long as the employer took what steps it reasonably could. The measures that an employer took in the particular circumstances it faced may also reduce the penalty award for failing to consult, even if it is found to have breached the consultation requirements. The starting point is 90 days' uncapped pay, with the employer required to show why that amount should be reduced – so taking all practicable steps is important in reducing what might otherwise be a large penalty.
What comes after collective consultation?
Once collective consultation with representatives is sufficiently far advanced, individual consultation with affected employees is also likely to be required. The furlough guidance for employers makes it clear that the ordinary redundancy principles continue to apply during this time, although it is generally possible to follow a shorter one-to-one process where collective consultation has been carried out.
What issues should employers be aware of when consulting individually with employees who are on furlough or remote working?
First, employers must think about how they will contact their employees and how they will send them relevant paperwork. Employers must consider whether:
- they have employees' personal email addresses (if they no longer have or never had access to office email);
- they have the employees' home or mobile phone number; and
- the employees have access to a computer.
For people without access to a computer, employers could post or courier documents. If individuals will be reading emailed documents on a smartphone, employers must consider formatting issues and what type of document to send.
If employers propose to carry out the individual consultation meetings by videoconferencing, they must check that the employee (and, if applicable, their representative) will have access to a computer or smartphone. Alternatively, employers can consult by conference call, but they must bear in mind that it will be harder to see how people are reacting to the news.
It is common practice to allow employees to be accompanied at redundancy consultation meetings (and any appeal meeting) by a colleague or trade union representative, although this is not a statutory right. The furlough guidance for employers has confirmed that acting as an employee representative does not amount to work, so colleagues who are furloughed could still act as a companion without risking the furlough grant.
Although employers are under no legal obligation to allow the employee to be accompanied by a friend or a family member, this may be allowed under their policies and procedures or as a discretionary measure in these unusual circumstances. Employers should check the wording of any redundancy policy for any such provisions. In practice, it will be difficult for employers to ensure that nobody else is present in the room while holding the meeting remotely (especially if this is by phone rather than videoconference) – so it might be sensible to allow a friend or family member to accompany the employee.
Employers should think about the following:
- Only relevant parties should receive an invitation to the online meeting and the line or online portal for hosting the meeting should be secure and compliant for data protection purposes.
- Employees should be asked to attend the virtual meeting from a private and quiet room where they will be undisturbed (if possible), and their employer should discuss their particular circumstances with them.
- Parties should be asked to speak clearly and be allowed to ask questions when necessary, and employers should confirm their understanding. Parties should be asked to mute themselves when they are not speaking to avoid any distractions. Parties should make use of online tools (eg, screen sharing) to refer to documents.
- Employers should explain that notes of the meeting will be taken and shared with the employee. Employers should remind the employee that they may also take their own notes during the meeting.
- At the start of the meeting, employers should ask the employee to confirm that they (or any companion) are not recording the meeting. If employers are concerned about this, they should remind employees that they have no legal right to record the meeting and that this may be viewed as a breach of trust and confidence, as well as misconduct. Employers could also explain that covert recording may be in breach of data protection legislation. (However, recording may be a reasonable adjustment for someone with a physical or mental impairment.)
- During the meeting, employers should check whether the employee needs to take a break in the same way as they would during an in-person meeting. Employers must allow employees time to speak privately to their companion during the meeting.
What about the wellbeing of employees going through a redundancy process?
A redundancy process is always stressful but is likely to be particularly so in the current circumstances due to the combined effect of the pandemic, lockdown and uncertainty about the future and finances. Employees are already likely to be stressed and anxious and may be struggling with their mental health.
Bearing this in mind, communications and consultation meetings must be conducted fairly in recognition of the impact of present conditions and employees' personal circumstances. Employers must ensure that parties are supported appropriately after any meetings and that there are regular catch-ups to check on employees' wellbeing. Employers should have a clear method through which employees can raise questions or discuss concerns.
Employers must think about other things that they can do to support people during this stressful time (eg, by providing counselling, other professional medical help or employee support helplines). Employers should consider offering redundancy outplacement services and point employees to useful websites and resources. If nothing else, employers should keep in touch with them and check how they are doing.
What if employers get it wrong?
Employment tribunals can make a protective award of up to 90 days' pay per affected employee for a failure to meet the collective consultation requirements.
In addition, employees with two years' service can bring an unfair dismissal claim. Although dismissals for business reasons relating to COVID-19 are likely to be a genuine redundancy, dismissals can still be unfair if the correct procedure has not been followed – for example, fair selection and proper individual consultation including consideration of alternatives to redundancy. Where an employee asserts that their selection was discriminatory, there is no minimum service requirement.
What immigration issues should employers take into account when considering furlough and redundancies?
When employers are considering redundancies (or changes such as lay-offs or salary reductions), they should assess whether this will have any effect on the immigration status of any affected employees. Any employee who holds a Tier 2 or Tier 5 visa will have reporting requirements that will likely be triggered, which may then have knock-on implications for whether they can keep their visa. Employers should seek legal advice to assist them in navigating this part of the process.
Endnotes
(1) Further information regarding furloughing employees is available here. More information on redundancies is available here and here.
(2) Further information is available here.
(3) Further information is available here.
