In December 2020, the UK Furlough Scheme
enacted in response to the Covid 19 Pandemic, was extended until the end of April 2021. A key aspect of this scheme is to help business avoid making redundancies as lockdowns continue across the country and commercial uncertainty remains.
However, the scheme is not without cost to employers and may not be extended further. As such, many businesses under increasing pressure to reduce costs, may have to consider making staff redundant now or make plans to do so when the Furlough Scheme comes to an end.
Even where the case for a distressed business making redundancies would appear clear, if matters are not handled properly then unnecessary costs and liabilities can be incurred, principally for unfair dismissal or unlawful discrimination under the Equality Act
What is unfair dismissal and unlawful discrimination
Employees with more than two years continuous employment have the right not to be unfairly dismissed. A dismissal can be fair if:
- It is made for genuine business /economic reasons, and
- A fair procedure has been first carried out
With regards to the second point. This must cover the reasons as to why dismissal is necessary at all.
In particular, why the employee is at risk of redundancy and what criteria are being adopted where the employer is making a choice as to who is dismissed. These all being matters which the affected employee is entitled to be informed of and consulted about, before any decision to dismiss is made.
In respect of unlawful discrimination, liability would be incurred if someone (no matter how long they have been employed) were made redundant simply because of a protected characteristic, such as race, gender or disability. It can also include when deciding to make someone redundant, criteria are applied which place people with protected characteristics at an unjustifiable disadvantage.
Dismissing employees should be regarded as a last resort, with the employer first exploring options to keep staff with suitable alternative employment. This means carrying out an impartial and consistent procedure untainted by discrimination, in determining who is to be dismissed and consulting with them beforehand.
Limiting Liability and the Costs of Redundancy
What follows is a step-by-step guide to help businesses limit their liability when they undertake a redundancy process, addressing associated issues arising from the Furlough Scheme and statutory redundancy pay.
Step 1: Can redundancy dismissals be avoided? the entitlement to receive redundancy payments, a genuine redundancy situation arises because the:
For employment protection purposes, including
- Business or place of work closes, or
- Employer needs fewer people to carry out work of a particular kind
Before dismissing staff, employers will have to consider alternatives to making redundancies and have been studied in consultation with affected employees.
Common cost saving measures an employer could consider (and may be expected to have reflected upon) to avoid redundancies include: flexible/part-time working, job sharing, reductions in pay and voluntary redundancy.
Changes to Terms and Conditions
Where Employers want to change work patterns or reduce remuneration (including changing existing furlough arrangements or requiring the employee to remain on furlough) it will likely mean changing employment contract ' terms and conditions’. This requires a process of consulting with impacted employees before any changes are enforced.
Employers need to bear in mind that if they are proposing to dismiss 20 or more people within a 90-day period, whether in undertaking compulsory redundancy or enforcing other cost saving measures, there is a statutory requirement to undertake collective consultation on the redundancy process.
Employers have to consult with elected employee representatives for a minimum 30-day period before the dismissals can take effect.
It should be noted that voluntary redundancy is usually considered as being a dismissal for collective consultation purposes.
Furlough as an alternative to redundancy
Employees on furlough may argue that it would be unnecessary (and so unfair) for them to be dismissed before the Furlough Scheme comes to an end.
However, there is no express restriction upon employers making furloughed employees redundant.
The scheme is not without cost to the business, even if employees have agreed to have their pay limited to the amount of the furlough grant. It could be argued that such costs justify making furloughed employees redundant. It is not necessarily the case that dismissing furloughed employees is unfair.
Nonetheless, if the employer decides redundancies may have to be made, in carrying out a fair procedure, it still must decide which employees are at risk of redundancy (the "Pool of Selection") and of those at risk, what selection criteria should be applied.
Step 2: Pool of Selection
Where there is a complete business closure, the Pool of Selection will cover the entire workforce. As such, there will not be a need to decide on redundancy selection criteria.
In respect of site closures. If employees engaged at the site to be closed could be considered for work at a different location, then employees at those other locations may need to be included in the Pool of Selection.
Where an employer has less work available of a particular kind (or needs fewer people to do it) the general principle is that those who carry out the same or similar work will form the Pool of Selection.
It is possible for the Pool of Selection to be one person. In this regard, it is not unusual for employers to divide up an employee's role amongst colleagues who are not then put in the Pool of Selection.
However, the employee who is singled out in this way may well argue that they have been unfairly dismissed and the business rationale for adopting this approach would be carefully scrutinised by an employment tribunal. There is always a risk of a discrimination claim, where the individual who is singled out for redundancy has a particular protected characteristic not shared with others who are keeping their jobs.
As a general rule, employers should respect staff redundancy rights and not select employees simply because they are furloughed. The reasons staff were selected for furlough may not be good reasons for making redundancies. For example, staff furloughed because of childcare or health reasons, then being selected for redundancy for such reasons, could present unlawful sex or disability discrimination.
Step 3: Selection Criteria
Where a redundancy pool amounts to more than one person, employers should adopt fair and, as far as possible, objective criteria, in deciding who is to be made redundant.
Employers need to be wary of criteria which place an affected employee with a protected characteristic at a disadvantage. For example, criteria such as last-in first-out principal or on the grounds of age. Nonetheless, although criteria may place given protected groups at a disadvantage, liability for discrimination only arises where such criteria cannot be objectively justified.
In applying commonly used selection criteria for a proposed redundancy, such as absence levels or hitting performance targets, employers should take in account whether they are related to protected characteristics, such as a disability or maternity leave.
Step 4: Furloughed Employees - Costs of Dismissal
An added degree of complexity surrounds a statutory redundancy payment.
From 1 December 2020, a business cannot claim under the Furlough grant for notice pay and have never been entitled to claim cover for redundancy pay.
Whether a furloughed employee is entitled to their full normal pay (other than that received during Furlough) depends upon several factors, including whether they are entitled to more than a week's notice in excess of statutory notice periods and whether payment is being made in lieu of notice.
Whilst having to make redundancies is always difficult for all concerned, if matters are dealt with honestly and openly, the likelihood of liability and unnecessary costs arising can be limited. The onset of the covid 19 pandemic has added complexity.
A redundancy procedure can be difficult to navigate and miss steps can prove to be costly. Without doubt, stress levels for the both the employer and impacted employees will increase. Expert legal advice can ensure you follow the rights steps around the consultation process or deal properly with employee claims for unfair dismissal.