Prepare for redundancies as furloughs end
As it stands, the government’s Coronavirus Job Retention Scheme (CJRS) will end on 31 October 2020. With little prospect of extensions or variations, the loss of furlough will open the floodgates to wholesale redundancies.
Businesses that need to make people redundant at the end of the scheme should start consulting them as soon as possible, as employers can only claim from the CJRS until 31 October 2020 for employees that have been correctly furloughed.
What is or is not allowed when making furloughed staff redundant has been a constant source of confusion, particularly around the relationship between furlough and the rate of pay an employee receives for redundancy. For example, if an employee has been furloughed leading up to the redundancy, what rate of pay should be given for the notice period and are you able to consult with employees when they are furloughed?
Some employers have used furlough money to pay redundancy awards and based redundancy payments on the amount of money employees have received while on furlough rather than their normal salary.
This is clear abuse of the intentions of the scheme and the government introduced new legislation to ensure that employees received redundancy payments and statutory notice payments based on their normal rate of pay at the end of July 2020. The CJRS was never intended to be used to prejudice those employees that agreed to be furloughed and this was the government’s attempt to stop it from happening. The new regulations do not affect the entitlements of employees who are not furloughed.
Accounting and finance professionals should be ensuring they apply the new regulations correctly to try and keep any excess costs to a minimum during a redundancy exercise while remaining within government guidelines.
Consult with employees while they are furloughed. You are entitled to consult with employees on furlough about redundancy, rather than paying their full salary and losing the right to claim if they are brought back to work. Where those employees remain on furlough, you will be able to claim from the CJRS for some or all of the consultation period depending on the length of consultation required. Where notice of redundancy has been served on an employee, it is also possible to claim payments from the CJRS for their statutory notice period until the end of October while they remain employed and on furlough.
Payments in lieu of notice - if a company elects to make a payment in lieu of notice to an employee who is made redundant, then they will lose the right to claim from the CJRS for any period of statutory notice. Once their employment is terminated, no further claim can be made. But if during the notice period an employee is due to accrue a further year’s service, a bonus payment, annual leave or some other entitlement, it may be more financially prudent to make a payment in lieu of notice rather than keeping them on furlough during the notice period. Remember to ensure that there is a contractual right to make a payment in lieu or there can be unintended consequences, such as waiving potentially valuable restrictive covenant.
Follow a fair process to avoid successful claims against a company. The penalties for getting redundancy wrong can be high, including claims for unfair dismissal and discrimination. Study what constitutes a fair redundancy process to ensure any redundancy decisions are fair and fulfill these four key hallmarks - is it a genuine redundancy situation? Has there been adequate and meaningful consultation? Was the selection for redundancy fair, taking into account selection pools or criteria where relevant and other ways to avoid redundancy, including alternative employment?
If there are more than 20 redundancies at an establishment, remember that specific collective consultation rights arise for those employees. Be mindful of the impact of failing to collectively consult, which can result in a penalty of up to 90 days salary per employee affected. In addition, if an employer fails to submit the government HR1 form this can result in criminal sanctions and penalties.
Ultimately, it is important to recognise that across accounting and finance businesses and their clients it is not going to be a case of “one size fits all”. On each occasion, it will be important to assess what is right for each business and to weigh up the options.
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Barry Ross, Director, Crossland Employment Solicitors, has been practicing Employment Law since 2006 when he worked in-house for major legal expenses Insurance provider, DAS. There, he provided employment law advice across a whole spectrum of issues to commercial and individual clients. Barry provides commercial advice on all employment issues...