The Coronavirus Job Retention Scheme has been been extended to 31 October 2020, but in reality employers should be thinking now about what their workforce may look like at the end of furlough.
In this guide we set out options for 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 separate guidance for employees.
Furlough – some general issues
Can we keep employees on furlough even when the government scheme has ended?
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 employees continue to agree to being furloughed, it would be possible to extend the period for which employees are furloughed.
However, you 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 we keep employees on furlough with reduced terms when the government scheme ends?
Yes, provided employees agree. You 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 below 80%, or even implement furlough on no pay. Employees may be willing to agree to this as an alternative to redundancy.
If you have a contractual right to lay off without pay, this could be relied on (although such clauses in contracts are quite rare in practice). Lay-off provisions are subject to the implied term of trust and confidence which means, for example, that you 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, the scheme does require employees to resign in order to receive their redundancy payment.
The government has extended the scheme in its current form until 31 July 2020. From 1st July, flexible furloughing is also allowed so employers will be able to bring employees who have been on furlough back on a part-time basis.
From August onwards they will be expected to pay all pension contributions and employer NICs, and from September contribute towards employees’ wages with an increased employer contribution each month. The scheme is due to end at the end of October 2020.
What if employees do not agree to an extended furlough period?
You will need to look at other options depending on your 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.
Changing terms and conditions
Can we reduce hours and pay for employees?
Yes, with employee agreement.
If you recognise a trade union for collective bargaining purposes, you may be able to agree the change with the union – depending on the terms of any collective agreement, this may either be binding on all employees or may at least facilitate individual agreement.
If there is no union, individual employee consent should be obtained and evidenced in writing (absent clauses permitting you to impose unilateral reductions, which are extremely rare).
If you are seeking agreement before you have formulated any proposal to dismiss 20 or more employees, collective consultation will not be triggered.
This means that you 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, then 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 we 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. You will need to ensure you explain the rationale, reasons and business cost in detail to minimise employee discontent.
What if an employee refuses to agree to the proposed change?
You will need to consult individually with the employee and attempt to explain the reasons and necessity for the proposed change. If the employee still refuses after additional time and further discussion, you will need to decide on 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 has followed 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 we could consider first?
Yes. Given the unique nature of the situation caused by the pandemic, employees may be more open to exploring different options.
Many employees may have been personally affected by the pandemic, may not want to return to work until much later, or have childcare issues such as home-schooling or where grandparents or other carers continue to need 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 we make employees who are on furlough redundant?
Yes. The published guidance for employees who have been furloughed states that employees can still be made redundant while on furlough or afterwards. The guidance for employers does not state this expressly but does say that employees’ redundancy rights continue to apply while they are furloughed.
It is important to remember though that the underlying purpose of the Coronavirus Job Retention Scheme is to allow employers to maintain their workforce, so there is some risk that HMRC will question rapid redundancies.
The sooner an employer moves to making redundancies after furloughing employees, the greater the likelihood of scrutiny from HMRC later as to whether the employer really intended to make redundancies all along and has just been using the furlough scheme for convenience while carrying out consultation.
Is it unfair to make employees redundant while furlough is available?
Employees with two or more years’ service can claim unfair dismissal. Redundancy is a potentially fair reason for dismissal, but it must also be reasonable in the circumstances to dismiss for that reason.
There is an argument that it is unfair to make employees redundant when the government-funded furlough scheme is available as an alternative. The fairness of a redundancy dismissal depends on all the circumstances at the time, so it is not necessarily unfair to make employees redundant when furlough is available.
The latest date that an individual can be put on furlough for the first time is now 10th June 2020. This means that anyone who has not been furloughed by that date cannot raise this unfairness argument, because furlough is no longer available as an alternative.
From August onwards employers will have to start making increased levels of contributions towards employee wage costs, and the affordability of this may be a reason why employers have to consider redundancies rather than continued furlough.
What notice pay is an employee entitled to on furlough?
As the guidance for employees says that they can be made redundant while on furlough, we believe that employees can be given notice or paid in lieu while furloughed. (The guidance does not, however, explicitly say this.)
The position in relation to notice pay during furlough is complex.
If you make a payment in lieu of notice under a clause in the employment contract, you should check what the contract says about the amount. If, for example, it says 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 below under “Can we reclaim notice pay?”)
If the employee is given notice which they are to “work out” while on furlough, the amount you need to pay them during the notice period is very complicated.
If the employee’s contractual notice period is at least a week more than the statutory minimum period of notice, 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, e.g. because they have caring responsibilities, are also (in our view) entitled to notice pay at the furlough rate only. If there are reasons why it is important not to be in breach of contract (e.g. if you wish to rely on post-termination restrictions in the employment contract), you 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 put onto furlough at their employer’s request, or who are unable to 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 the employee’s 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. They do not apply (in our view) to employees who are only on furlough 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 cut because, although they are entitled to SSP, they are not actually sick.
- For reasons which are not entirely clear, these statutory protections do not apply to employees with a contractual notice period which is at least a week more than the statutory minimum.
- Employees who fall within the scope of these protections are entitled to a statutory week’s pay during their notice period. The rules for calculating a week’s pay in these circumstances, explained immediately below, will generally involve looking at pre-furlough pay.
- For employees with normal working hours and fixed pay or salary, a statutory week’s pay is a “normal” week’s pay. There is an argument that a week’s pay should be the furlough rate of pay, because that’s what is currently normal. However, a statutory week’s pay is based on an employee’s normal working hours. As no work at all 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 they work (e.g. because they work shifts), a statutory week’s pay is calculated by averaging pay for the previous 12 working weeks. Because no work at all is done during furlough, this means pre-furlough weeks.
- For employees who do not have any normal working hours a 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, you can (in our view) 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 you need to “top up” the notice pay to usual pay, even if this is more than can be recovered through the government subsidy.
The same principles will apply for employees who are on flexible furlough from July onwards, where they are working for part of the week on normal pay and furloughed for the remainder of the week on reduced furlough pay. You may need to top up notice pay to usual pay rather than the flexible furlough pay, depending on whether above statutory protections apply.
Can we reclaim notice pay under the government scheme?
This is not covered directly in the guidance.
It seems that you should be able to reclaim notice pay if an employee is given notice during furlough, for those weeks of notice which fall within the furlough period. Employers cannot, however, reclaim any extra “top up” to usual pay which may be legally required (see the answer to the previous question).
We do not consider that a payment in lieu of notice can be reclaimed under the scheme, because this is a discretionary payment. A payment in lieu is also not compatible with the underlying purpose of the scheme to keep employees employed for as long as possible.
Employers should consider the possible reputational risk of using the government scheme to pay for the notice costs of making employees redundant. Although this is not prohibited by the current guidance, the underlying purpose of the scheme is to keep employees in the workforce rather than fund the costs of redundancy dismissals.
How do we calculate statutory redundancy pay for employees on furlough?
Statutory redundancy payments are calculated based on years of service, age, and a week’s pay. A week’s pay for this purpose is capped at £538. Many employees will earn more than this even during furlough, which means there is no need to consider a different calculation.
A 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 employees earning less than the capped week’s pay during furlough, in most cases it seems likely that a week’s pay for statutory redundancy pay purposes is based on the rate of a normal week’s pay (i.e. rather than the rate they are receiving during temporary furlough). This is because the normal working hours of a worker who is on furlough leave have not changed.
Redundancy consultation during furlough
Can we carry out individual and collective redundancy consultation during furlough?
Yes. 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.
However, it is not making money for the employer or providing services, so is most likely permissible. The guidance for employers also says 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 must also be allowed.
Why would we want to collectively consult during the furlough period?
Employers may wish to do this if they know 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) – see further below. Providing certainty and clarity for staff as soon as possible is another benefit. You may also wish to use the time 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 (such as reduced pay) as an alternative to redundancy but need to be able to act quickly if no agreement can be reached with employees.
Remember that no part of the grant from HMRC 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 only being consulted in respect of possible redundancies or related matters. The guidance for employers says 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. The representatives are not providing services to the employer, so this should not fall under the prohibition on doing work while on furlough.
Do we need to collectively consult with our 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. We always recommend taking advice on your particular circumstances before embarking on collective consultation.
What does collective consultation involve?
Consultation must start “in good time” to allow the relevant discussions to take place, and a minimum period before the first of the dismissals takes effect – 30 days (where between 20 and 99 dismissals are proposed), or 45 days (where 100 or more dismissals are proposed).
Now that the government has confirmed the availability of a flexible furlough scheme until the end of October, it may be possible to start collective consultation soon if an employer considers that redundancies will still be necessary – subject to being clear that the need to make redundancies will be reviewed if the business situation improves.
This may enable the consultation process to finish during furlough. Depending on the timing, it may also be possible for some or all of any redundancy notice periods to take place during the furlough period – although see the question above about reclaiming notice pay for whether this is permitted by the scheme, and the possible reputational risks.
Consultation should take place with the “appropriate” representatives of the affected employees. If you recognise a trade union in respect of the affected employees, you must consult with the union representatives. Otherwise, you can choose whether to consult with existing employee representatives who have the appropriate authority (e.g. 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 (e.g. support for dismissed employees). It is critical that minutes of the meetings with the employee representatives include reference to the fact that consultation has covered these main issues.
Consultation must take place with a view to reaching agreement, but the employer does not have to agree with the representatives’ views.
What issues should we be aware of when collectively consulting with a workforce who are on furlough or remote working?
Coronavirus 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.
The new flexible furlough scheme from July may allow some consultation to take place in person on days when employees are working. However, many employees will still be working from home and those on flexible furlough are likely to be in work at different times, meaning remote consultation will still be required even where some employees have returned to the workplace.
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 prepare to run several of these to ensure the whole workforce is notified properly rather than via the grapevine.
Collective consultation with employee representatives could be done remotely provided appropriate technology is in place. It could also potentially be done in person with appropriate risk assessments and protective measures and subject to consideration of current government guidance.
If done remotely, you should make sure that all the representatives have the technology required to participate. You 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. 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 need to make to ensure any election is fair. This may include arranging online voting. The voting process is supposed to be secret so far as reasonably practicable, which can present a challenge when it cannot happen in the physical workplace. Some possible options are:
- Use a third-party online voting platform, which ensures anonymity but may come at a cost.
- Design your own internal system. For example, you could nominate one independent person to run the ballot – although strictly this would not then be a secret election.
- Set up a consultation body in advance, which (provided its mandate is sufficiently clear) can then be used for redundancy consultation later on.
Can employers use the “special circumstances” defence to a failure to consult about collective redundancies?
This is a difficult and fact-sensitive area, so you should always seek advice on your 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, failures to consult on the required topics with a view to reaching agreement, or failures to 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 not sufficient. 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 cash to keep it going and is making redundancies to remain profitable (or to 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 (such as guaranteed loans, no business rates for the retail, hospitality and leisure sector, and deferral of VAT payments) will make it difficult to rely on the special circumstances defence to justify no or short collective consultation.
It is therefore important that 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 TULRCA as best they reasonably practicably can.
As described above, despite Coronavirus 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 takes what steps it reasonably can. The measures an employer took in the particular circumstances it was facing may also reduce the size of 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 very important in reducing what might otherwise be a large penalty.
We’ve finished collective consultation – what comes next?
Once collective consultation with representatives is sufficiently far advanced, individual consultation with affected employees is likely to be required as well. The furlough guidance for employers makes it clear that the ordinary redundancy principles continue to apply during this time, although where collective consultation has been carried out it is generally possible to follow a shorter one-to-one process.
What issues should we be aware of when consulting individually with employees who are on furlough or remote working?
First, you need to think about how you will contact your employees and how will you send them relevant paperwork. Do you have their home email addresses (if they no longer have access to office email or never had it), do you have a home/mobile telephone number, and do you know if the employees have access to a computer?
For people without access to a computer, you could post or courier documents. If individuals will be reading emailed documents on a smartphone, consider formatting issues and what type of document to send.
If you propose to carry out the individual consultation meetings by video conferencing, check the employee (and, if applicable, their representative) will have access to a computer or smartphone. Alternatively, you can consult by conference call, but bear in mind that it will be harder to see how people are reacting to the news. If someone is on flexible furlough and in the workplace for some of the time, consider whether some or all of the consultation can happen face-to-face (with appropriate social distancing) on days they are working.
It is a common practice to allow the employee 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 you are under no legal obligation to allow the employee to be accompanied by a friend or a family member, this may be allowed under your own policies and procedures or as a discretionary measure in these unusual circumstances.
Check the wording of any redundancy policy for any such provisions. In practice, it will be difficult for you to ensure 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.
Think about the following:
- Ensure that only relevant parties receive an invitation to the online meeting, and that the line or online portal for hosting the meeting is secure and compliant for data protection purposes.
- Ask the employee to attend the virtual meeting from a private and quiet room if possible where they will not be disturbed, and discuss their particular circumstances with them.
- Ask parties to speak clearly, let them ask questions when necessary and confirm their understanding. Parties should be asked to mute themselves when they are not speaking to avoid any distractions. Make use of online tools, such as screen sharing, to refer to documents.
- Explain that you will be taking notes of the meeting and will share a copy of the minutes/notes with them. Remind them that they may also take their own notes during the meeting.
- At the start of the meeting, ask the employee to confirm that they (or any companion) are not recording the meeting. If you are concerned about this, remind them that they do not have a legal right to record the meeting and that this may be viewed as a breach of trust and confidence as well as misconduct. You could also explain that covert recording may be in breach of data protection legislation. (Remember, though, that recording may be a reasonable adjustment for someone with a physical or mental impairment.)
- During the meeting, check with the employee whether they need to take a break in the same way as you would during an in-person meeting. 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, it is essential that communications and consultation meetings are conducted fairly in recognition of the impact of present conditions and employees’ personal circumstances. Ensure that parties are supported appropriately after any meetings and there are regular catch-ups to check on the employees’ wellbeing. Have a clear method through which employees can raise questions or discuss concerns.
Think about other things you can do to support people during this very stressful time – for example, by providing counselling, other professional medical help or employee support helplines. Consider offering redundancy outplacement services and point employees to useful websites and resources. If nothing else, keep in touch with them and check how they’re doing.
What if we 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 have the option of bringing an unfair dismissal claim. Although dismissals for business reasons related to Coronavirus are likely to be a genuine redundancy, dismissals can still be unfair if the correct procedure has not been followed – including fair selection and proper individual consultation including consideration of alternatives to redundancy. Where an employee asserts their selection was discriminatory, there is no minimum service requirement.