News > Articles

Redundancy amidst COVID-19: What employers need to know

COVID-19 has thrown up a whole host of problems for businesses. Government schemes – such as the Coronavirus Job Retention Scheme (the “Scheme”) – have provided some relief to employers, allowing them to continue operating Read more...

Katherine Zangana

Senior Associate

  • Mergers & Acquisitions
  • Company Contract Matters
  • Non-Contentious Employment
  • Settlement Agreements

COVID-19 has thrown up a whole host of problems for businesses. Government schemes – such as the Coronavirus Job Retention Scheme (the “Scheme”) – have provided some relief to employers, allowing them to continue operating and avoid a large wave of redundancies amidst a global pandemic. But with these schemes winding down in the coming months, economists are predicting a fresh wave of redundancies, with polls revealing that 33% of organisations are intending to make job cuts in the coming months. 

As experts in redundancy and employment law more widely, in this piece we address the key areas employers will need to consider if redundancies become inevitable. Redundancy will only be a fair reason for dismissal where handled properly and sensitively, and it is therefore vital  to ensure that you act fairly and transparently. If there is not a genuine redundancy as defined by the relevant legislation, or the procedure is unfair, employees have the right to apply to an employment tribunal for compensation for unfair dismissal. 

Making tough decisions

It seems likely that many of these redundancies will be a consequence of the pressures of lockdown and the end of the Scheme. British business has seen very slow growth in productivity since the global financial crisis and now that we are in recession, many businesses will simply be overstaffed. 

As a result, some businesses have taken the decision to place staff on the Scheme and/or temporarily reduce the working hours or pay of their non-furloughed staff. In other cases, companies such as British Airways have seen an opportunity to carry out restructuring (including changes to pay and conditions), which they have wanted to implement for some time.

What we have also observed is that in some cases, the opportunity for employers to employ fewer people to complete the same level of work (often due to non-furloughed staff picking up the extra tasks) could tempt them into making their furloughed staff redundant. 

Aside from the urgency of considering ongoing staffing requirements once the Scheme ends, even if there is not an V-shaped recovery expected for your particular sector, it would be worthwhile to engage in some long-term planning before making redundancies. 

On what grounds can employers make an employee redundant? 

Employees with more than 2 years continuous service with a company (the qualifying period) have protection from unfair dismissal. Any dismissal thereafter has to be for a fair reason. Those reasons are set out in statute, one of which is redundancy. This is defined as a circumstance where a company ceases to carry out the business in which the employee works, or stops doing it at a particular location. More commonly, a redundancy arises when the business needs fewer people to carry out work of a particular kind.

On the face of it therefore, the employer can dismiss employees with less than two years’ service without cost (other than notice pay, which we’ll explain below), but it is important to bear in mind that some dismissals are actionable even without the qualifying period, including those relating to discrimination and whistleblowing. 

Given the extension of the Scheme, it may seem unlikely that employers would need to make staff redundant whilst it is still in place, but in many cases it will be obvious that there is a reduction in work of a particular kind. The difficulty for the employer is that they still have to show that dismissal was a reasonable response to these circumstances – which is tricky if they are not facing the financial pressure to pay the employee’s wages.

However, if employers do not want to fund the upcoming expense that the winding down of the Scheme will bring from August, the tribunal is unlikely to challenge the business case for redundancies in the absence of manifest unfairness or a failure to follow proper procedures. 

Redundancy consultation processes 

By law, all employees are entitled to a redundancy consultation process, where they are able to discuss the reasons they have been made redundant and explore any alternatives to redundancy.  In circumstances where there are 20 or more redundancies to be made at the same time, a collective consultation should be undertaken between the employer and an employee representative (either a trade union representative or an elected employee representative).  

Given present circumstances, the consultation process will either need to be carried out remotely with the relevant technology in place, or in person with necessary risk assessment and protective measures for all in attendance. Employers should also take any reasonable steps necessary in carrying out a full collective consultation. It is illegal for either party to record the meeting, unless a physical or mental impairment requires them to do so. 

Avoiding discrimination 

Where employers are required to choose which employees they need to make redundant, they must ensure that their selection criteria isn’t discriminatory. For example, if an employer were to choose only older employees to be made redundant, then this decision could influence a discrimination claim by the affected employees.

Likewise, employers that create a redundancy pool (of those at risk of redundancy) will need to be careful to not only choose staff that have been furloughed. The risk here depends mainly on the reason why these employees were placed on furlough in the first place. If, for example, there is an employee who performs a particular role which has now become an unnecessary part of the business, it would make sense for them to be furloughed and then pooled for redundancy. However, if their role is not unique and an employer has not considered other team members with similar levels of expertise for redundancy also, this could be deemed unfair.

What alternatives can employers consider?

During the collective consultation, employers should discuss options such as reduced hours, pay cuts, job shares or sabbaticals. Documenting that they’re considering ‘temporary lay-offs’ and ‘short-term’ working is key to being visibly fair during this difficult process.

There may also be other, suitable jobs that these workers could do. Again, any suggestions should be documented in writing before an employee’s contract ends.

What about notice pay?

Employers can make a payment in lieu of notice (PILON) if there is an appropriate clause in an employment contract. This varies depending on the contract, so the terms should be checked. If there is no PILON clause then technically the notice period should be worked through as normal.  Failing to give notice will be a  breach of contract, which may have unforeseen effects, particularly on post-termination restrictions. Advice should be taken before making this decision. 

If you are making a furloughed employee redundant, notice pay is usually calculated based on basic pay according to their contract. Different rules apply to employees with variable pay. If the parties agreed to a reduced rate of pay during furlough this cannot usually be used as the basis for the PILON calculation. 

The government has advised that employers can continue to claim for a furloughed employee who is serving a statutory or contractual notice period – the Scheme is valid until the last day of employment (or the end of the Scheme, whichever is the earlier). 

An employer cannot claim furlough payments if they are terminating the contract without notice and paying in lieu. 

How to calculate statutory redundancy pay for furloughed employees

Once employers have decided who to make redundant, they’ll need to work out how much redundancy pay employees are entitled to. This calculation is essentially one week’s pay times the number of complete years worked (times one and a half for each year where the employee is aged over 41). A week’s pay will be capped at £538.

August is a crucial moment to get organised

The key is to get moving quickly. Employers will need to assess whether they need to make redundancies and what level is necessary. Once this is decided, they can get the steps in order to make sure they happen as fairly as possible. The Scheme ends on 31st October, so any large-scale redundancies will need to have the official processes planned to begin 30 or 45 days before then. 

To make anyone redundant employers need genuine reasons, such as jobs being no longer relevant to the business and no other roles are available. The process will begin with employers telling all employees that there is a risk of redundancy and why. The next step is fairly identifying a group of employees for redundancy. 

Aside from the potential employment tribunal cases which may arise if you do not carry out your redundancy processes fairly, the reputational hit can also be damaging to businesses – both amongst consumers and your employees. Motivating a team following a poorly managed redundancy process may not be easy, and you run the risk of putting off talent when you need to hire again.

If you’re unsure about any of the issues covered above, and would appreciate practical legal advice on your particular circumstances before you begin collective consultation, then do not hesitate to get in touch. 

If you would like to discuss any of the topics raised in the above article, please call us on +44 (0)20 7936 8888, email on enquiries@lawstep.co.uk or contact a member of the team below.

Icon Arrow