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COVID Redundancy

Redundancy during furlough

The Coronavirus Job Retention Scheme is intended to give employers whose operations have been severely affected by the coronavirus pandemic an alternative to making staff redundant.

The scheme was due to come to an end on 31 October 2020, to be replaced by the Job Support Scheme. However, the Government has, as of this week, extended it again, this time to remain open until the end of September 2021.

As we start the process of coming out of lockdown, you may need to consider redundancies in your business, as you reshape it for the new ‘post-pandemic’ world. It’s therefore important to understand what this could mean if you’ve needed to furlough your staff.

What is redundancy?

A redundancy is a dismissal caused by one of three situations:

  • the closure of the employer’s business;
  • the closure of the employee’s workplace; or
  • the fact that the employer’s requirements for employees to carry out work of a particular kind have ceased or diminished, or are expected to cease or diminish.

A redundancy may be part of a planned reorganisation or a change in business strategy. It may also be an unavoidable response to an external crisis, such as the coronavirus pandemic. A redundancy may arise simply because the employer cannot afford to continue to employ staff.

While the Coronavirus Job Retention Scheme may obviate the need for redundancies while it lasts, it does not prevent them. There may be reasons why an employer needs to make employees redundant even while they are furloughed. However, employment tribunals may question why it was necessary to take such a step while the wages of employees were being so heavily subsidised by the state.

Furlough and redundancies – what’s changed?

One major change introduced by the extended furlough scheme is the exclusion of any period when an employee is on notice of termination of employment. An employer cannot make a claim under the scheme in respect of any day from 1st December 2020 onwards when the employee was serving a notice period.

Therefore, while there is nothing to stop an employer from making employees redundant while they are on furlough, the support of the Coronavirus Job Retention Scheme ends when notice is given.

That does not prevent the employer from making preparations for redundancy during the furlough period, by carrying out consultations and applying the selection criteria. However, once notice is given, the period in respect of which the employer can make a claim under the scheme ends.

In September and October 2020, employers had been required to contribute to furloughed employees’ wage costs. The scheme covered just 70% of wages in September 2020 and 60% in October 2020. The employer was required to top up the employee’s wages to the required 80% (capped at £2,500 per month).

However, from 1st November 2020, the scheme effectively reverted to the position in August 2020, when it covered the full 80% of wages (capped at £2,500 per month) with the employer being required to pay only employer national insurance contributions and pension contributions.

Placing employees on furlough is not without cost to the employer. Even before August 2020, there were costs to an employer in furloughing employees and administering claims under the scheme. An employer might be in a position to show that these costs, given its financial circumstances, made it reasonable to dismiss employees without taking full advantage of the scheme.

Nevertheless, the Coronavirus Job Retention Scheme, as its name suggests, is designed to encourage employers to at least delay making staff redundant. The support available will presumably allow employers to defer redundancies that would otherwise have taken place, had the scheme closed as expected at the end of October 2020.

If an employee is dismissed for redundancy before the end of the scheme, a tribunal hearing an unfair dismissal claim is likely to want to know why it was not possible to retain the employee until the scheme ended. Similarly, an employer that chooses to make redundancies without taking advantage of the scheme at all will be expected to explain why that was a reasonable course of action to take.

All of this means that having a robust understanding of the dos and don’t of redundancy are as important as ever; knowing this will prevent employers from slipping up and risking employment tribunal claims at a time when that’s the very last thing they need.

If you need help with redundancies or furlough, get in touch for a complimentary discovery call, where one of our consultants will be happy to talk you through the key elements for you to think about.