Employers with workers on furlough must start to prepare for the end of the Coronavirus Job Retention Scheme (CJRS), which is fast approaching at the end of September. While many workers may be able to return to work and resume duties, the reality for some employers is that their furloughed workers may be at risk of redundancy where the business is struggling to survive through current economic challenges.
If your business takes the decision to make furloughed workers redundant, you must ensure you follow the correct furlough redundancy process to reduce the risk of tribunal claims.
The following guide for UK employers looks at dismissing a furloughed employee by reason of redundancy, and the process to follow when making a furloughed employee redundant.
Can furloughed employees be made redundant?
The Coronavirus Job Retention Scheme (CJRS), or furlough scheme, has been extended by the UK government until the end of September this year in response to the ongoing economic challenges arising out of the coronavirus pandemic.
From 1 July 2021, the level of grant available to employers under the scheme will be reduced, requiring employers to contribute towards the cost of furloughed employees’ wages at increasing percentages in the lead up to the scheme’s closure.
For many businesses, this extended financial assistance will help them to stay afloat, although for others, unable to survive a further period of lockdown, they will be left with no option but to close their doors for good. There will also be businesses who are looking ahead to cost-saving measures, including cutting their head count, especially once the CJRS comes to an end.
The fact that an employee, or even an entire workforce, has been furloughed does not necessarily mean that redundancies will not prove necessary. Being on furlough will also not protect an employee from being dismissed by reason of redundancy, although they will retain their usual redundancy rights and protection from unfair dismissal.
Furlough redundancy process requirements
Where an employee is made redundant during furlough, the same principles of fairness must still be adopted by the employer, regardless of the fact that the employee is on a temporary leave of absence. However, as long as the reason for terminating the employees’ contract of employment is valid, which includes a genuine redundancy situation, and a fair procedure is followed, an employer can lawfully dismiss a worker during a period of furlough.
A fair procedure when making furloughed employees redundant must involve the use of objective selection criteria, as well as appropriate consultation with employees, and/or employee representatives, about why redundancies are happening and if there are any available suitable alternatives to terminating employment altogether.
If an employee is dismissed unfairly, or where a proper consultation process is not followed, they can submit a tribunal claim for compensation against you, as their former employer, in addition to any redundancy payment or notice pay already received.
Furlough redundancy selection criteria
As with any redundancy situation, you must ensure that any criteria used for pooling and selecting employees for redundancy are fair. To be fair, selection must involve the application of objective criteria to a reasonably constituted pool of employees, where the selection criteria must not be directly or indirectly discriminatory in any way.
Automatically selecting employees for redundancy purely because they are on furlough may give rise to an unfair or even discriminatory dismissal, although much will depend on the reasons for employees having been put on furlough in the first place and the selection process used to do this. Even if a fair process was used to select for furlough, this criteria may not remain a fair basis upon which you should make a selection for redundancy. This should be reassessed, consulting staff about the revised selection criteria to be adopted.
A redundancy effected whilst an employee is on furlough, in circumstances where it may be possible for that individual to remain on furlough rather than being made redundant, may also be classed as unfair. However, the fairness of any redundancy here will very much depend on the circumstances involved, including the resources, size and financial position of the employer. Furlough is not cost neutral for the employer. This means an employer must still bear the costs of their employee’s national insurance and pension contributions, as well as any top-ups to their holiday and furlough pay, unless the employee has agreed to waive them.
There is also an important question mark over whether it might be contrary to the purposes of the CJRS to use the scheme purely to postpone redundancies, where an individual’s job is no longer viable and redundancy after furlough is inevitable.
What consultation process should be followed in a furlough redundancy?
The usual obligation to consult employees both individually and collectively about any redundancy proposals and to allow them to comment, and rules about what a fair consultation should entail, will continue to apply irrespective of whether or not employees are on furlough.
If the collective consultation rules are triggered because you’re making 20 or more redundancies in a 90 day period, you will need to ensure that you consult collectively with the appropriate employee representatives, and that you meet the 30 day deadline for commencing consultation where you are making between 20 to 99 redundancies. This will increase to 45 days for 100 or more redundancies.
The rules under the CJRS confirm that whilst on furlough, employee representatives may still undertake duties for the purpose of either individual or collective representation of employees or other workers. However, while the scheme is still in operation, careful consideration must be given to any logistical issues arising from the need to consult with staff and representatives remotely, and for staff to be accompanied where the rules permit.
The mere fact that virtual consultation may, in some cases, prove tricky, does not provide employers with an automatic excuse to avoid consultation altogether. In particular, you will need to ensure that staff and employee representatives have the relevant technology required to participate. You may also need to factor in some time to allow for online voting where employee representatives have not already been elected, as well as deciding what arrangements can be set up to ensure that any election is fair.
Finally, it is important to bear in mind that you can only make redundancies once the consultation process is complete, so consideration must be given as to how the CJRS coming to an end will impact on the timeframe for any redundancy consultation period, whether this be an on individual or collective basis.
How much furlough redundancy notice is required?
The notice pay an employee is entitled to receive for redundancy while on furlough, or for any other type of redundancy, will depend on how long the employee has worked for you and what their contract says about notice. There are two types of notice: statutory and contractual.
Where there is no contractual provision for any notice period on termination of employment, furloughed employees will still be entitled to a minimum statutory paid notice period, even where they are not required to work their notice.
To be entitled to statutory notice pay in lieu, an employee must have worked for you for at least one month. Notice pay will be calculated at one week’s notice if an individual has been employed by you between one month and 2 years, and one week’s notice for each year if employed by you between 2 and 12 years. This runs up to a maximum of 12 weeks.
Under new regulations that came into force on 31 July 2020— the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 — any statutory notice must be paid at the pre-furlough rate of pay.
How is furlough redundancy pay calculated?
An employee will be eligible for statutory redundancy pay if they have continuously worked for you for a period of 2 or more years, including any time they were furloughed.
The amount of redundancy pay that they will be eligible for will depend on the employee’s length of service, their age bracket and their gross weekly rate of pay. This will again be based on the employee’s pre-furlough salary, although the amount will be capped at £538 per week, increasing to £544 per week from 6 April 2021.
The amount of statutory redundancy pay will be based on a multiplier of:
- 0.5 week’s pay for each year employed up to the age of 22
- 1 week’s pay for each year employed between the ages of 22 and 40
- 1.5 week’s pay for each year employed aged 41 or over.
An employee can get a payment for up to 20 years service, equating to a maximum of £16,140 if made redundant prior to 6 April 2021, and a maximum of £16,320 for those made redundant on or after 6 April 2021. An employee may also be entitled to a more generous contractual redundancy payment under the terms of their employment contract.
Who pays for redundancy after furlough?
Liability for the costs of redundancy after furlough, and any other money owed, will depend on whether or not your business is solvent. If you are continuing to trade and able to pay your debts, you will still be required to fund the cost of any redundancies. Further, as from 1 December 2020, a CJRS grant cannot be claimed for an employee during any notice period, nor can the scheme be used to substitute redundancy payments.
In contrast, if you are unable to pay the debts owed by your business, and you have become formally insolvent, any employees who have been made redundant may be eligible to claim what is owed to them through the ‘Insolvency Service Redundancy Payments Service’.
For an employee to qualify for payments from the Insolvency Service, the employer must be unable to pay the employee. The redundant employee will not be eligible if they’ve been dismissed but then re-employed under the CJRS. Payments can only be made to employees who have been dismissed without being subsequently re-employed by the same employer.
The employee must also be either a UK or foreign national with the right to work in the UK, and have been an ‘employee’ at the business in question. If the employee is not eligible, for example, because they’re a contractor, they can register as a creditor instead.
What is the furlough redundancy process if the business is insolvent?
In circumstances where your business has become formally insolvent, for example, where you have gone into administration or liquidation, the insolvency practitioner or official receiver appointed to deal with the closure of the business will inform all furloughed employees how their jobs are affected and what to do next, providing them with form RP1 furlough factsheet.
Employees of an insolvent business, including furloughed employees, may still be eligible for certain payments when they’re made redundant, including a paid notice period and redundancy pay. Normally, the employer would be required to pay these, but the employee of an insolvent employer can instead apply to the Insolvency Service for these payments.
They can also apply for other outstanding payments, such as unpaid wages, holiday pay and any protective award. A protective award refers to a payment ordered by the employment tribunal where there has been a failure to consult during the redundancy process.
The amount an employee will receive from the Insolvency Service will depend on their individual circumstances and what they’ve already been paid. They may be eligible for more than one type of payment, including notice pay, redundancy pay, arrears of pay and holiday pay. There are certain limits as to how much an employee can be paid for each type of payment, although where they are owed more than the maximum that can be paid out, they can register as a creditor in the insolvency for any outstanding money.
To apply to the Insolvency Service, an employee will need to submit two applications. The first application must be submitted online on the government website. This will be for any redundancy pay and other monies owed, excluding notice pay. A separate online application will need to be subsequently made for any notice pay.
DavidsonMorris’ employment lawyers can help with all aspects of workforce management, including adapting to the challenges of the COVID pandemic on employment terms and employee engagement. Working closely with our specialists in HR, we deliver comprehensive advice on the options open to you as an employer and provide practical support through any dismissal or redundancy process. For help and advice with a specific issue, speak to our experts.
Last updated: 21 May 2021