Redundancy | During and after Furlough

by Hasaan Ahmad

With the Job Retention Scheme winding down in October, the President of the Employment Tribunals in England and Wales, Judge Barry Clarke, has expressed that they are expecting an imminent increase in unfair redundancy claims. In this article, I sat down with Law Simplified to tackle some key questions specific to redundancy during and after furlough withdrawal.

Are there other options employers should 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 employers 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 of whether the employer really intended to make redundancies all along, and has just been using the furlough scheme for convenience while carrying out consultation.

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 my 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.

Can employers reclaim notice pay under the government scheme?

Something all employers will want to know. This is not covered directly in the guidance or any implied direction, ACAS may be able to shed more light on this area.

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).

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.

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.

For complex employment issues, ACAS may be the best starting point, other organisations such as Citizens Advice Bureau may also be able to assist individuals with employment related issues.

 

 

 

 

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