Updated FAQ's about making furloughed staff redundant

In May, we set out answers to some of the questions our clients have asked us about making furloughed staff redundant. We've updated that advice to reflect changes in the law about notice pay and the implications of the extension of the furlough scheme until the end of October.

1. We can't afford to top up furlough pay - can we make redundancies before the end of the scheme?

All employers have to contribute towards furlough costs from Saturday 1 August. These increase month on month and the highest contribution of 20% applies from 1  October. Many employers can't afford to make these contributions and have already started to make their staff redundant.

The legal definition of redundancy has not changed. Therefore, provided you have a genuine redundancy situation and follow a fair procedure, it's unlikely that you will be deemed to have unfairly dismissed someone simply because they were made redundant before the furlough scheme ends. That said, ACAS recommend that you consider whether the CJRS could still be utilised to preserve jobs in the short term before deciding to go ahead with redundancies. We also suggest that you explain to staff why you can't continue to furlough them as part of the consultation process.   

2. Do you have to wait until staff return to work before you can start a redundancy consultation?

No, and there are good reasons why you may not want to wait. If you know you are going to need to reduce headcount or reorganise your business to cope with the new economic climate, the sooner you start the process the better.

If you are making 20 or more staff redundant within 90 days at one establishment, you'll need to factor in the time it will take to collectively consult with your staff because minimum periods apply before you can dismiss staff. If you're considering making between 20-99 redundancies, the minimum period of consultation is 30 days, increasing to 45 days if you're making more than 99 people redundant.

The furlough scheme is due to end on Saturday 31 October. Therefore, if you want redundancies to take effect on Sunday 1 November, you'll need to begin collective consultation no later than Wednesday 16 September if you're making 100 or more people redundant and by Thursday 1 October if you're making 20-99 people redundant. However, it's best to start as soon as possible as it may take longer than normal because of the logistical difficulties of remotely consulting with representatives and individual members of staff. 

3. We don't already have elected representatives. Does this mean we can move straight to individual consultation?

No. If you are making 20 or more employees redundant within 90 days at one establishment, you must collectively consult with representatives. If you don't do this, anyone affected can, potentially, be awarded up to 90 days' pay (and it's not capped in these circumstances).

There is a special defence available to employers if they can show it wasn't practicable to comply with the requirements - but this is construed very narrowly and you'd have to show you took all 'reasonably practicable' steps towards complying with the requirements. 

Ordinarily, if you don't recognise a union or have elected representatives in place, you'd need to hold an election. This process can take a couple of weeks even if everyone is at work. If the majority of your staff haven't returned to work, you may have to think creatively and do the best you can with the resources available to you. One option is to ask for volunteers and treat these as being elected without holding a formal election, or using secure social media platforms to conduct an election. If the steps you take don't comply with the formal requirements, take advice to help you decide whether the risks of doing this outweigh the benefits of speed.  

You also have to notify the Department for Business, Energy and Industrial Strategy of any proposed redundancies by letter or on form HR1. If you don't do this, you can be prosecuted and fined.

4. Can employee representatives perform their duties without breaching the 'no work' furlough conditions? 

Yes. The government's employee guidance and expressly says that "During hours which you record your employee as being on furlough, 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."

5. Can you consult with furloughed employees about proposed redundancies without breaching the 'no work' rules?

Yes. The employee guidance makes it clear that employees can't do anything which makes money, or provides services for your organisation or any organisation linked or associated with it. Consultation doesn't make money or provide services and therefore, should be okay.

6. Can you serve employees with notice to terminate their employment whilst they are furloughed?

Yes. 

7. How do you calculate notice pay for someone who is furloughed?

The government has introduced new legislation - The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 - which comes into force today to prevent employers from paying notice at furlough rates. The rules are complicated, but essentially mean that employees should receive their normal, pre-furlough pay during their notice.

However, these rules only apply to those employees who are entitled to the statutory minimum notice provisions (1 weeks' notice for every year worked up to a maximum of 12 weeks) or less than one week on top of that. 

If the employee is entitled to at least one week's notice more than the statutory minimum, they should receive their contractual rate of pay for each week. If they've agreed to a reduction in their salary as part of the furlough arrangement, you may be able to use that for the calculation. However, we suggest you take advice if you are going to pay less than pre-furlough pay, not least because if you underpay someone, they may bring an unlawful deductions from wages claim. Plus, if you do underpay anyone, this will amount to a breach of contract and will invalidate any restrictive covenants the employee would otherwise have to follow. The approach you take should therefore reflect your financial situation and your appetite for risk.

8. Can you use the grant funds to pay notice?

Yes. There was some confusion around whether the grant could only be used if the employee was only entitled to statutory, rather than longer contractual notice. However, the government eventually resolved the confusion and has updated its guidance to make it clear that "you can continue to claim for a furloughed employee who is serving a statutory or contractual notice period".

9. What calculations should you use to work out redundancy payments?

The Employment Rights Act 1996 (Coronavirus, Calculation of a Week's Pay) Regulations 2020 also apply to calculating statutory redundancy payments. Under sections 221-224 of the Employment Rights Act 1996, the calculation is based on an employee's 'normal pay' and is subject to a cap of £538.00 gross per week. The Regulations set out revised ways of calculating redundancy which depend on whether the employee works normal hours or has no fixed hours of work.

The calculations are quite complicated, but essentially employers have to work out the redundancy payments of someone who has been furloughed based on their full normal rate of pay rather than any reduced rate they may have been receiving while on furlough.

Our Coronavirus updates

We're working hard to keep you up to date with legal developments around Coronavirus. We've set up a portal which includes lots of helpful articles and advice to help you.

If you have a query, that we haven't answered, please contact us.

”