Insight

Alternatives to making staff redundant after covid

With the furlough scheme having ended on 30th September 2021, what are the options for employers who are looking to avoid redundancies?

Reduce salaries temporarily

To make this temporary change to the employee’s terms and conditions of employment, an employee would need to provide consent in writing to protect the employer from a breach of contract or even constructive dismissal claim.

If an employee refused their consent, an employer could either impose the change unilaterally (which may prompt the employee to raise a grievance and/or resign) or ‘fire and rehire’ by giving the employee the requisite notice (to avoid a wrongful dismissal or breach of contract claim) and rehiring under new terms and conditions such as reduced hours and pay.

This latter approach does however carry reputational and legal risks for an employer and so should be managed with a settlement agreement and only used as a last resort.

Either way this is likely to be attractive to employers whose businesses will take time to recover to pre-pandemic levels and who don’t therefore have an immediate need for full time staff, whilst wishing to retain existing staff for when business improves.

Whilst obtaining consent is far from straightforward, it is more likely where a business recognises a trade union for collective bargaining purposes and can agree changes through them first. This in turn can help to achieve individual agreement. Agreement is also more likely where there is proper consultation over changes which are time-limited and conditional rather than open-ended.

Asking staff to take unpaid or part-paid leave when furlough ends

This is  more likely to be of interest to employers who want to retain highly-skilled staff but who have cash-flow issues and need time to allow normal trading conditions to return. This would usually only be agreed with employees on a voluntary basis and should be set out in writing after proper consultation. It is again more likely to be agreed by employees if such agreements are time-limited and subject to review.

In the same way that employers can reserve the right to decline requests where voluntary redundancies are offered, an employer should reserve the right to decline requests to ensure that not too many employees are lost in business-critical roles.

Continue furlough without the government grant

This essentially embodies the principles of furlough and flexi furlough within a new or extended furlough agreement. Whilst an attractive option for employers that do not want redundancy costs and instead want to retain their staff on essentially a part time basis until trading conditions return, it is nonetheless an expensive option as it will require employers to bear the full costs without the support of the government grant.

This could be alleviated by the reduction in the rate of furlough pay, for those hours and days the employee was not working, however it would still require consultation and agreement with the affected employees in much the same way as set out above.

Short-time working and lay offs

Both require express contractual provision  (which not all contracts contain). A lay off clause permits the employer to provide employees with no work and no pay for a period, whilst retaining them as employees.  A short-time working clause entitles an employer to provide their employees with less work and less pay for a period, also whilst retaining them as employees. Continuity of service would be preserved in each case and the employee would continue to enjoy employment rights, particularly if they meet the two year qualifying service criteria.

Provided certain statutory criteria are met, an employee can also claim a guarantee payment or statutory redundancy pay. However the use of short-time working and lay off is still uncommon and mainly found in certain sectors such as the car industry where business demand fluctuates. Even if their use is permitted by contract, an employer should always ensure there is adequate consultation and reasonable notice given to affected staff to avoid breaching the implied term of trust and confidence which in turn could give rise to constructive unfair dismissal claims against an employer (should an employee have the requisite qualifying service).

Where redundancies cannot be avoided

Ultimately, however, an employer may still be unable to avoid redundancies and should therefore be aware of the need for these to be both substantively and procedurally fair to avoid a finding of unfair dismissal. There should be both a genuine redundancy situation and a fair selection process followed, with, where appropriate, proper consultation, pooling, fair and objective selection criteria and a consideration of suitable alternative employment.

For those employers looking to make staff who have been furloughed redundant, they should remember that statutory redundancy pay and statutory and contractual notice pay should be calculated on the basis of pre-furlough pay rather than the 80% reduced rate. Also, employers should be wary of including furloughed staff in the selection pool for redundancy just because they have been furloughed as this could be both unfair and discriminatory (depending on the reasons staff were placed on furlough). Instead, employees should be identified in the usual way, because they carry out the same or similar work.

Legal advice on employment law after furlough

This article is intended to provide you with an overview only and should not be regarded as legal advice. Should you require specific advice on any furlough or redundancy-related queries, you should contact Rachel Lester on 0203 827 6100 or at [email protected]

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