Furlough or Redundancy , which option is best for your business
We have heard a lot recently of mass redundancies when other companies have been taking advantage of government schemes to protect its staff . The airlines , especially Virgin , have come under great scrutiny and criticism as a result of its decisions . So what’s the reason a company would choose redundancy over furlough and what is this new term?
The term furlough was little known in the UK until the recent weeks and now it’s set to be added to the Oxford dictionary. The Coronavirus Job Retention Scheme is the government scheme whereby employers can use a portal to claim up to 80% of an employee’s wages whilst that employee is ‘furloughed’, laid off / not working , but still on the payroll.
FURLOUGH Extended until October 2020
Furlough Update – Job Retention Scheme Extended until October 2020
The Governments Coronavirus Job Retention Scheme, which 7.5 million rely on, was due to stop at the end of August. However, Boris’ Government have just announced an exciting update to the scheme aimed to improve its flexibility and aid in Britain’s transition back to more normal times.
What do we Know?
The changes announced have no effect on the current scheme and will not apply until the beginning of August. More information will be released over the coming days.
Employees will continue to receive 80% of monthly wages up to £2,500. From August, the government will start asking companies to share in some of this cost.
The scheme will continue to be open to all sectors but will provide greater flexibility as companies can bring back furloughed workers on a part time basis.
What to be Aware of
As before, businesses must be on top of this scheme to ensure correct laws are adhered to. Perhaps the most important thing to be aware of is changes to employment contracts. Any changes between furloughed, part-time and full-time status must be agreed between both parties in writing prior to the changes coming into effect.
At A City Law Firm, we offer well priced and timely reviews, consultations, and amendments of all employment contracts. We can amend or draft contracts and agreements to this effect. As well as staff handbook and policy amendments. Any consultations or advice with regard to easing workers back even part time, again we can offer help and advice.
Further details of the scheme based on the original information released below:
Employees who agree, and this agreement must have been made in writing, are given a leave of absence and do not work for their employer (although training is allowed) for the period that they are on furlough. This period is a minimum of 3 weeks and presently a max of 3 months
The qualifying date, when the employee has to have been on the employer’s payroll, has changed from 28 February to 19 March 2020.
This brings into scope a large number of people who fell outside the scheme because they had recently changed jobs. The 19 March date is just before the Chancellor announced details of the scheme, meaning it is still effective to prevent fraudulent claims (by businesses hiring ghost employees to claim furlough payments in respect of, as those ghost employees will not have been on PAYE on 19 March).
The scheme can be used for:
- Casual workers;
- Those on zero-hours contracts
- In addition, those staff who were already made redundant due to coronavirus prior to the announcement of the Coronavirus Job Retention Scheme, can be reinstated and placed on the scheme.
An employee must however , agree to furlough, either because it is already set out in their employment contract, or through a process of:
- Selecting the staff member through a non-discriminatory process;
- Clearly explaining how much the staff member will be paid in total (the scheme will provide 80% of the wage to a maximum of £2,500 per month, and the employer can decide whether or not to top this up); and
- Requesting the staff members agreement and if so obtaining this in writing (this ‘furlough agreement should include the starting date, the sum to be paid, when it will be reviewed, and how the parties will keep in contact during the furlough)
- It will not cover overtime or commission / bonuses
- Employees on sick leave or self-isolating should get statutory sick pay, but can be furloughed after this,
If the staff member does not agree, then other options should be discussed, including potential redundancy. The benefit is you retain your talent despite these difficult times and your commitment to the staff hopefully will be rewarded after the lockdown is lifted. You can furlough all or just part of your staff so that you can survive this period , but note their annual leave will still accrue.
Notwithstanding the scheme, there are numerous redundancies still being contemplated and carried out. The coronavirus outbreak however has not had any impact on the laws of redundancy and so a fair process must still be followed.
Your employer can still make you redundant while you’re on furlough or afterwards but their employment rights will still be in place to protect them
Redundancy is potentially a reason for unfair dismissal, and so it is essential that fair and transparent processes are followed.
Redundancies can be collective (i.e. 20 or more redundancies) or they can be individual.
Where there is a collective redundancy, employers are obliged by statute to inform and consult appropriate representatives, and to notify the Secretary of State in the Department for Business, Energy and Industrial Strategy (BEIS) if those redundancies are to take place within 90 days.
Additionally, there are specific timelines depending on the amount of redundancies:
- Where 20 – 99 dismissals are proposed, the consultation must start at least 30 days before the first of the proposed dismissals
- If there are 100 or more dismissals, it must be 45 days before the first dismissals.
In the current climate these timeline are likely to be difficult to adhere to and so employers may have to look to the ‘special circumstances’ defence to condense the timelines, but they cannot be completely avoided. This only applies to those having been employed for 2 years or more with the employer so long as no discriminatory grounds can be claimed they can be dismissed with notice pay only.
The consultation should ensure that all employees are made aware of:
- the reasons for redundancy
- the numbers expected to be dismissed
- who is in the pool of employees at risk
- the length of the consultation period
- the process of selection, including the criteria for assessment and the timetable
- the right of appeal
- opportunities for redeployment
- that there will be individual consultation and further open meetings
Employers commonly use a selection matrix to ensure that a fair selection process is carried out; common criteria used by employers include skills, performance and disciplinary records. An objective view should always be taken when measuring employee scores against such criteria and the lowest scores should be selected for redundancy.
Holding Consultation Meetings
All alternatives to redundancy should be considered, to reduce the number of redundancies. Aa such it will be interesting to see if not using the furlough offerings now will lead to challenges against the redundancy decisions
Within the consultation period, employers should hold individual and collective consultation meetings with their employees. These meetings are an opportunity for the employer to explain in detail their reasons for coming to this decision and, conversely, an opportunity for the employee to question, challenge or comment upon the decision or the process in reaching the decision. So employees could now raise the scheme available and seek clarity why this has not instead been chosen . This would be a good time to have this discussion
Issue notices of dismissal
Where, at the end of the consultation period and after it has explored ways to avoid the redundancy, a letter must be sent to the selected employee with notice of the dismissal. This letter should set out the process that was followed, as well as confirmation of any entitlements such as notice pay, holiday pay, etc. The letter should also offer the employee an opportunity to appeal the decision, together with information on how to make that appeal.
If it is appropriate, to ensure against future claims , a draft settlement agreement should be given to the employee which sets out the principal terms of the offer in relation to the redundancy.
Employees will require independent legal advice on this agreement in order for the waiver of their rights to become legally enforceable, the fee for which is generally contributed by the employer. Where legal advice is not obtained, there are instances where an unhappy employee could still attempt to bring a claim against the employer notwithstanding having signed the agreement. This helps include terms of confidentiality , references , agreed announcements and gives the employer comfort against a claim and employee a tax fee sometimes enhanced sum.
Will the employee accept to be furlough ?
Since the alternative is that the employer states they would otherwise have lost their job, it could be an issue if an employer then later refuses redundancy if a staff member rejects the furlough option.
It would be necessary to have followed a fair redundancy dismissal process before making any redundancies , so making people redundant without offering them the furlough option could well be deemed an unfair dismissal. So it needs to be approached carefully .
There may be employees who would be entitled to a large redundancy payment so they might seek that alternative so you need to consider it all carefully.
If in doubt as to the choices ; how to approach staff and the paperwork required we are here to advise or draft the appropriate documents . It’s a difficult and testing time and we want to make this as easy as possible for both employers and employees.