How to approach redundancy as the furlough scheme winds down

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How employers approach redundancies during a difficult time for all will be key to avoiding claims of discrimination or failure to properly consult, writes Abigail Etchells.

Last week, the chancellor Rishi Sunak made his long-awaited announcement about the winding down of the Coronavirus Job Retention Scheme (CJRS); although the changes were more gradual than expected.

In a nutshell, the government will continue to reimburse employers up to 80% of furloughed employees’ salaries up to a maximum of £2,500 per month, plus national insurance and pensions contributions, until 1 August, when employers will need to cover NICs and pension contributions.

The last date on which employees can be placed on furlough for the first time will be 10 June. Employers will be able to furlough employees on a part time or full time basis from 1 July.

From 1 September, the government’s wage subsidy will drop to 70% of wages, up to a maximum of £2,190 per month, and on 1 October will reduce to 60%, up to a maximum of £1,875 per month. Employers will be required to top up wages to 80% or higher if they have previously agreed more generous top ups. The scheme will close on 31 October.

The fact that the scheme is being scaled back more gradually than expected will be welcome news for many. Depending on how the re-opening of businesses progresses, this approach may give some employers time to rebuild and save jobs that would otherwise have been lost.

However, given the economic downturn, redundancies should still be expected this summer. Some industries have not even reopened yet, whilst others are taking longer to recover – how can these employers begin covering the cost of salaries? These sectors will be hit particularly hard by job losses. Also, with the scheme’s end now confirmed for October, large job losses should be anticipated for later in the year, too.

Approaching redundancies

One of the key considerations for employers when making redundancies is, of course, how to mitigate the risk of claims for unfair dismissal. If successful, such claims can entitle employees to compensation of up to 52 weeks’ gross pay (subject to a statutory cap) and, even if unsuccessful, require significant resources of time and money to defend. Employers can reduce their risks of such claims being brought by planning the redundancy process carefully.

The first point to consider is the timing of the process. If the employer is proposing to dismiss 20 or more employees in a 90 day period, they will need to collectively consult with representatives of the affected employees for at least 30 days before the first of the dismissals take effect (45 days if 100 or more dismissals are proposed). Consultation should be carried out with a view to reaching agreement with the employees on the matters discussed (although that agreement does not have to be obtained) and should cover ways in which dismissals can be avoided or the number reduced, such as pay cuts or reductions in hours, as well as looking at the way in which employees will be selected for redundancy.

Employers could seek volunteers for redundancy as a way of avoiding compulsory redundancies and reducing risk”

Consultation should therefore start before firm decisions about redundancies have been taken. In some ways, the more gradual phasing out of the CJRS has complicated this issue as employers may wish to wait and see how their situation develops before making decisions about redundancies. If, however, businesses are aware that job losses are already required or are likely to follow the winding down of the scheme then they should start to consult employees as early as possible.

Employees who are provisionally selected for redundancy must also be consulted with individually; although, this can take place within a collective consultation period.

Employers will need to give careful consideration to who is in the pool of potentially redundant employees. Again, the existence of the CJRS has complicated this as, although the fact that an employee has been furloughed may indicate that their role is not essential, employers should ensure they do not automatically place all furloughed employees into the pool for selection.

Certain groups, such as women and those who are clinically vulnerable, are more likely to have been furloughed due to childcare or medical reasons, which could lead to claims for discrimination. Employers could seek volunteers for redundancy as a way of avoiding compulsory redundancies and reducing risk.

When selecting employees from the pool, employers should use criteria that are as objective as possible and, ideally, ensure that scores are moderated. Potentially redundant employees should be given the opportunity to challenge their selection for redundancy and suggest alternatives and, where possible, alternative roles should be sought within the organisation or any wider group. Employees should also be given the right to appeal against their dismissal.

Finally, although it seems counter-intuitive when attempting to save costs, employers could consider making enhanced redundancy payments that are conditional on employees signing settlement agreements and waiving their rights to bring claims. This would provide some improvement in the position of the redundant employees, and certainty for employers that they will not be facing claims that they can ill afford to defend.