Furlough v redundancy | Can employers make job cuts while funding is available?

COVID-19 advice

The information in this blog is correct as at 7 May 2020. For the most up-to-date Employment Law and Health & Safety advice to support your organisation through the COVID-19 pandemic, visit our Coronavirus Advice Hub, which is updated daily and contains a variety of free guidance notes, letter templates, checklists, risk assessments and more.

The government’s Job Retention Scheme was intended to preserve jobs by coving 80% of workers’ wages until businesses are able to reopen. So why are mass redundancies making the headlines, and is this even an option while the scheme is live?

It appears that many employers are now grappling between furlough and redundancy. While the grant from HMRC has been a lifeline for some in recent weeks, others have begun letting people go, or will be contemplating doing so now, fearing that this is an inevitable outcome once the scheme ends. With the future of the scheme uncertain and no indication of when, or even if, things may return to normal, it is perhaps not surprising that many are cutting their losses.

To make the decision even tougher, both options come with potential risks. On the one hand, if you indiscriminately furlough staff, HMRC may find you to be in abuse of the scheme. This isn’t helped by the inconsistencies between the latest government guidance (which states that furlough must only be used if operations are “severely affected”) and the Treasury Direction (which states that anyone can be furloughed so long as this “by reason of circumstances arising as a result of coronavirus or coronavirus disease”). On the other hand, if you go down the redundancy route, you risk an Employment Tribunal finding unfair dismissal for failing to utilise the help that is available through the scheme and effectively jumping the gun.

What does the law say?

Redundancy is a form of dismissal. As such, employees with two years’ service or more will be able to bring a claim for unfair dismissal if redundancy isn’t handled properly.

In order for any dismissal to be fair:

  • Employers must have a potentially fair reason to dismiss
  • The dismissal must be fair in the circumstances

The first condition will not be as issue so far as redundancy is concerned, as redundancy is one of five potentially fair reasons for dismissal outlined in the Employment Rights Act 1996. It is the second hurdle that employers will need to clear.

When determining whether a redundancy was fair in the circumstances, case law has shown that a Tribunal will consider a number of factors, including:

  • Whether the employer used an objective selection process and applied it fairly;
  • Whether employees were consulted in advance;
  • Whether unions’ views were sought; and
  • Whether the employer explored alternatives to redundancy.

Women on maternity leave must be offered a suitable alternative vacancy, if one exists, or their dismissal will be automatically unfair.

The legal position on redundancies, outlined above, has not been changed due to COVID-19 and the rules on unfair dismissal still apply while the Job Retention Scheme is in effect.

So, would it be reasonable for employers to make staff redundant while the scheme is still live?

Redundancy should always be a last resort. In times of financial hardship, employers are expected to explore all other possible ways of reducing outgoings first, which may include freezing recruitment, putting a stop to overtime and temporarily withdrawing any discretionary benefits.

In the present situation, the obvious alternative to redundancy would be the funding available through the Job Retention Scheme, and a Tribunal would almost certainly take this into account when deciding whether it was fair to make somebody redundant. Whilst it is not clear at this stage how heavily the availability of furlough will weigh against other factors, such as the employer’s financial position, employers will need to weigh all factors carefully. For example, if a site closure is inevitable, then commencing a redundancy process prior to the end of the scheme may well be permissible.

Of course, businesses will not simply bounce back once lockdown is lifted, so difficult decisions may still need to be made, and many would argue that furlough is simply prolonging the inevitable. However, as the crisis continues to trigger mounting job losses, Chancellor Rishi Sunak has insisted that the government “will do whatever it takes” to protect people’s employment and that there will be no cliff-edge end to funding.

With the scheme set to run until the end of June and recent speculation that, if extended, the Chancellor may drop the wage subsidy to 60%, only time will tell whether furlough can continue to fend off redundancy in the coming weeks and months.

James Tamm

Director of Legal Services

Expert Comment

The Chancellor will need to announce what is happening at the end of June – and quickly. Many employers will know that if you are proposing to make more than 100 redundancies, consultation must start at least 45 days prior to the first dismissal. With the current end date of the scheme, that would mean starting collective consultation on 18 May. Businesses will need to know what form the scheme will take into July so they can plan accordingly.

Facing a redundancy situation?

Redundancy can be a stressful time for all involved. It’s also a highly complex area of employment law, meaning the margin for error is high. Professional support from an Employment Law specialist can help you to approach the situation more confidently, achieve your objectives and reduce the risk of claims arising from mishandled procedures.

Whether you need help weighing up your options or step-by-step advice through each stage of the process, call 0345 226 8393 to enquire about dedicated support for your business. For more COVID-19 employment resources, visit our free Coronavirus Advice Hub.