Redundancy and Furlough - What's the Relationship?
Managing Redundancy

Redundancy and Furlough – What’s the Relationship?

Redundancy and furlough: can employers make redundancies when the furlough scheme is still in place? Here’s our guidance. You can find more on our Coronavirus Advice Hub.

The Current Situation

There is now estimated to be approximately 8.4 million employees on the Coronavirus Job Retention Scheme (CJRS). As of 29 May 2020, the Government announced that employers will have to make a financial contribution from 1 August 2020 to the cost of Furlough Pay. The tapering payments will be as follows:

  • June and July: The government will pay 80% of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
  • August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions.
  • September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
  • October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.

For further details from the Government, please click here.

As such, many businesses may now be seriously considering whether employees need to return from Furlough Leave or redundancies need to be made.

How does the government’s announcement affect the reasonableness of making redundancies?

Firstly, it is rare for an Employment Tribunal to challenge the rationale behind an employer’s decision to make redundancies.

The Tribunal will consider whether the employer has satisfied the definition of redundancies under section 139 of the Employment Rights Act (ERA), e.g. is there a closure or a diminished need for employees doing work of a particular kind?

Secondly, the Employment Tribunal will consider the reasonableness of the employer’s decision to make a redundancy in all the circumstances (section 98(4) of the ERA).

When is it reasonable to make redundancies in the current climate?

It is our view that employers remain free to make decisions regarding the business’ requirements based on its projected future as at the date the decision is made to dismiss anyone due to redundancy.

Does the Furlough Scheme affect the business’ decision?

Of course, unions and employees may question why redundancies are being made when the government’s furlough scheme is in place? The key is that “conscientious consideration” is given to that question, should it be raised. However, the furlough scheme does not necessarily mean a restructure can be avoided.

Employers may consider that the government’s scheme has enabled redundancies to be avoided so far. However, the end of the scheme or simply the requirement to contribute to employees’ Furlough Pay may trigger many businesses to review their position.

This change may create difficulties for many employers prompting a decision to make redundancies. It would not affect the reasonableness of the decision to make redundancies if a business cannot foresee their business improving sufficiently once the restrictions of COVID-19 are lifted; where it cannot bear the extra contributions being sought from employers by the government; or where it simply believes it needs to restructure to increase profitability or improve efficiency.

So, employers still have the freedom to make choices about what their business needs are and how it should be structured.

What if we get it wrong and there is a change in the future, prompting a need to increase the work force?

As section 139 of the ERA allows the employer to make its own choices. The future is not always predictable. A business can expand if circumstances change. That would not affect the reasonableness of a decision made in the past based on the facts at that time.

An employer would only need to show that there was a true redundancy situation, which is rarely challenged successfully, and the procedures followed when making those redundancies was reasonable in all the circumstances, including the impact of the furlough scheme at that time.

If you have any questions, please feel free to contact the Vista Team. For more employment law guidance during the Covid-19 pandemic, please visit our resource hub for employers.

8th June 2020

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