The end of ‘furlough’ – what now?

By Michael Nadin – Employment Solicitor (Associate)

End of the Coronavirus Job Retention Scheme (CJRS)

Although there is mounting pressure from MPs and trade unions for the government to extend the Coronavirus Job Retention Scheme (CJRS), even if it is in a less generous or more limited format, at the date of writing, the UK government plans to end the CJRS on 31 October 2020.

Background

The government introduced the CJRS as a response to the adverse economic impact of the COVID-19 pandemic.

The intention of the scheme was to support businesses and avoid redundancies by removing the need for employers to continue paying wages in full during the crisis period.

Initially (and until 30 June 2020), employees who were “furloughed” were not permitted to perform any work.

Since 1^st July 2020, the scheme has permitted furloughed employees to return to work on a part-time basis with the employer claiming from the CJRS for the time they are not working.

Until 1^st August 2020 employers could claim the lower of 80% of wage costs or £2,500 per calendar month, plus employer national insurance contributions (NICs) and employer auto-enrolment pension contributions on the furlough pay for hours not worked.

Since 1^st August 2020 employers have been required to pay employer national insurance contributions (NICs) and employer auto-enrolment pension contributions.

Further changes came in to place from the 1^st September 2020 in that employers have been required to pay NICs and pension contributions on the furlough pay and 10% of employees’ pay, capped at £312.50. The government pays the remainder of the employee’s wages, capped at £2,187.50.

From 1^st October employers will be required to pay NICs and pension contributions on the furlough pay and 20% of employees’ pay, capped at £625. The government will pay the remainder of the employee’s wages, capped at £1,875 per month.

In the event that the government does not perform a U-turn, and the scheme ends on 31 October 2020, businesses will need to decide how to deal with their furloughed employees.

There are four main options (all subject to the duty to ensure a safe working environment):

1. Furloughed employees return to work on their original terms and conditions of employment;
2. Consider whether the employment contract allows employees to be temporarily “laid off” or put on short time working;
3. The Employee and Employer can try and negotiate new terms and conditions of employment (e.g. reduced hours / reduced pay) on either a temporary or permanent basis; or
4. The employee will need to be made redundant.

Ideally, employers will be in a position to invite furloughed employees back to work on their previous terms and conditions of employment (subject to a health and safety assessment considering issues such as the feasibility of remote working and / or provision of a Covid secure workplace).

Option 2 is only possible if this right is clearly set out in the relevant employment contract, or there is a clear implied right through established custom and practice.  Failure to implement this correctly can result in a fundamental breach of contract (potentially leading to a constructive unfair dismissal claim), and eventually, employees who are laid off or placed on short-time working become eligible for redundancy pay.  Therefore we recommend that you seek professional legal advice prior to implementing lay-offs or short time working.

If neither of the above is an option, then the remaining alternatives require careful planning in order to comply with employment law and avoid potentially costly employment tribunal claims.

Negotiating new terms and conditions of employment

If an employer cannot afford to bring an employee back from furlough and start paying their full wage, or if they do not have sufficient work to give to a returning employee, then an alternative to redundancy could be a temporary or permanent change to terms and conditions of employment.

If considering this, the first thing to check is whether there is a flexibility clause in the employment contract which permits changes to terms and conditions of employment.

Whilst it is always preferable to have such a clause it is unlikely to permit significant changes, especially ones which result in a reduction of pay (whether generally or via a reduction in hours).

If the desired change is not specifically authorised by the employment contract itself, there are three ways in which an employer can vary the contract of employment:

1. Seeking the employee’s express agreement to the new terms.
2. Unilaterally imposing the change and relying on the employee’s conduct to establish implied agreement to the change.
3. Terminating the employee’s employment and offering re-employment on the new terms.

The least risky way of making a change is to obtain agreement.  However if this is not forthcoming then employers are advised to seek professional legal advice before implementing options 2 or 3 because either could result in a claim for unfair, or constructive unfair dismissal, and may trigger an obligation to make a redundancy payment.

It is also the case that if options 2 or 3 result in 20 or more employees (within a period of 90 days or less) having their employment terminated then the requirement for collective consultation can be triggered (see below).

Redundancy

If employers are unable to pay employees’ wages following the end of furlough and see no imminent prospect of an upturn in business then redundancies are likely to be the inevitable outcome.

Redundancy most commonly occurs in the following scenarios:

1. Business closure (closure of the business altogether).
2. Workplace closure (closure of one of several sites, or relocation to a new site).
3. Diminished requirements of the business for employees to do work of a particular kind.

From an employer’s point of view it is very important to allow sufficient time to carry out a thorough consultation process. This means planning well ahead prior to the end of the furlough period.

Failure to conduct a fair and reasonable redundancy consultation exercise can result in unfair dismissal.  Employers will need to give careful thought to who they place at risk of redundancy, and the reasons for doing so.  It is also important to identify the correct “pools for selection” and to draw up a fair scoring matrix from which to identify those who should be made redundant.  It is worth noting that a clumsily crafted and applied scoring matrix could give rise to claims for discrimination, particularly in relation to disabled employees.

All alternatives to compulsory redundancy should be considered, including inviting people to volunteer for redundancy and notifying affected employees of alternative vacancies.

It is possible to conduct a redundancy consultation process while the employee is furloughed, and employers can continue to claim contributions under the CJRS during the consultation process (until 31 October).

If employees are made redundant after consultation ends (see below) they will be entitled to notice pay, payment for accrued but untaken holiday and a redundancy payment (if they have more than 2 years’ service).

Employers can continue claiming under the CJRS while an employee is working their notice (although not if they are paid in lieu of notice).  Calculating the actual amount of notice pay that must be paid to the employee can be complicated and professional legal advice should be considered on this point.

For all redundancies there is a need to carry out individual consultation with all affected employees.  However when an employer proposes to make 20 or more employees redundant at one establishment within a period of 90 days or less then there is a legal duty to also carry out “collective consultation” and make a report to the secretary of state.

Collective consultation involves the election of workplace representatives who must then be consulted (in addition to individual consultation).  Where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect. For fewer than 100 redundancies (but more than 20), the minimum period of consultation is 30 days.

Failure to properly consult with employees on an individual basis (in all cases of redundancy) can result in claims for unfair dismissal.

Failure to comply with the collective consultation requirements (when they apply) can also result in an Employment Tribunal making a “protective award” of up to 90 days’ gross actual pay for each affected employee, which can add up to a substantial amount.

Due to the complexities of redundancy consultation and also the potential costs associated with getting it wrong, employers are strongly advised to seek legal advice prior to starting this process.

If you are an employer or an employee and would like confidential legal advice please contact us here or by calling 01604 609560.

DFA Law

17th September 2020