Short-term and Long-term Post-furlough Options for Employers

May 21, 2020

When we get to the other side of the COVID-19 pandemic, employers will likely be considering strategic ways to protect the future stability of their organisations.

A British Chambers of Commerce survey revealed that 71% of companies have furloughed at least some of their staff under the Coronavirus Job Retention Scheme (CJRS), suggesting that the scheme has been a lifeline for many employers during this crisis. However, another recent survey from the CIPD and People Management magazine showed that one in four employers also expect to have to carry out staff redundancies due to the COVID-19 crisis.

On 12 May the Chancellor announced that the CJRS will be extended to October, but from August employers will have to “start sharing” the cost of the scheme and furloughed employees will be allowed to return to work on a part-time basis. The details on how this will work are expected to be published later this month.

Despite the temporary relief provided by the CJRS, it is very likely that demand in certain sectors will fall even when lockdown restrictions are lifted. Employers may decide that restructures or redundancies are the only way they can avoid further financial difficulties. It is important however that employers consider all options available to them before making the difficult call of making redundancies.

Below we have set out some short-term and long-terms options for employers, including important considerations when it comes to redundancies.

Short-term options

Before making the difficult call to make employees redundant, consider the following options:

• Offering voluntary redundancy or early retirement;

• Agreeing to flexible working;

• Temporarily reducing working hours;

• Limiting or stopping overtime;

• Freezing or deferring pay rises; or

• Imposing a recruitment freeze for a period of time.

If these options are being explored, it is important to remember that making changes to employees’ terms and conditions must only be implemented after consultation with staff, and with their agreement if possible.

Long-term options

If an employer believes that the above short-term solutions will not be sufficient to minimise loss and maximise long-term financial stability, then restructuring and redundancies may be the next appropriate step.

An employer may close departments, reduce certain activities or change the nature of work within its organisation. If such a restructure is envisaged, it is important that it is initiated in a timely manner. Companies have a higher rate of survival if they start such processes sooner rather than later.

If it is the case that the employer must reduce the number of its employees, either within the business as a whole, or within a particular site, department, business unit or job role, then redundancies will have to be carried out.

Broadly speaking, redundancy situations fall into three categories:

• Business closure;

• Workplace closure; and

• A reduced need in the business for employees to do certain work.

In light of COVID-19’s impact, it is likely that at least one of the above redundancy situations will regrettably become relevant to many businesses. It is important that employers know how to carry out redundancies fairly and with as much consultation with staff as possible, both to help mitigate employee anxiety and to avoid legal disputes.

Making redundancies – important considerations

Prior to making redundancies, employers must consult with their employees. The proposed changes should be explained and discussed with all affected employees, in person as well as in writing. Employers must then select employees for redundancy in a fair way and ensure they do not discriminate against any individuals or groups. It is best practice to use selection criteria to help choose which employees to make redundant, and to score all at risk employees against the selection criteria.

In a redundancy situation, all employees are entitled to at least their statutory notice pay, or their contractual notice pay if greater, though some employers will require their employees to work through their notice period instead of it being paid to them in lieu. Statutory notice is calculated on the basis of service, with a week’s notice for each completed year of employment (up to 12 weeks). In addition, employees need to be paid for any accrued but untaken holiday.

Employees who have worked for 2 full years are also entitled to statutory redundancy pay. How much redundancy pay each employee is entitled to depends on their age, salary and number of complete years of service. A helpful tool to calculate redundancy payments can be found here: https://www.gov.uk/calculate-your-redundancy-pay

Lastly, employees who are being made redundant have the right to a reasonable amount of time off to look for work or arrange training once they have been given notice of dismissal due to redundancy.

We will inevitably see the effects of COVID-19 for some time. Regrettably, redundancies and restructures within many businesses will be unavoidable, as employers try to protect the future of their businesses in the post-pandemic era.