The furlough scheme is back, and so are many of the questions which clients raised with us the first time round including the question of whether you can make redundancies while still making use of the furlough scheme? The latest guidance from the government, which is published sporadically, has not changed on this point and it helps to a point. It says that employees can still be made redundant while on furlough or afterwards, and their redundancy rights continue to apply while they are furloughed, although they warn employers they cannot claim reimbursement of redundancy payments under the scheme. So that helps - the government’s answer is yes you can make redundancies – so what’s the problem? The problem lies in making sure that any redundancies are fair. The risk here for employers is that if the business is continuing, there is the very real potential for the dismissal to be unfair and so to avoid that outcome it is vital for employers to carry out full and fair consultations to minimise the risk of future claims. Not surprisingly, the trade unions are paying very close attention to what employers are doing – and “why not” they say because surely employers should be using the scheme as an alternative to redundancy to save jobs, not cut them. After all, the argument goes, it is the Coronavirus Job Retention Scheme and the clue is in the title. And yet none of this has ever been tested in an employment tribunal. So, what is our take on this? Is it even possible to dismiss someone fairly for redundancy when they are on furlough leave? It’s the question I put to Claire Scott who joined me by video-link from Aberdeen:
Claire Scott: “So it's a really good question and one that lots of employers are grappling with at the moment. Ultimately, if putting someone on furlough is an alternative to redundancy then of course employers should be considering that and it might well be an unfair dismissal if they don't, but it's just not as black and white as that and it is going to depend on the facts, there are a lot of grey areas. For example, ultimately, it is a Coronavirus Job Retention Scheme so there has to be an issue with a role because of Coronavirus so having to make job cuts because of Coronavirus or having some link. Now for a lot of employers, they are facing having to make redundancies regardless of where we are with the pandemic, so perhaps they've lost a contract or there's some other unrelated market shock, but ultimately if it hasn't anything to do with Coronavirus that you are considering having to make redundancies then it's perfectly okay to proceed with those rather than put someone on furlough and, again, HMRC have the ability to claw back payments that have been made under the scheme if they consider that they've been being done fraudulently and they have the ability to make penalties and individual directors can have liability for those penalties if employers make the wrong kind of claim so it is something that employers really have to grapple with. The second thing that employers have to grapple with on a practical level is that, ultimately, the furlough scheme isn't cost neutral so even if you put someone on furlough, employers still have residual costs. They have potential benefits that are over and above what the scheme covers and even if you can get employees' agreement to reduce those benefits there's nothing that you can do about accruing holiday pay, that continues to accrue, and so that is a liability that some employers just can't continue to bear and therefore, even the best intentioned employers who really simply do not want to lose staff, ultimately have to consider redundancies in some circumstances, depending on how bleak things are looking.”
Joe Glavina: “Can I just come back on the reason for dismissal not being linked to Coronavirus – in which case, you say, it would be okay to make redundancies. Of course many businesses are looking at mass redundancies, so a blanket decision. So how would that work?
Claire Scott: “Critically, you have got to think about it. So in every redundancy you have to think about alternatives to redundancy and if you don't do that you're really risking an unfair dismissal. So the first thing you have to do is think is – in this particular case could I put this person on furlough, or alternatively retain them on furlough, rather than making them redundant right now? If the answer to that is no for perfectly legitimate business reasons, then you can move forward with the redundancy as long as you follow the right procedures in relation to that redundancy. So I think the key thing is to think about it, assess it in each individual case, don't just make blanket assumptions and really note down your thinking, particularly if you are going to decide that you're not going to use furlough and instead press on with the redundancy. The other thing to remember is that you will likely get pushback from the employees and certainly, if any unions are involved, from the trade unions, because there is still a widespread feeling that employers should be using the Coronavirus Job Retention Scheme instead of making redundancies, but the key things are note down your reasoning, really think about it and then you can go forward.”
A last word on this. We notice that last week the government updated its guidance on furlough and redundancy in circumstances where the employer is insolvent. That guidance deals with employees' rights, not the issue of what happens to the employees contracts of employment when the administrators take over. We will deal with that issue in our next programme.