The Covid-19 pandemic is having far-reaching consequences for businesses across the globe. Many have found that demand for their goods and services has fallen away drastically while others are prevented from operating due to government lockdowns. Other employers have been forced to consider redundancies in order to cut staff costs, but any small business based in the UK should give thought to other measures available before proceeding with redundancy as a last resort.
Coronavirus Job Retention Scheme
The newly announced Coronavirus Job Retention Scheme provides vital and unprecedented support to business to help pay their staff wages during the current crisis. The scheme offers employers reimbursements of up to 80 per cent of “furloughed workers” wage costs capped at £2,500 per month, in addition to other costs to employers. Furloughed workers are those who have no work to do, and they must not carry out any work while they are furloughed.
One of the key elements of the scheme is that it applies to those who would otherwise have been “laid-off”. For most employers the alternative to placing an employee on the furlough scheme would be to make their role redundant, and indeed the guidance from the government is that the scheme is designed to “avoid redundancies”.
‘Employees are more likely to accept temporary changes to their employment terms if they are well-informed’
This might suggest that in many cases the employer should therefore at least initiate a redundancy exercise to identify whose role is currently redundant and would be eligible for the scheme.
To try to prevent having to complete a redundancy process, employers may choose to invite applications from employees into the furlough scheme, and if all applicable employees volunteer to be placed on the scheme it wouldn’t be necessary at the time of furloughing to complete the consultation usually needed during a redundancy. (Although, employers should be aware that if the redundancy process is re-initiated, say once the furlough scheme comes to an end, the usual consultation obligations will still need to be complied with.)
Currently the scheme is set to cover wage costs for the period from March 1 to May 31 2020 but the government has made clear that they will extend this if necessary.
Small business redundancy
Although, the government hopes that the job retention scheme will avoid the need for many redundancies to be made, it is possible that some employers will still need to consider redundancies – either because the business itself is to close or because employees do not agree to be assigned as furloughed workers.
If redundancies are necessary (and here we assume that it would be a smaller scale redundancy exercise that will apply to less than 20 employees in any establishment/site within a rolling period of 90 days, employers will need to ensure that they follow a fair process.
What a fair process looks like in practice will differ depending on the scale of the business and the roles at risk of redundancy.
Redundancy – a step-by-step guide
However, the three key elements typically needed to show a fair process are as follows:
- Employees to be placed at risk of redundancy must be selected fairly (ideally using objective criteria)
- Employees must be warned of the redundancy and the reasons for it must be explained
- Employees must be allowed the opportunity to consider and comment on the employer’s proposals, such as their selection, as well as suggesting alternative roles that may be available, during a consultation process
There is no set statutory procedure for a small-scale redundancy, but typically a redundancy process will consist of:
- Three meetings with each individual at risk of redundancy; these meetings should take place over a period of seven to ten days
- The first meeting is generally used to place the individual at risk of redundancy, explain the reasons for this and to advise them of the consultation process
- At the second meeting the employee should be allowed to provide any suggested alternatives to redundancy for consideration and the employer employee should consider suitable alternative roles that might be available
- If by the third and final meeting there is no suitable alternative role and the decision is that the employee’s role is redundant, this should be confirmed in writing; and employees should be advised that they can appeal against the decision (in which case an appeal meeting should take place)
While in most cases employees will be financially better off agreeing to be placed on the furlough scheme as opposed to selecting redundancy, there may be some long-standing employees, or those who work for companies who have large contractual redundancy payments, where redundancy is a preferable option.
Employers should bear in mind that at the end of the furlough scheme they may need to reassess business needs and some furloughed employees may become redundant at that time.
Alternatives to redundancy
For business that are still operating, for example where employees can work from home (i.e. they cannot be furloughed), there may still be a reduction in business and a need to reduce staff and costs. In these circumstances there are other alternatives to the furlough scheme or redundancies worth considering. While this contractual term is not common and is generally restricted to specific industries (such as manufacturing), some employers have a contractual right to “lay-off” workers or put them on “short-time working”. This means that employers can force employees to stop working with no pay or reduce their hours to temporarily reduce staff costs.
Where employers do not have contractual “lay-off” or “short time working” provisions, they may want to consider requesting employees accept a temporary cut in working hours and associated cut in salary, and/or requesting employees to agree a reduction in salary without an associated cut in working hours. Because these changes will mean a change to the terms of employees’ contracts they will need to be agreed in advance with each employee.
Whatever a small business decides to do about redundancy, honest and open dialogue with your employees can make a significant difference. Employees are more likely to accept temporary changes to their employment terms if they are well-informed about the challenges, difficulties and pressures the business faces, and the steps the business is taking to protect their jobs by keeping the business afloat.
Mike Tremeer is a partner at Fladgate LLP
Further reading on coronavirus