The Government has announced legislation that will require employers to pay redundancy payments based on employees’ full rate of pay, not any reduced rate at which they were paid during furlough. This applies to employees with normal working hours and those who do not have normal working hours.
Ten key considerations
The Government’s Coronavirus Job Retention Scheme has received claims for well over 9 million employees and has clearly been a lifeline for many employers. The Scheme will, however, come to an end on 31 October 2020 and, as from 1 August 2020, the payments available under it will begin to decrease. Employers will be considering whether they will be able to continue employing staff after the Scheme and redundancies will inevitably be one possible course of action.
What considerations should an employer have in mind?
1. Are redundancies really necessary?
If your financial projections suggest that cuts to the salaries overhead are needed one solution may be to seek employee agreement to a longer term salary cut If you have been accessing the Scheme then, unless you have agreed to “top-up” salaries to normal level, you will already have obtained your employees’ consent to a cut to 80%. Although this is very likely to have been limited to the duration of the Scheme there is nothing to prevent you asking that it be extended but this cannot simply be imposed – employee consent will be needed.
2. Shares for pay?
A further consideration might be to offer participation in a share scheme so that employees will receive some value for the pay that they are being asked to surrender and have the potential to benefit from the company’s future success. There are many possible varieties of share schemes and they need not mean any loss of control. Some also attract favourable tax treatment both for the business and the employee.
3. How do I decide who stays and who goes?
Where it is a specific function which you no longer need then the decision is relatively straightforward. Where, however, you have a reduced need within a function – for example, you have a sales team of 10 but only need 5 – to satisfy accepted standards of fairness you must have fair and objective criteria for selecting those who are within the pool and those who are to be made redundant.
4. What are fair and objective criteria?
A skills matrix is a common way of selecting but beware of criteria such as “attitude” or “commitment” as those are not easily measured and inevitably involve subjective views. Care should be taken also to avoid criteria which may result in unlawful discrimination – the old standard of “last in, first out” can, for example, discriminate on the grounds of age.
5. What procedure should I follow?
Dismissals which do not follow required standards of fairness may result in claims of unfair dismissal. In redundancy situations this means
(a) consulting before reaching a final decision
(b) using fair and objective criteria in selection
(c) making reasonable efforts to find alternative employment
6. What does consulting involve?
Before reaching a final decision on making redundancies, discussion should first take place with the employees. This is designed to see whether any alternative steps to redundancy can be identified, discuss payments, selection criteria, possible alternative roles in the organisation etc. Any counter-proposals made by the employee should be approached constructively and, though you are not obliged to agree, reasons should be given if you do not. Once this is done redundancy can be confirmed.
7. Does consultation last a particular length of time?
If 20 or more redundancies are to be made within a period of 90 days then there is an additional obligation to consult at a collective level. This should take place with employee representatives – either those already elected for information and consultation purposes or, if none, elected specifically for the redundancies – or, if there is a recognised trade union, then consultation should take place with its representatives. Consultation should
– be undertaken with a view to reaching agreement
– last for at least 30 days or, if proposed redundancies are 100 or more, 45 days.
Before consultation starts a formal notice must be sent containing a number of categories of information including
– the reasons for the proposed redundancies
– the numbers and descriptions of affected employees
– the procedure to be followed
– payments to be made
– selection criteria
Even where collective consultation has taken place, there must still also be individual consultation, although this is usually shorter.
8. What are the obligations in respect of alternative employment?
Reasonable efforts to locate other jobs in the organization must be made. Any vacancies for which the employee is appropriately qualified in terms of skills and experience should be considered. Special rules apply to employees on maternity leave who must be given first choice on any such vacancies.
9. Can I start this process while employees are on furlough?
Yes. Consultation can take place while employees are on furlough and notice of termination may also be given.
10. What payments must be made?
Contractual notice of termination must be given, though a payment in lieu of that may be made if it is preferred that the employee exits the business immediately. In addition, as a minimum, all redundant employees with more than two years’ service, are entitled to a statutory redundancy payment. This is a formula calculated according to age, length of service and weekly pay. A week’s pay is limited to £538. Some employers have more favourable schemes which may become contractual if the formula used is so well known as to be a legitimate expectation on the part of the employee.
Careful planning is key to the successful management of a redundancy process. Our specialist team can
- advise on all steps in the process
- provide template documents, including, where necessary, draft and manage settlement agreements
- advise on incentive and share schemes
In addition our specialist employee communications team can provide draft announcements and information packs.
Get in touch with us for more information or to speak to one of our experts.