On 8 July 2020 the Chancellor of the Exchequer was asked in parliament whether employers are prohibited from using grants obtained under the Coronavirus Job Retention Scheme (CJRS) for employees placed on notice of redundancy.

The question arose as a consequence of amendments made to the Treasury Direction (TD) on 25 June 2020. The revised TD stated that integral to the purpose of the CJRS is that the grant is used by the employer “to continue the employment of employees whose employment activities have been adversely affected by the coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission.”

While employment does continue during redundancy consultation and once notice to dismiss on the grounds of redundancy is given, it is possible to interpret the new guidance as stipulating that employers should only use the scheme provided they intend to keep employees in jobs and that they should not use the scheme when a decision is made to embark on a redundancy exercise.

The response given in parliament yesterday by Jesse Norman MP who is Financial Secretary to the Treasury was as follows:

“The CJRS is designed to protect jobs and to keep people in employment. Where employers must make redundancies, they should do so in accordance with the normal rules and with contractual obligations. This includes giving a notice period and consulting staff before a final decision is reached.

"Employers may continue to claim under the scheme for a furloughed employee who is serving a statutory notice period subject to eligibility based on contact of employment.”

It appears therefore that, insofar as the government is concerned, the revised wording in the TD is not an attempt to prevent employers accessing a grant from the CJRS even if they do intend to embark on a redundancy exercise.

The availability of the CJRS remains a relevant factor

However, even if the revised TD is not intended to implement an outright ban on an employer continuing to make use of the CJRS when making an employee redundant, it nevertheless emphasises once again that the purpose of the scheme is that the money afforded under it is used by employers to keep workers in jobs. With that in mind, it is important to note that even if an employer can proceed and make an employee redundant while receiving a grant under the scheme, it does not necessarily mean that the subsequent dismissal will be fair.

The CJRS continues to provide significant financial support to employers and any redundancy will be considered in that context. Until 1 August 2020, it will continue to run as it currently does. From 1 August, employers will be required to contribute employer national insurance and pension contributions. In September, employers will also be required to contribute 10 per cent of wages and the government will contribute 70 per cent to meet the 80 per cent. For October, the employer contribution increases to 20 per cent and the government will contribute 60 per cent. Even once the changes start coming into effect the government contribution is significant.

Collective redundancies

In any collective redundancy situation in which section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 applies, the consultation will engage with the reasons for the dismissals (UK Coal Mining Ltd v (1) National Union of Mineworkers (2) British Association of Colliery Management EAT 0397/06 & EAT 0141/07) and in our view whether the financial support made available by the state is a factor which means the employer is able to avoid making redundancies.

The fact that employees remain on furlough and social distancing rules continue to apply will almost certainly be a relevant factor to how long it takes to carry out any collective consultation exercise. The prescribed 30 and 45 day periods are statutory minimums and in the current climate it is likely an effective collective consultation exercise will take longer.

It is unlikely an employer will be able to rely upon the special circumstances defence as a reason for not consulting “in good time” given the CJRS (and other support provided for business during the pandemic). This means an employer will find it extremely difficult to justify a wholesale failure to collectively consult. Similarly, collective consultation must be meaningful.

Individual redundancies

The availability of this financial support will also be a relevant consideration to any individual consultation meetings over proposed redundancies. Redundancy is a potentially fair reason for dismissal, but it must also be reasonable in all the circumstances to dismiss for that reason. On this basis, the support provided by the CJRS remains a relevant factor when considering whether legal obligations are met in the course of a redundancy exercise.

Employers will also have to be very careful when applying selection criteria in any redundancy exercise which involves employees who have been furloughed. Some criteria may disadvantage furloughed workers to such an extent that any subsequent dismissal would be held to be unfair. For example, a criterion like “productivity” may well be inappropriate if it puts those on furlough and who are not working at a disadvantage because they are unable to meet the test of productivity and therefore score poorly resulting in their selection for redundancy.

Employers will also need to ensure the selection process is not discriminatory. For example, if a high proportion of employees selected for redundancy are those who have been shielding as a result of the government guidance provided to them, the dismissal may breach the Equality Act.

Given the purpose of the TD to continue the employment of employees adversely affected by the coronavirus (COVID-19) employers should ensure that those who are most vulnerable and who are shielding should continue to remain furloughed even as employers introduce measures to ease employees back to work.

Any employer considering a redundancy exercise while employees remain on furlough (flexible or otherwise) will therefore need to think very carefully about the process adopted. 

Notice pay 

We take Jesse Norman’s response to mean the government considers that employers can also claim CJRS grants for employees during their notice period if they do embark on a redundancy exercise.

The right to notice pay can be complicated, but in broad terms employees who have been continuously employed for one month or more are entitled to statutory notice pay where they are willing and able to work but where no work is provided. The amount of notice is one week’s pay for those who have less than two years’ service and one week per year of service for each year above two years’ service.  Statutory notice pay is payable at the rate of a normal week’s pay for those who have normal working hours and not at the lower rate paid to the employee during furlough. The statutory right to notice pay overrides any contractual right for the employer to withhold pay if, for example, an employee has been laid off. 

However, where an employer is contractually required to give notice which is at least one week longer than the applicable statutory notice period (for example, an employee who has four years’ service has a contractual right to five weeks’ notice) then the statutory provisions do not apply and the employee is entitled to notice pay under the contract. Generally, where an employer gives the employee notice but tells them not to come to work the employee is still entitled to be paid the normal sums payable under the contract of employment. However, if the contract has been lawfully varied under a furlough agreement then, depending on the terms of the furlough agreement, the employee is only entitled to notice pay at the furlough rate of pay i.e. if this is 80 per cent of normal pay then the notice pay they will receive will be at that rate.

To read the Treasury Direction in full go to https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/895778/Further_Treasury_Direction_made_on_25_June_2020_under_Sections_71_and_76_of_the_Coronavirus_Act_2020.pdf 

Articles shared by Thompsons relating to coronavirus (COVID-19) are correct at the time of publication. You should check the government's guidelines for the latest information and advice at https://www.gov.uk/coronavirus.