The coronavirus crisis is forcing employers of all sizes across the UK economy to make drastic workforce changes, but with this comes considerable legal risk, as employment solicitor Paida Dube explains
With UK workplaces forced to close to prevent the spread of the COVID-19 virus, and with many businesses experiencing a significant decline in work demand, employers are facing difficult decisions about their workforce needs. This means looking at alternative contractual and temporary solutions to see them through the crisis and to try to avoid redundancies wherever possible. Employers may consider asking their workers to take unpaid leave or annual leave, but there are other options to consider.
Layoffs & short-time working
Laying off means providing employees with no work and no pay for a period whilst retaining them as employees. Laid-off employees would be eligible for a small Guarantee Payment, limited to a maximum of £145 over three months. The scheme also requires employees to resign to receive their redundancy payment.
Short-time working applies where an employee is given less work for a period and with less pay. Lay-offs and short-time working offer employers some financial breathing space during a temporary closure, but they can only be implemented where there are express terms clauses in their contracts of employment or if their employees have agreed to the measures. Employees may only agree where the alternative is redundancy.
In light of the Government’s financial support for furloughed workers, however, the use of layoffs and short-time working may be less common during the COVID-19 crisis, but they remain alternatives to redundancies.
Furloughed workers are those who have been asked to stop working due to a lack of available work, but have not been made redundant.
Under the Coronavirus Job Retention Scheme, emergency government funding is being made available to help employers avoid layoffs and redundancies. The scheme will see HMRC will fund 80% of furloughed employees’ costs up to £2,500 per worker per month. All UK employers are eligible, provided they have notified affected workers that they are being classified as furloughed. The scheme, however, is not expected to be available until late April, meaning furloughing may not be an option for many businesses whose cashflow cannot fund employee costs.
Redundancy may remain the only option for businesses facing and severe funding issues and cessation of work, particularly businesses affected by mandatory closure in sectors such as retail, leisure and hospitality,
When managing a redundancy process, businesses need to proceed with care. Regardless of the time and financial pressures facing employers, the law is clear that employees must be treated fairly through a lawful redundancy procedure. Failure to meet your legal responsibilities can lead to costly tribunal claims and bad press.
The specific process to follow will depend on how many roles are to be made redundant. If there are 20 or fewer roles to be made redundant within a 90-day period or less, the redundancy will be considered small scale. More than 20 roles qualify as a large scale redundancy and will require collective consultation.
When considering whether collective consultation is required, count the number of proposed redundancies at each site rather than the total number of proposed redundancies across your network. In situations where fewer than 20 redundancies are proposed, a consultation exercise should be carried out with the affected employees. This will involve a group consultation first, followed by individual meetings with those identified to be made redundant.
Identifying affected employees
For individual redundancies, employees must be selected fairly by applying pre-determined redundancy criteria.
Where more than one individual is affected, you should identify a pool of employees to assess against set criteria for redundancy selection. The pool should comprise staff carrying out the same or similar work as each other, including those providing cover. Where the redundancies are a result of a total workplace shutdown affecting all staff, selection will not apply.
Inviting volunteers for redundancy or early retirement
In some circumstances, it may be appropriate or in the interests of the organisation to offer voluntary redundancy. There will be a number of factors to consider. Voluntary redundancies may be more costly in settlement terms as they typically attract employees entitled to a larger settlement, for example through long service.
Similarly, if not enough people come forward for voluntary redundancy, you may still have to proceed with compulsory redundancies, which will add further time to the entire process. An assessment of your specific circumstances at the outset will help to inform whether voluntary redundancies should be offered.
Consultation – individual and collective
One of the most important steps in the redundancy process is to consult with the affected staff and to inform them as soon as reasonably practicable that the organisation is facing a redundancy situation, why this is the case and how it may affect them.
Ensure contemporaneous records are kept of all consultation meetings.
Where there is a redundancy pool, employees should be consulted collectively along with any representatives such as unions in a group to ensure that they are fully aware of the reasons for redundancy, how the process will be carried out and how the criteria for redundancy will be applied.
For smaller scale redundancies, there is a requirement that the consultation is ‘meaningful’, or affected employees could claim unfair dismissal. This can be the case even though the end result of the exercise was inevitable e.g. if the workplace was closing down completely.
Applying selection criteria
Where there is an identifiable pool of at-risk employees, the next stage is to determine the redundancy criteria.
A practical approach is to develop and implement a scoring matrix, assessing each affected employee against the criteria. The lowest scoring employee(s) will then be selected for redundancy.
This is an area of considerable legal risk for employers. Criteria must be fair, non-discriminatory and objective, based on the nature of your business and its current and changing requirements if you are continuing to trade.
You must ensure that the criteria relied on are compliant with the law and do not expose the organisation to tribunal claims for unfair dismissal. It is against the law to select employees for redundancy by reason of a protected characteristic such as gender, sexual orientation, age, disability, religion, nor can you make someone redundant for being pregnant or on maternity leave.
Examples of objective criteria could include disciplinary record, skills and performance.
Having applied the criteria and identified employees provisionally selected for redundancy, the next stage is to arrange an individual consultation with each of the at-risk employees.
Individual employees should be consulted regarding their provisional selection for redundancy and provided with full information on what they are entitled to in terms of redundancy notice and pay. This should be confirmed in writing.
At this stage, alternative suitable employment in the organisation should also be offered. This is also the final opportunity for the organisation to exhaust all alternative options to redundancy.
Calculating redundancy payments
Employees selected for redundancy are entitled to receive adequate notice and redundancy pay. You also have to offer the employee the right of appeal and their right to take time off work to seek alternative employment.
Employees who have worked for the organisation for over 2 years are entitled to statutory redundancy pay as a minimum. The amount is determined by their length of service, and any other payments due for example in relation to accrued holiday and payment in lieu of notice.
If there is no enhanced contractual entitlement, the redundancy payment is calculated as follows:
- Half a week’s pay for every full year of employment when the employee was under 22 years
- One week’s pay for every full year of employment they were 22 or older but under 41 years
- One and a half week’s pay for every full year they were 41 or older.
A cap of 20 years’ service applies, as well as a threshold on weekly pay, at £525. There is also a maximum cap of £15,750 for a single redundancy payment.
Some employers are also contractually obliged to provide enhanced redundancy pay to employees, and others may negotiate an additional settlement amount where discretionary and mutually agreeable terms are agreed between the employee and the employer as to the termination of the employment contract, usually involving a financial payment.
The redundancy notice period is usually the same as if you are terminating the contract of employment, unless there is an alternative contractual agreement.
Employees who have been employed for between 1 month and less than two years are entitled to one week’s notice. Employees who have been employed between 2 and 12 years are entitled to one week’s notice for every year of employment. Those employees who have worked for 12 years and over will be entitled to 12 weeks’ notice.
Employers should be aware that if an employee does not receive redundancy pay or if they disagree with the amount they can bring a claim at an employment tribunal within 6 months of the underpayment.
Avoiding legal risks
For employers, it will be important to ensure the risks of any future complaints are minimised and the interest of the business are protected.
Employment laws still apply. While the external environment may make workforce changes necessary, employers should proceed with care and ensure the legal risks are mitigated. Getting it wrong can result in disputes, tribunal claims, compensation and damage to reputation.