Options for employers looking to reduce staff costs during the Coronavirus outbreak

17 March, 2020

Updated as of 20 April 2020

The Coronavirus pandemic is having a profound impact across many sectors of the UK economy. In particular the hospitality, leisure, travel and retail sectors have experienced an immediate collapse of customer demand and an existential crisis, with current lockdown restrictions in place requiring the closure of a wide range of business premises and advising against all unnecessary travel.

While the Government has introduced a range of measures to support businesses affected by the Coronavirus pandemic, we focus on the options which employers have to manage their staffing costs to help them navigate through these turbulent times, and with the objective of avoiding the last resort of redundancy dismissals.

On Friday 20th March the Chancellor announced a new Coronavirus Job Retention Scheme which is intended to support businesses through the Coronavirus crisis by underwriting the employment costs for the employees they would otherwise need to make redundant or to lay off temporarily without pay. All UK businesses are eligible to receive support under the scheme. The key point is that the scheme is designed for the situation where there is no work at all for employees to be doing in comparison  to the other options detailed. Click here to read more.

You may wish to ask employees to take a temporary reduction in pay in the current circumstances, as an alternative to having to consider redundancies. Any pay reduction will need to be recorded in writing as an agreed variation of their employment contracts.

You may also be able to vary or suspend your bonus schemes. You should check carefully whether you have the discretion to make these changes, or whether these also require consent of the relevant employees.

Employers can require their staff to take annual leave during this period. This may include employees who are on furlough leave, although the legality of this is not entirely clear. The default position, unless contracts provide otherwise, is that you have to give twice as much notice as the length of the required leave – for example, two weeks’ notice for an employee to take one week’s holiday. You may also wish to avoid the prospect of all your staff wanting to take their holidays once your business fully reopens.

The Government has also brought in an amendment to the Working Time Regulations 1998 which allows employees to carry over up to 4 weeks’ paid holiday into their next two holiday leave years if they cannot reasonably use their holiday in the current holiday year because of Coronavirus.

You should look to use the furlough leave scheme if you have some employees who are keen to take a period of leave from the business, for example if this will enable them to give additional support to family members. The Government’s guidance makes clear that the furlough scheme can be used for employees who are unable to work because they have caring responsibilities resulting from Coronavirus.

Once the furlough leave is no longer operational, some of your employees may be able and willing to take a period of voluntary unpaid leave. Or you may agree to pay a form of retainer payment to the employee during this period of leave, as a goodwill measure, and without this leave forming part of the employee’s entitlement to paid annual leave.

One of the purposes of the current furlough scheme (Coronavirus Job Retention Scheme) is to avoid employers having to consider options which they may have to lay off staff temporarily or reduce their working hours and pay. Once the furlough scheme is no longer available, employers may need to return to consideration of these options.

Some employment contracts will contain an express right to lay off staff, or impose ‘short-time’ reductions to working hours, at times when their workplace is temporarily closed or there is a downturn in customer demand. However it is rare to find these express (or implied) contractual rights outside the manufacturing and construction sectors. Unless the employer has these contractual rights, any unilateral imposition of lay-off or short-time will be a breach of contract and give rise to potential claims for unlawful deductions.

Staff who are compulsorily laid off or put on short-time working are entitled to be paid guarantee payments for workless days, at the current rate of £30 per day, and limited to five days in any three-month period. If an employee is laid off for four weeks or more, or on short-time at less than 50% of their normal weekly pay, they can in some circumstances claim a statutory redundancy payment, however this claim requires that they resign from their employment.

Many employers are asking their staff to agree to temporary lay-off and short-time arrangements, which staff may be willing to accept where this option is presented as an alternative to the risk of redundancy dismissals.

Employees may be able to claim state benefits, e.g. Universal Credit, during any period of lay-off. In some cases, there may be other paid work which they could carry out during this time, subject if necessary to their employer’s consent.

It is also possible that during a period of lay-off an employee becomes entitled to sick pay, because they are ill themselves or self-isolating in accordance with Government guidance. If they are already unable to work, they will not be treated as being laid off even though all their colleagues may have been laid off.

If dismissals are unavoidable, employers may choose to look first at dismissing employees who are in probation or have less than two years’ continuous service, and so do not have redundancy pay rights or ordinary unfair dismissal rights.

In some situations one option may be to offer voluntary redundancy to staff, even this is only on statutory redundancy and contractual notice pay terms.

Where employees are dismissed because the employer has had to close down its workplace during the Coronavirus outbreak, or because there has been a collapse in customer demand, these dismissals should fall within the statutory definition of redundancy, as a potentially fair reason for dismissal under unfair dismissal law and also triggering entitlements to redundancy payments.

Employers need to manage these dismissals as fairly as possible in the circumstances in order to avoid unfair dismissal risks. They should look at holding consultation meetings remotely by telephone as an alternative to face-to-face meetings.

An option around redundancy dismissals is to serve extended notice periods and look to agree special arrangements during these periods, not least to defer the point at which they have to pay redundancy payments.

As detailed above, the Government has set up the Coronavirus Job Retention Scheme to support businesses through the Coronavirus crisis by helping to avoid compulsory redundancies. The option of Furlough Leave should be considered before any redundancies are made.

Employers proposing to make 20 or more redundancies within a 90 day period also face statutory obligations to undertake collective consultation with trade unions or elected employee representatives, starting at least 30 days before the first of the proposed dismissals takes effect (at least 45 days if 100 or more redundancies are proposed). Failure to comply with these requirements will potentially result in ‘protective awards’ up to 90 days’ pay for each affected employee.

An employer can in this context run a defence of ‘special circumstances’. If there are special circumstances which make it not reasonably practicable for an employer to comply with the consultation requirements, its obligation is to take whatever steps towards compliance as are reasonably practicable in the circumstances. While defences of special circumstances rarely succeed in normal times, in many cases there will be compelling arguments that the Coronavirus outbreak falls squarely within this exception. According to case-law, special circumstances mean those which are uncommon and out of the ordinary, and indicates that a “sudden disaster”, whether physical or financial, causing a business closure is capable of being a special circumstance.  It may be more difficult however to argue special circumstances if a business did not make redundancies at the start of the lockdown, especially if it could have placed its employees on furlough leave and undertaken a proper consultation process during this period.

Employers should prepare themselves for when the furlough leave scheme will cease to be available (currently 31st October 2020) and as necessary timetable redundancy consultation to start during furlough leave arrangements so that they are in a position to issue redundancy notices once the furlough scheme has ended.

Please get in touch with a member of our Employment team if your business requires further advice and assistance to handle the staffing implications of the Coronavirus outbreak or any other related issues.


For more guidance, and further information, visit our Coronavirus hub.