What Next – The process and practicalities of making redundancies against the backdrop of COVID-19

1 May, 2020

Whilst we are hopeful that the furlough scheme will be extended (in some form), or a new but similar type of scheme introduced, there are still going to be many employers who will have no other option but to reduce costs by implementing redundancies. This will trigger individual and possibly collective consultation obligations.


We are already seeing a large number of employers in the retail, hospitality and manufacturing sectors who are making redundancies. Other sectors such as tech businesses seem to be holding out for now and introducing other measures including deferring earned bonuses and commission.  


Although the Coronavirus Job Retention scheme is designed to minimise redundancies, HMRC has confirmed that employers can make employees redundant while on furlough or afterwards. Employers are not able to claim reimbursement of redundancy payments under the scheme but employers may be able to use the scheme to reduce the overall cost of making redundancies by using the furlough period for consultation and working out some or all of their notice.


Many businesses are now therefore weighing up whether they start the redundancy process whilst the furlough scheme is in place, or to wait until it ends. If employers wait until the end of the furlough scheme as it currently stands (31 October 2020), and consultation starts on 1 November 2020, dismissals would not take effect until 1 December or 16 December at the earliest (depending on the number of employees involved).

In many cases, it is likely to be preferable and perhaps financially necessary to start redundancy consultation during the furlough period. HMRC’s guidance does not expressly say that collective or individual redundancy consultation can or cannot be carried out during furlough. Furloughed employees are prevented from carrying out any “work” and therefore the concern is that consulting with staff could be deemed by HMRC to amount to “work”, which would invalidate the furlough.


We this this interpretation is unlikely but further guidance from HMRC on this point would be very welcome for the large number of employers who are likely to be taking steps to rely on this over the coming weeks.  


In the meantime, the safest way round this would be to take an employee off furlough leave for the duration of consultation (ideally after three weeks of being on furlough as the employer would otherwise not be able to claim for the furlough leave already taken

This applies whether or not staff affected are on furlough leave


Collective consultation is required where an employer proposes to dismiss 20 or more employees, at one establishment, within a 90-day period.


If fewer than 20 redundancies are anticipated, only individual consultation is required. This typically takes a couple of weeks.


Collective consultation requires an employer to consult employee representatives about various matters, including ways of:


  • avoiding the dismissals
  • reducing the number of dismissals
  • mitigating their consequences.


Consultation must start “in good time” to allow the necessary discussions to take place and a minimum period before the first of the dismissals takes effect. Also businesses cannot begin consultation with a closed mind or properly consult over something that they have already decided to do. Consultation must therefore begin while the proposals are still at a formative stage.


The minimum periods are:


  • 30 days where between 20 and 99 employees are to be dismissed, or
  • 45 days where 100 or more employees are to be dismissed.


It is feasible that in light of the uncertainty around the future of the furlough scheme, some employers may decide to commence collective consultation but then put that on hold for a time if the scheme is extended, or other temporary measures are put in place by the government. In these circumstances, provided the employer is not seeking to resurrect redundancy plans that have clearly been abandoned, it will not require a fresh information and consultation process to be started.


The minimum consultation periods can be overlooked where “special circumstances” apply. While the test of what constitutes a special circumstance is difficult to meet, the current unprecedented situation might well tick the box. Even if this is the case, the employer must still take all steps it reasonably can in the circumstances to engage in collective consultation.


Collective consultation must take place with “appropriate” representatives of the affected employees. If the employer recognises a trade union in respect of the affected employees, it must consult with the union representatives.


Otherwise, employers can choose whether to consult with:


  • existing employee representatives who have the authority to be consulted about such matters (i.e. a staff consultative forum)
  • representatives elected specifically for the purposes of the consultation.


Consultation must take place “with a view to reaching agreement”, although there is no obligation on the parties to reach an agreement.


The employer should explain the business case for the proposed redundancies and listen to the representatives’ views.


The representatives may accept the business rationale which is likely to be less of an uphill battle in the current environment. This means consultation can quickly move on to other issues, such as alternative employment and any redundancy package on offer.


Clearly the current circumstances present various logistical challenges in terms of the consultation process. Given the digital age we live in, many of those challenges can be overcome but it is going to require some flexible thinking, video briefings and digital election of representatives. For some businesses that will be easy enough and their workforce may already be comfortable using the technology. For others this will be a brave new world that they don’t have the time or financial resources to explore.  


A particular challenge is likely to be faced by businesses that have furloughed a number of their workforce and so are not supposed to be checking their e-mails and work phone. Whilst this won’t make the process impossible, it will inevitably slow it down as line managers and/or HR will have to follow up with individuals to make sure they are kept in the loop, or risk undermining the fairness of the process – employers who get the collective consultation wrong could face potentially significant financial liabilities, including a “protective award” of up to 90 days’ pay per affected employee.


At the end of collective consultation, individual consultation is required. As mentioned this typically lasts a further two weeks outside of a lockdown situation.


Employees who leave at the end of such a process will be entitled to notice, statutory redundancy pay and an enhanced redundancy pay if the employer provides for this.


Employers are not able to claim reimbursement of redundancy payments under the scheme, however, salary payments made by the employer (subject to the scheme cap) can still be claimed from HMRC where an employee on furlough is working out a period of notice.


As was the case pre Covid-19, in order to avoid a successful claim for unfair dismissal arising out of a redundancy situation, there must be: 


  • a genuine redundancy situation
  • adequate consultation of affected employees
  • a fair “pooling” and selection process
  • consideration of alternative employment.


Therefore an employer who automatically selects furloughed employees for redundancy, without first going through a proper process of pooling and selection is likely to face such claims.


An employee must have two years’ service in order to claim unfair dismissal, however, there are claims that could arise from a redundancy situation that do not require this service (such as discrimination). Whilst it is often the case that employers do not follow the same redundancy process with their employees who have less than two years’ service (and that is absolutely fine), it is advisable for an employer to do a quick sense check first.