Getting redundancy right in the Covid workplace

The impact of the Covid-19 pandemic means that a large majority of redundancy dismissals will be genuine, but employers should proceed with caution to avoid costly mistakes. Below, we cover a few common pitfalls, the risks and how to avoid them.

With a major recession looming, redundancies are on the rise. Latest figures from the Insolvency Service shows that 498,000 proposed redundancies were notified to the Government between March and August 2020. That number is expected to rise following the closure of the furlough scheme at the end of last month.

The risks of selecting furloughed staff for redundancy

With workplace closures and essential restructuring now unavoidable across many sectors of the economy, a recent report published by Citizens Advice, ‘An Unequal Crisis’, revealed that parents, carers and the disabled are twice as likely to face redundancy than their counterparts during the Covid-19 crisis.

With many employees in those categories furloughed due to their personal circumstances, employers risk indirect discrimination if they automatically select furloughed employees for redundancy or treat them differently to employees at work. The Coronavirus Job Retention Scheme Guidance states that employees on furlough can be made redundant, but if the employee is able to demonstrate that they have been dismissed or singled out because of a protected characteristic, employers may face uncapped and expensive discrimination claims.

To mitigate this risk, employers should give careful consideration to redundancy selection pools and the selection criteria and process. Employers should not assume that any selection process used to select which employees to place on furlough is sufficient for the purposes of redundancy selection, especially given the categories of employees typically on furlough. Given the swift implementation of the furlough scheme, it may be that the selection process used by an employer to furlough employees was limited and completed in haste without proper consideration.

While there are no fixed rules around pooling, employers need to apply their minds to pooling and act within the band of reasonable responses. As with any redundancy situation, an employer cannot cherry pick those employees it wishes to place in the selection pool or those it wishes to make redundant.

Similarly, the fact that an employee is on furlough is not a factor for automatic selection for redundancy, nor should it place an employee at greater risk of redundancy. When identifying selection pools, the first step is to identify the type of work that is diminishing or will cease. Then, one should consider which employees (whether on furlough or not) perform that type of work, or similar work, and those employees ought to make up the selection pool. The selection pool should therefore include both furloughed and non-furloughed employees, as appropriate. Once the selection pools have been identified, employers could consider requesting volunteers for redundancy. If enough volunteers come forward, it may eliminate the need for a selection process.

Where a selection process is required, the selection criteria should be objective and fair and take into account any disadvantages that those on furlough may face. For example, where performance is used as one of the criteria, employees who have been furloughed for a large part of the performance year will be at a disadvantage when compared with their counterparts and as such, this would not be a fair criterion. Likewise, attendance records may pose difficulties and the reason for absence will need to be looked at carefully to avoid discrimination. Attention to the weighting of each criteria, as well as ensuring more than one manager is involved in the scoring process will assist in ensuring the process is fair. As with all redundancies, employees or their representatives should be consulted with to identify and agree the selection criteria.

Employers should also be aware that where furloughed employees are made redundant immediately after the end of a period of furlough, this may trigger extra scrutiny from HMRC. Although it is permissible under the scheme to consult about redundancies during a period of furlough and, ultimately, make furloughed workers redundant, it is not permissible to claim a furlough grant to cover the cost of either statutory or enhanced redundancy payments or payments in lieu of notice. In addition, from 1st December, it is not possible to claim furlough payments for employees under notice of termination.

With estimates that up to £3.5 billion of furlough grants have been claimed either fraudulently or in error, HMRC has committed to investigating ‘high risk’ claims. Where a furlough grant has been fraudulently claimed, not only does HMRC have the power to clawback payments, both the company and individual officers risk criminal charges.

Shielding and selection criteria

On a related point, employers following a selection process that includes attendance as part of its standard criteria, should consider discounting any absence for employees who have been shielding or self-isolating for health reasons, even if they did not ultimately contract Covid-19.

A failure to do so may fall foul of disability discrimination protection and/or may mean that the process is viewed as unfair. A recent decision from the Employment and Equality Tribunal in the Isle of Man provides an early indication of how UK employment tribunals might approach the issue of penalising workers for Covid-19 related absences. In Reid, the tribunal held that an employee with Type 1 diabetes had been unfairly dismissed when she was sacked for self-isolating on the advice of her GP, even though she did not have Covid-19.

The perils of consultation in a virtual world

Out of sight out of mind, it’s easy to let slide the need to genuinely and appropriately consult. Even during a national crisis, employers must ensure they communicate effectively and appropriately with staff, individually, as well as collectively. This includes with those on maternity leave, absent on sick leave, self-isolating or furloughed, who are easily missed from mailing lists or meeting invitations.

In terms of how collective consultation is conducted in the age of social distancing, it’s worth recalling the High Court’s guidance in British Coal on what amounts to fair consultation. The court noted: ‘Fair consultation involves giving the body consulted a fair and proper opportunity to understand fully the matters about which it is being consulted, and to express its views on those subjects, with the consulter thereafter considering those views properly and genuinely.’ Although this decision was from 1994, when the use of conference and video call facilities was much less prevalent than now, it’s clear that the focus is on the substance of the consultation rather than the form.

Therefore, employers should be able to satisfy their  consultation obligations over the telephone or by video conference. However, this will be a question of fact and what is appropriate for one employer may not be right for another. It would be good practice to check in advance with the employee  that a conference or video call would be acceptable and record their consent in writing.

Where it is decided that a meeting should be held in person, the employer must take steps to ensure that the meeting is Covid-19 secure, to avoid falling foul of health and safety obligations. Where a virtual meeting is preferred, employers should prepare for, and approach, such discussions in the same way they would a face-to-face meeting. Careful planning and providing comprehensive guidance to managers conducting consultations is key.

Alternative roles

Those employers facing the prospect of reorganising their business should take note of a recent EAT decision that highlights the risk of requiring potentially redundant employees to go through a competitive interview process for an alternative role. The decision in Barrett is a warning for employers that while it remains reasonable for employers to use a competitive interview process to decide who to appoint to a newly created role following a reorganisation, there are limitations on when this approach can be used. Where the alternative role is the same or very similar to one performed by the redundant employees, then the fair approach is to apply selection criteria to the employees in the pool.

Employers must also remember that employees absent on maternity leave have special protection. They are entitled to be offered any suitable alternative employment (including a suitable newly created role) in preference to other employees. Requiring an employee on maternity leave to interview may be unlawful. Notably, the Government is exploring extending this special right to pregnant employees and to the first six months of an employee’s return to work from maternity leave.

Getting notice pay and redundancy pay right

With pay varying as a result of furlough, mistakes are being made on entitlements on termination. Employers must adhere to the Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020, which stipulate what employers must pay to redundant employees who are, or have been, furloughed. The amount of notice pay due to a furloughed employee (or previously furloughed employee) will depend on the length of their notice entitlement and particular working arrangements.

As discussed above, employers must cover statutory and enhanced redundancy payments themselves and they cannot recover this cost under the furlough scheme. Any reduction in pay as a result of being furloughed should be disregarded for the purposes of calculating a statutory redundancy payment, although it may be reflected in any enhanced payment depending on what is said in the employment contract, relevant policies and the furlough agreement.

Conclusion

Employers face a rapidly evolving economic environment and almost constantly changing rules and guidance. We  encourage  clients to seek early advice, as often-costly mistakes are made at the very outset of a redundancy process, or before it has even started. Preparation and planning are the watchwords of any prudent employer on the cusp of restructuring their workforce.