Restructuring the workplace post Covid-19 - FAQs for employers
20 July 2021
The furlough scheme may have been extended to 30 September 2021, but employers are looking ahead to cost-saving measures in the face of ongoing economic challenges.
We set out below our answers to key questions about options for restructuring the workforce. These cover options for extending furlough, notice and redundancy payment rights during furlough, changing terms and conditions, and dealing with redundancies.
See also our FAQs for employers on the Coronavirus Job Retention Scheme for detailed information about furloughing employees.
Extending furlough even when the scheme ends
Can we keep employees on furlough even when the extended government scheme has ended?
Yes. The Coronavirus Job Retention Scheme created a form of agreed lay off even where there was no contractual lay-off provision. As a result, provided employees continue to agree to being on furlough, it would be possible to extend the period for they are furloughed. This could reduce pay below the current furlough grant, or even implement furlough on no pay. Employees may be willing to agree to this as an alternative to redundancy. However, you will no longer be able to reclaim salary or other wage costs from the furlough scheme after it has ended, which will of course limit its attractiveness.
If you have a contractual right to lay off without pay, this could be relied on (although such clauses in contracts are quite rare in practice). Lay-off provisions are subject to the implied term of trust and confidence which means, for example, that you should consult with employees first and give reasonable notice of any lay off to avoid being in breach of contract.
There are also specific statutory provisions which provide a right for employees who have been laid off for four or more consecutive weeks, or six weeks in any 13-week period, to claim a statutory redundancy payment in certain circumstances. However, the scheme requires employees to resign in order to receive their redundancy payment.
Changing terms and conditions
Can we reduce hours and pay for employees?
Yes, with employee agreement.
If you recognise a trade union for collective bargaining purposes, you may be able to agree the change with the union - depending on the terms of any collective agreement, this may either be binding on all employees or may at least facilitate individual agreement. If there is no union, individual employee consent should be obtained and evidenced in writing (absent clauses permitting you to impose unilateral reductions, which are extremely rare).
If you are seeking agreement before you have formulated any proposal to dismiss 20 or more employees, a collective redundancy consultation will not be triggered. This means that you must not have formulated a definite plan that is likely to result in dismissals if employees do not agree to the proposed change. If a proposal has already been formulated to dismiss as redundant anyone who does not agree, or to force the change through by dismissing and re-engaging if necessary, then collective consultation will arguably be triggered.
Alternatively, if there is a contractual right to impose short-time working this could be used (subject to consultation and notice).
Can we reduce pay for employees but require them to work the same hours?
Yes - the process is as set out above. It may be more difficult to persuade employees to agree to this. You will need to ensure you explain the rationale, reasons and business cost in detail to minimise employee discontent. You also need to ensure for low paid employees that, if their pay is reduced but their hours are not, you still continue to comply with minimum wage legislation.
What if an employee refuses to agree to the proposed change?
You will need to consult individually with the employee and attempt to explain the reasons and necessity for the proposed change. If the employee still refuses after additional time and further discussion, you will need to decide on whether to impose the change by dismissal and re-engagement on the new terms or adopt different measures.
Dismissals in these circumstances can be fair, so long as there is a clear business necessity for the change and the employer has followed a fair process. Dismissal and re-engagement in this way will trigger collective consultation requirements where 20 or more dismissals are proposed.
Is it unfair to make employees redundant while furlough is available?
Employees with two or more years’ service can claim unfair dismissal. Redundancy is a potentially fair reason for dismissal, but it must also be reasonable in the circumstances to dismiss for that reason. There is an argument that it is unfair to make employees redundant when the government-funded furlough scheme is available as an alternative.
However, furlough is not cost neutral for the employer. Even if employees agree to reduce their pay to the amount of the furlough grant, the employer needs to bear the costs of employer’s National Insurance Contributions, pension contributions, holiday pay top-ups and any other benefits unless the employee has agreed to waive them. In addition, employers will be required to contribute 10% of salary for furloughed employees in July 2021, and 20% of salary in August and September 2021.
Also, there remains a question mark over whether it might be contrary to the purposes of the furlough scheme to use the scheme purely to postpone redundancies that are inevitable, i.e. they are going to happen at the end of the scheme irrespective of other circumstances. The original furlough scheme was intended to help employers keep their employees attached to the business so that they could eventually resume active employment. It’s not entirely clear, if it is legitimate for employers to use the scheme to support individuals whose jobs only exist within the furlough scheme and are no longer thought to be viable. There is nothing in the guidance which explicitly says that employers cannot do this, but there is still a risk that it could be regarded as contrary to the purposes of the scheme.
For these reasons, while it is important for employers to consider the availability of the furlough scheme, we do not consider it is necessarily unfair to make employees redundant when furlough is available.
Can we reclaim notice pay under the government furlough scheme?
A payment in lieu of notice cannot be reclaimed under the scheme.
If an employee is “working out” their notice while on furlough, employers cannot claim for any day when an employee is serving statutory or contractual notice from 1 December 2020 onward. This means that the costs of notice pay after 1 December are no longer be covered by the scheme.
How would we calculate notice pay for an employee who is currently furloughed?
If you choose to make a payment in lieu of notice under a clause in the employment contract, you should check what the contract says about the amount. If, for example, it says that pay in lieu of notice should be calculated based on basic pay, this is likely to be interpreted as meaning pre-furlough pay.
If an employee who is currently furloughed is given notice which they are to “work out” (even if they are unable actually to perform work for you), the amount you need to pay them during the notice period can be complicated.
The government made special regulations in July 2020 to require the calculation of notice pay to be based on pre-furlough pay - see our article "New law on redundancy and notice pay for furloughed employees". These regulations have been amended to reflect the extensions of the furlough scheme to 30 September 2021. The regulations effectively require employers to top-up pay to its pre-furlough rate for employees working out their notice if it is the statutory minimum period of notice or less than a week more than that period.
If an employee’s contractual notice period is at least a week more than the statutory minimum period of notice, no such top-up is automatically required. However, since for claim periods starting on or after 1 December 2020 you cannot make claims for employees for days during their notice periods, you should check your furlough agreement to determine their status in light of that and the rate of pay to which they are entitled as a result during their notice period.
How do we calculate statutory redundancy pay for employees on furlough?
Statutory redundancy payments are calculated based on years of service, age, and a week’s pay. For this purpose, a week’s pay is currently capped at £538. Many employees will earn more than this even during furlough, which will mean there is no need to consider a different calculation.
The government made special regulations in July 2020 to require the calculation of statutory redundancy pay to be based on pre-furlough pay - see our article "New law on redundancy and notice pay for furloughed employees". These regulations have not yet been amended to cover the extension of the furlough scheme, but it seems highly likely that the government will make that amendment shortly.
Redundancy consultation during the pandemic
Do we need to collectively consult with our workforce?
It depends on the number of employees involved. Collective consultation is required where an employer proposes to dismiss 20 or more employees “at one establishment” in a 90-day period for a reason unrelated to the individual, which encompasses both “classic” redundancies and “fire and rehire” exercises aimed at imposing less favourable terms. If fewer than 20 redundancies are anticipated, only individual consultation is required. We always recommend taking advice on your particular circumstances before embarking on collective consultation.
For an explanation of what collective consultation involves, see our inbrief on collective redundancies.
Can we carry out individual and collective redundancy consultation during furlough?
Yes. The guidance does not explicitly state whether collective or individual redundancy consultation can be carried out during the furlough period, or whether it would fall under the prohibition on doing work. However, it is not making money for the employer or providing services, so is most likely permissible. The guidance for employers also says that employee representatives may undertake duties and activities for the purpose of individual or collective representation and that this will not be considered work, which strongly suggests that individual and collective consultation must also be allowed.
You are likely to want to commence collective consultation during furlough if you know that you are likely to need to make redundancies post-furlough. You may also wish to use the time employees spend on furlough to absorb part of the cost of the consultation process.
Can employee representatives be furloughed and continue in their role as a representative?
Yes, where the employee representative is only being consulted in respect of possible redundancies or other topics within their usual remit as an employee representative, such as health & safety. The guidance for employers says that employees who are union or non-union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers while they are on furlough – so long as they are not providing services or generating revenue. The representatives are not providing services to the employer, so this should not fall under the prohibition on doing work while on furlough.
How do we collectively consult a workforce who are on furlough or remote working?
Coronavirus has created a situation where many employees are on furlough, working from home, self-isolating or practising social distancing. This is likely to continue during a gradual return to the workplace from 19 July, particularly as more employers introduce hybrid and flexible working. This makes collective consultation a challenge, as it would normally be done in person.
The flexible furlough option may allow some consultation to take place in person on days when employees are working. However, some employees may well still be working from home and those on flexible furlough are likely to be in work at different times, meaning remote consultation will still be required even where some employees are attending the workplace.
Previous case law has shown that carrying out information and consultation obligations remotely is permissible, and it is unlikely that this would be regarded as a problem in the current, highly unusual circumstances.
Employers can make use of technology to hold online “town halls” to inform employees about proposed measures and prepare to run several of these to ensure the whole workforce is notified properly rather than via the grapevine.
Collective consultation with employee representatives could be done remotely provided appropriate technology is in place. It could also potentially be done in person with appropriate risk assessments and protective measures and subject to consideration of current government guidance.
If done remotely, you should make sure that all the representatives have the technology required to participate. You should also ensure that only relevant parties receive an invitation to the online meeting, and that the line or portal for hosting it is secure and compliant for data protection purposes. Set a clear protocol in advance about how the meeting will be run.
If employee representatives have not already been elected, employers will need to consider what arrangements they need to make to ensure any election is fair. This may include arranging online voting. The voting process is supposed to be secret so far as reasonably practicable, which can present a challenge when it cannot happen in the physical workplace. Some possible options are:
- Use a third-party online voting platform, which ensures anonymity but may come at a cost.
- Design your own internal system. For example, you could nominate one independent person to run the ballot – although strictly this would not then be a secret election.
- Set up a consultation body in advance, which (provided its mandate is sufficiently clear) can then be used for redundancy consultation later on.
How do we carry out individual consultation with employees who are on furlough or remote working?
First, you need to think about how you will contact your employees and how will you send them relevant paperwork. Do you have their home email addresses (if they no longer have access to office email or never had it), do you have a home/mobile telephone number, and do you know if the employees have access to a computer?
For people without access to a computer, you could post or courier documents. If individuals will be reading emailed documents on a smartphone, consider formatting issues and what type of document to send.
If you propose to carry out the individual consultation meetings by video conferencing, check the employee (and, if applicable, any person accompanying them) will have access to a computer or smartphone. Alternatively, you can consult by conference call, but bear in mind that it will be harder to see how people are reacting to the news. If someone is on flexible furlough and in the workplace for some of the time, consider whether some or all of the consultation can happen face-to-face (with appropriate health and safety measures) on days they are working.
It is a common practice to allow the employee to be accompanied at redundancy consultation meetings (and any appeal meeting) by a colleague or trade union representative, although this is not a statutory right. The furlough guidance for employers has confirmed that acting as an employee representative does not amount to “work”, so colleagues who are furloughed could still act as a companion without risking the furlough grant.
Although you are under no legal obligation to allow the employee to be accompanied by a friend or a family member, this may be allowed under your own policies and procedures or as a discretionary measure in these unusual circumstances. Check the wording of any redundancy policy for any such provisions. In practice, it will be difficult for you to ensure nobody else is present in the room while holding the meeting remotely (especially if this is by phone rather than videoconference) – so it might be sensible to allow a friend or family member to accompany the employee.
Think about the following:
- Ensure that only relevant parties receive an invitation to the online meeting, and that the line or online portal for hosting the meeting is secure and compliant for data protection purposes.
- Ask the employee to attend the virtual meeting from a private and quiet room if possible where they will not be disturbed, and discuss their particular circumstances with them.
- Ask parties to speak clearly, let them ask questions when necessary and confirm their understanding. Parties should be asked to mute themselves when they are not speaking to avoid any distractions. Make use of online tools, such as screen sharing, to refer to documents.
- Explain that you will be taking notes of the meeting and will share a copy of the minutes/notes with them. Remind them that they may also take their own notes during the meeting.
- At the start of the meeting, ask the employee to confirm that they (or any companion) are not recording the meeting. If you are concerned about this, remind them that they do not have a legal right to record the meeting and that this may be viewed as a breach of trust and confidence as well as misconduct. You could also explain that covert recording may be in breach of data protection legislation. (Remember, though, that recording may be a reasonable adjustment for someone with a physical or mental impairment.)
- During the meeting, check with the employee whether they need to take a break in the same way as you would during an in-person meeting.
- Allow employees time to speak privately to their companion during the meeting.
Can employers use the “special circumstances” defence to a failure to consult about collective redundancies?
This is a difficult and fact-sensitive area, so you should always seek advice on your specific situation.
Section 188(7) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) provides a defence to a failure to collectively consult where there are "special circumstances which render it not reasonably practicable" for the employer to comply with most of its requirements. Importantly, the main exception is that the defence does not apply to an employer failing to allow employee representatives access to the affected employees and appropriate accommodation and facilities to perform their role during whatever process does take place, such as providing them with any necessary technology to take part in an online consultation process and a way to have some kind of meetings with their constituents.
There is no definition of “special circumstances”, but an impending insolvency situation on its own is not sufficient. The case law also indicates that it is difficult to rely on this defence to justify a complete failure to consult except in the most extreme circumstances. If a business has cash to keep it going and is making redundancies to remain profitable (or to make a smaller loss), it will be practicable to consult, even though it may be costly - consultation is regarded as a “cost of business”. The existence of the furlough scheme, coupled with other support for business will make it difficult to rely on the special circumstances defence to justify no or short collective consultation. It is therefore important that if employers decide to make collective redundancies, or changes to terms by way of a “fire and rehire” process, they should comply with the collective consultation requirements under TULRCA as best they reasonably practicably can.
The defence may work best if there is a procedural failing, so long as the employer takes what steps it reasonably can. The measures an employer took in the particular circumstances it was facing may also reduce the size of the penalty award for failing to consult, even if it is found to have breached the consultation requirements. The starting point is 90 days’ uncapped pay, with the employer required to show why that amount should be reduced – so taking all practicable steps is very important in reducing what might otherwise be a large penalty.
What immigration issues should we take into account when considering furlough and redundancies?
When you are considering redundancies (or changes such as lay-offs or salary reductions), you should assess whether this has any effect on the immigration status of any of the employees affected. Any of them who holds a skilled worker or temporary worker visa will have reporting requirements that are likely to be triggered, which may then have knock-on implications for whether they can keep their visa or not. Lewis Silkin’s dedicated immigration team can assist you in navigating this part of the process.
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