This is a fast-moving issue and should be read as correct at the date of publication (05.05.20).
The Covid-19 pandemic has had significant impacts on the UK’s economy and labour market. The Government has attempted to protect jobs by covering wages through the Coronavirus Job Retention Scheme (CJRS).
Despite this there have been significant redundancy announcements. Last week British Airways and Ryanair announced 12,000 and 3,000 redundancies respectively. On Tuesday, 5 May, Virgin Atlantic announced plans for over 3,000 redundancies and the closure of its operations at Gatwick Airport.
This Insight looks at what protections employees have from redundancy. It also looks at whether employers can make redundancies while funding under the CJRS is available.
Redundancy and unfair dismissal
Redundancy is a form of dismissal. It happens when a business or workplace closes or where an employer has a reduced need for staff. For example, this could happen because of automation or if there is less work coming in.
The rules on dismissals are found in the Employment Rights Act 1996. An employee who has worked for their employer for more than two continuous years is protected from unfair dismissal. A dismissal will be unfair unless the employer can show that it was for a potentially fair reason listed in the legislation and actually fair in the circumstances.
Redundancy is a potentially fair reason for dismissal. Case law sets out the factors a tribunal will consider when deciding whether redundancy was fair in the circumstances. They include:
- Whether the employer used an objective selection process and applied it fairly;
- Whether employees were consulted in advance;
- Whether unions’ views were sought;
- Whether the employer tried to find alternative work for the employees.
Those who are not employees or who do not have two years’ service are not protected from unfair dismissal. These workers can only be dismissed in accordance with the terms of their employment contract. Finally, the decision to dismiss a worker must not be discriminatory.
Protections for women on maternity leave
Women on maternity leave have a special protection from redundancy. Their dismissal will be automatically unfair if alternative work was available but not offered to them. In the December 2019 Queen’s Speech the Government committed to extending this protection. The new legislation would protect pregnant women and women returning from maternity leave. That proposed legislation has yet to be published.
What is the Coronavirus Job Retention Scheme (CJRS)?
The CJRS is a scheme where HMRC provides a grant to employers to cover 80% of the wages of furloughed employees (up to £2,500 per month). It was introduced to enable employers to retain staff and not make redundancies.
The CJRS does not change existing employment law. If an employee is dismissed while the scheme is in effect, the normal rules on unfair dismissal will apply.
Would redundancy dismissals be ‘fair’ when employees could have been furloughed?
A tribunal will almost certainly take into account the availability of the CJRS when deciding whether a redundancy dismissal was fair. We do not know how heavily this factor will weigh against other factors, such as the employer’s financial circumstances, the willingness of employees to be furloughed or the administrative burdens of furloughing employees.
Darryl Hutcheon, a barrister at Matrix Chambers, argues that while each case will ultimately turn on its facts, employees who are dismissed without being given the option of furlough would likely have a “powerful argument” for unfair dismissal.
Collective redundancies and consultation
If an employer is proposing to make 20 or more employees in one establishment redundant within a period of 90 days, it must consult employee representatives, such as unions.
Where an employer is proposing to dismiss between 20 and 99 employees, it must start consulting at least 30 days before the first dismissal takes effect. If it is dismissing more than 100 employees, it is 45 days. The employer must also notify the Department for Business, Energy and Industrial Strategy.
The obligation applies when an employer is ‘proposing’ to dismiss. Case law suggests this requires intention. An employer deciding between two courses of action, one of which was dismissal, was held to be ‘proposing’ to dismiss.
Employees should not be dismissed until the consultation period has ended. An employer that breaches its obligations could be liable for a ‘protective award’, a financial penalty against the employer that has to be paid to affected employees. Employers will be able to make dismissals after the consultation period has ended, provided the dismissals are fair.
It is likely that some employers will have to start redundancy consultations while the CJRS is still running. The Chancellor’s decision to extend the scheme on 17 April 2020 came after it was reported that a number of large employers were about to begin redundancy consultations.
‘Special circumstances’ defence
In some situations, it might not be possible for an employer to consult sufficiently in advance. If there are ‘special circumstances’ an employer only needs to show that it did everything that was reasonably possible before making dismissals. This could, for example, involve a shorter consultation period.
A special circumstance must normally be a sudden disaster. Insolvency is not itself a special circumstance. While the lockdown could be described as sudden financial disaster, the availability of the CJRS could also negate a special circumstances defence.
Employees who have worked for their employer for two continuous years are entitled to statutory redundancy pay. The amount will vary depending on an employee’s age and the number of years they have worked for the employer. The maximum entitlement is £16,140. Many employees will have a contractual right to enhanced redundancy pay.
Where an employer is insolvent, employees can claim statutory redundancy payments from the Government’s Redundancy Payments Service (RPS). An employee can also make a claim to the RPS if their employer has refused to make a statutory redundancy payment and the employee has taken all reasonable steps short of legal action.
Further financial support?
According to the Chartered Institute for Personnel and Development, many employers want the CJRS to be extended further and to cover workers on reduced hours. Government guidance on the CJSR acknowledges that after the scheme ends, employers will need to decide whether to retain staff or make redundancies.
The CJRS has already been extended until the end of June 2020. On 27 April 2020, the Chancellor told the House that the Government would make ‘gradual refinements’ to its economic interventions. The Financial Times has reported that the Treasury is considering adapting the CJRS to support employers whose staff return to work on reduced hours.
Coronavirus: Impact on the labour market, House of Commons Library
FAQs: Coronavirus Job Retention Scheme, House of Commons Library
Employment rights and insolvency, House of Commons Library
About the author: Daniel Ferguson is a researcher at the House of Commons Library, specialising in employment and equality law.