Covid-19 redundancy guide – Part 5: Redundancy dismissals and payments

My previous post in this series outlined the correct redundancy selection process and criteria. Today I’ll be covering the CIPD’S guidance on redundancy dismissals and payments.

Redundancy dismissals

The guidance has previously indicated that employees may be made redundant while on furlough, but retain their usual redundancy rights and protection from dismissal. The latest guidance confirms that if employers must make redundancies, they should follow the normal rules – including notice periods and consultation.

Employers must make a decision as to whether furloughed employees can return to their duties. If not, it may be necessary to consider redundancy after all other options are exhausted. It is therefore crucial that employers only effect redundancy dismissals where:

  • there is a genuine redundancy situation, and
  • they have followed a fair redundancy procedure (including in relation to consultation, selection, searching for suitable alternative employment, etc.) according to the usual employment law rules.

As discussed in my previous post, automatically selecting staff who are (or have been) on furlough for redundancy may give rise to an unfair or discriminatory dismissal. A dismissal effected while an employee is on furlough (in circumstances where it may be possible for that employee to remain on furlough rather than being made redundant) may also be unfair. The latter will depend very much on the particular circumstances of the case, including the size, resources and financial position of the employer.

Employees being made redundant are still entitled to:

  • redundancy pay if they have two or more years’ service
  • their contractual notice period, or pay in lieu
  • any accrued but untaken annual leave, or pay in lieu.

Redundancies around October 2020

The extension of the furlough scheme was notified on 31 October 2020 (the date on which the scheme was due to end). It is possible that some employers have already issued notice of redundancy for this date. Where redundancy dismissals have already been confirmed and due process has been followed, as dismissals took place in good faith and in accordance with information available at the time, it is likely that such dismissals will still be reasonable. If challenged, however, this would only be determined in due course by an employment tribunal.

Employers will need to consider whether it is appropriate to rescind the notice of termination for employees who were made redundant in preparation for the furlough scheme coming to its original end on 31 October. Employees made redundant in the month or so prior can be re-employed and furloughed. The general rule is that employees must be on the payroll on or before 30 October.

For claim periods up to 30 October 2020, a PAYE Real Time Information (RTI) submission for the employee must have been made to HMRC between 20 March 2020 and 30 October 2020. Employees on fixed-term contracts that have expired since 23 September can also be rehired and furloughed.

For claim periods after 1 November 2020

If an employee was made redundant or stopped working for the employer on or after 23 September 2020, they can be re-employed and furloughed as long as an RTI submission to HMRC notifying payment in respect of that employee was made between 20 March and 23 September 2020.

If an employer decides to offer to return an employee to the furlough scheme for the duration of the furlough extension, they must obtain the employee’s express agreement to this. The employer should then consider the position again at the revised date. Where an employer decides not to rescind a notice of termination, they should make notes in case their decision is challenged later.

Employer’s choice

In some cases, the restructuring may be already in place or under way. Some employers already know that employees are very unlikely to be needed in March 2021, and can proceed with redundancies now.

Employers do not have to do rehire and furlough, but they can do so. They will need to consider this if the employee requests it. Redundancy processes that were ongoing or subject to an appeal mean that employees may be able to challenge the fairness of selection for redundancy if furlough was not considered as an alternative. Agreement to re-furlough is always at the discretion of the employer and employee, provided they can agree the terms.

The employer has to assess the likelihood of having to repeat the redundancy process again in 2021 because of economic pressures. In the decision-making process, employers will have to evaluate pressure from existing staff to help previous colleagues, as leaving employees unemployed when furlough is at least an option may affect the morale of remaining staff.

Employers can refuse to rehire and furlough for a number of reasons. For example, they may wish to avoid the costs of NICs, pension contributions and accrued holiday. In addition, the government has hinted that its grant to make up 80% of salary may be reviewed in January 2021, so employers may be required to contribute more to furlough salary as the scheme progresses. Employers who decide to rehire and furlough will also have to agree with the employees what happens to any redundancy payments already made.

Redundancy payments

Employees with two years’ continuous service are entitled to statutory redundancy payments based on a multiplier of:

  • half a week’s pay for each year of employment up to the age of 22
  • one week’s pay for each year between the ages of 22 and 40
  • one and a half week’s pay for each year over the age of 41.

The maximum number of years’ service that can be taken into account is 20, and there is a statutory maximum limit on the week’s pay (currently £538 per week). For those made redundant on or after 6 April 2020, the maximum statutory redundancy pay is £16,140. Employers may offer more generous contractual redundancy payments.

Redundancy and furlough pay

The government’s guidance clearly states that employees’ redundancy rights, and other employment rights, will not be affected by being furloughed. So, any employee who is made redundant while on furlough will be entitled to a statutory redundancy payment if they have two years’ continuous employment, as well as any contractual redundancy entitlement.

Furloughed employees who are made redundant will receive redundancy pay based on their normal wage. Statutory redundancy payments must be calculated on the basis of an employee’s pre‑furlough salary. This was confirmed by the government on 30 July 2020, and does not apply to employers who had already made redundancy or notice payments before 31 July 2020. The pre-furlough salary for a week’s pay is currently capped at £538, so employees who earn more than this will just have their calculation based on the £538 figure.

Under the furlough scheme extension until the end of March 2021, any calculation of statutory redundancy pay or statutory notice pay must also ignore any reduction in wages resulting from the employee being furloughed.

If employees’ pay varies, or they have no normal working hours, then pay is normally averaged over the previous 12 weeks. If this period includes at least one week of furlough, then the averaging must be based on full rather than reduced pay.

For other claims, a week’s minimum pay also applies. For example, in a claim for unfair dismissal, basic awards for a badly handled redundancy or failure to provide written particulars, the employee’s normal (non-furlough) salary should be used.

The calculation of any contractual redundancy entitlement will depend on the contractual terms governing that payment, and will be subject to any valid contractual variation made before the employee was furloughed. The furlough legislation does not affect any agreements about enhanced contractual redundancy pay, as it only applies to basic statutory redundancy pay entitlements.

My final post on this topic will cover notice periods, the amounts that employers can reclaim, and the cancelled (for now) Job Support Scheme. For more information on any redundancy issue, email me or call me on 020 7099 2621.