Redundancy during furlough leave

The Government’s Coronavirus Job Retention Scheme (CJRS) starts winding down with effect from 1 August when employers have to make an increasing contribution towards furloughed employees’ pay until the scheme ends on 31 October, meaning that many employers are having to consider making redundancies.

There are important procedural requirements to follow before making an employee redundant in order for employers to be able to successfully defend any future unfair dismissal claim. This includes conducting individual consultation with those who are at risk of being made redundant, before the decision is confirmed. Employers who are seeking to make 20 or more employees redundant during a period of 90 days or less must follow the strict statutory rules for conducting collective consultation over the proposed redundancies, or face potentially very costly penalties in the employment tribunal.

Can an employee who is on furlough leave be made redundant?

Yes, although employers should still ensure that they follow a fair procedure before confirming the decision to make an individual’s role redundant.

Under the terms of the CJRS, an employer cannot claim for an employee’s statutory or contractual redundancy pay entitlement, but it has been confirmed that the furlough grant can be used to pay an employee’s notice pay.

The wording of the latest Treasury Direction, published on 25 June 2020 and which currently forms the legal basis for the scheme, caused some confusion for employers as it stated that payments under the scheme were to be used by the employer to continue the employment of furloughed employees. This suggested that the grant could not be claimed for those serving a period of notice as their employment was not being continued. However, the Government’s guidance has since been revised to make it clear that employers can still claim under the scheme in respect of a furloughed employee serving a statutory or contractual notice period (but not if they are given a payment in lieu of notice).

The amount of notice that an individual employee will be entitled to receive will depend on whether they are entitled to the statutory minimum notice period or a longer contractual notice period under the terms of their employment contract. Note that as a result of new regulations coming into force on 31 July 2020, statutory notice must be paid at the furloughed employee’s normal rate of pay.  Furloughed employees with more than two years’ service will also be entitled to receive statutory redundancy pay calculated on their full rate of pay (subject to the statutory cap of £538 per week), rather than their reduced furloughed pay.

Can an employer agree to delay the redundancy taking effect until the end of the furlough scheme?

In normal circumstances, there is nothing to stop an employer agreeing a longer period of notice with a redundant employee than their contractual or statutory entitlement. The position during a period of furlough is unfortunately less clear cut.

Whilst the amended HMRC guidance has now made it clear that notice payments can be legitimately claimed under the scheme, it is possible that an agreement to extend a redundant employee’s notice period to last until the end of the furlough scheme could be interpreted as being contrary to the stated purpose of the scheme.

HMRC has the power to retrospectively audit claims, and under new enforcement provisions in the Finance Act 2020 employers might be faced with having to repay any part of the grant that has not been claimed correctly and in accordance with the Treasury Direction. 

The likelihood of HMRC seeking to reclaim grants in these circumstances, and the risk that employers will have to repay, is probably quite low. In practice, HMRC is more likely to be targeting those employers who have deliberately and fraudulently claimed grants under the scheme, in respect of employees for whom they are not entitled to claim. Until the auditing process is fully established, however, we cannot be certain that HMRC will not seek to reclaim such payments. The safest course of action is therefore to serve redundant employees with their normal notice entitlement, and perhaps consider delaying giving notice rather than giving employees a longer period of notice.

Can an employer agree to pay an ex gratia sum to a redundant employee if they are made redundant at the end of the furlough scheme?

There is nothing within the terms of the CJRS to prevent employers from making an ex gratia payment to their redundant employees (effectively an enhanced redundancy payment), although this would not be funded by the scheme. Even if a redundancy appears amicable between the parties, an employer choosing to make an additional ex gratia payment might want to consider entering into a settlement agreement with the employee, to prevent the risk of any future claim by the individual.