Furloughed Staff and Redundancy

Furloughed workers have the same redundancy rights as other employees, including protection from unfair dismissal and discrimination.

While it may be legitimate for employers to make furloughed staff or those who have returned from furlough redundant, they should ensure the usual redundancy requirements are satisfied. In short, the redundancy must be genuine and a fair redundancy process should be followed.

Government guidance is clear as far as statutory entitlements are concerned. An employee who is made redundant while on or returning from furlough will be entitled to a statutory redundancy payment if they have two years’ continuous employment, as well as any contractual redundancy entitlement. That redundancy payment should be based on their normal wage, ie their pre-furlough salary.

The same applies to statutory notice pay. However, it’s important to note that the legislation that clarified this came into force on 31 July, and does not apply to any redundancy or notice payments that were made before that date.

Unfortunately, the calculation of contractual notice pay beyond statutory notice pay is not made clear from the relevant legislation or guidance.  The minimum period of notice for all employees depends on the length of service. Some employees have notice periods set out in their contract of employment that is longer than those statutory minimums. Employees whose contractual notice period is at least one week more than the statutory minimum notice period will be unaffected by the new regulations. In those circumstances, employers may be able to pay a lower rate (such as the rate received during furlough leave) in respect of contractual notice periods.

If an employee is entitled only to the statutory minimum notice period, the employer must pay 100 percent of the employee’s normal pay in respect of that notice period. Otherwise, if the notice period set out in an individual’s employment contract is at least one week more than the statutory minimum, an employer can pay them their reduced rate of pay in respect of their notice period.

It is this ‘loophole’ that fashion retailer Arcadia is allegedly relying upon with their recent series of redundancies. It may well be found by the Employment Tribunal that they have not actually breached employment law.

While it may be easier for employers to consider employees on furlough for redundancy before assessing the rest of the workforce, this is a risky strategy. For instance, employers will still face the risk of unlawful discrimination claims and employers must follow a proper redundancy selection process ensuring careful consideration of the criteria applied to minimise the risk of discrimination claims.

Employers should consider the potential reputational damage caused by this type of story appearing in the media. Regardless of whether Arcadia comes out of this unscathed from a legal perspective, it is likely that treating employees in a manner that appears to be taking advantage of the furlough scheme, to their detriment, will cause reputational damage. Businesses should think about what impact this might have on staff morale and loyalty as well as the impression it creates for customers and clients

This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Employment team at Cleaver Fulton Rankin for further advice or information.