COVID-19 in 19: Preparing for the next stage – anticipating UK redundancies

Adam Turner: Good morning everyone, my name is Adam Turner, Knowledge Development Lawyer in BCLP in UK Employment and Labor group.  Welcome to the first call in in our regular COVID-19 in 19 UK Employment Law Series.  Today’s topic is on Preparing for the Next Stage, Anticipating Redundancies.  The focus is shifting towards reopening the UK economy.  We’re expecting government guidance very shortly on how lockdown is going to be used.  As part of this, the government’s furlough scheme is due to be tapered off.  Employers are therefore planning for safe and orderly return to business as well as deciding how to deal with damage suffered due to Coronavirus disruption.  Some of this planning may involve with large scale redundancies which have a material lead in time.  This means employers need to consider laying the ground work for redundancies now.  Today, BCLP lawyers Katherine Turner and Natalie Phillip are going to have some key employment considerations you need to bear in mind in this area.  We hope you find this useful. And now, over to Natalie to begin our program.

Natalie Phillip: Brilliant.  Thank you Adam, uhm, good morning everybody.  Uhm, before I talk about the first key questions, which is uhm, when collective consultation is triggered.  I just actually want to start with, what it actually is.  So, an employer has a legal obligation to collectively consult where it proposes to make large scale, large scale redundancies of 20 or more employees within a period of 90 days.  Now the good news is that an employer must consult with representatives the effected employees.  I must also notify base, which is the Department of Business, Energy and Industrial Strategy.  The obligation to consult and effectively operate to their temporary [inaudible] on proposed dismissals, as dismissals should not take effect for a minimal period of time once the consultation process is started.  Now, that minimum period is 45 days where a hundred or more redundancies are proposed or 30 days where fewer than a hundred redundancies are proposed.  As you may know, there are consequences where an employer fails to comply with this obligation and an employment tribunal can make what is a called a Protective Award, which is an award up to 90 days gross actual pay for each affected employee.  So depending on the number of employees affected this can amount to a real significant sum of money, uhm, for an employer up to a quarter of the annual wages bill for the employees concerned so it is quite significant.  In terms of when this obligation could collectively console is triggered, the relevant legislation provides that it rises while an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 day or less.  Now it’s the term proposing that gets a lot of attention.  The proposal to dismiss occurs at an earlier stage then the actual decision to make redundancies, and so consultation must begin when the proposals are at the formative stage.  So if we just take an example, if you are assessing your business needs and you envision closing a site, where 20 or more employees would be at risk of being made redundant, then you could well be proposing to dismiss at that point.  So the duty to consult arises.  Now, in this scenario, if the employer proposes closing the site, but actually it wouldn’t be safe to say another six months, then there is a risk that starting consultation say just two months before the proposed closure could on its face amount to a breach of the consultation obligation and this is because even though you have complied with the minimum 30 or 45 days consultation periods, the proposal to close the site came about some months before, and the purpose of the consultation is to, is to enter into discussion with an open mind and for consultation to be meaningful.  So if the decision to dismiss has already been made prior to collectively consulting with those affected, proper consultation can’t be compensatory out.  Now, that being said, it’s a balancing act exercise as employers typically don’t want to, and shouldn’t really feel like they have to start consultations earlier than is necessary.  So one key thing to take away is the proposals may contemplation at the possibility of redundancies.  So if we take that same example, if the employer knew it had to close one of its multiple sites but actually didn’t know which one, then arguably there’s not yet been a proposal to dismiss as the, as redundant 20 or more employees.  Now deciding when the duty arises, it always going to be fact specific so our advice is to really identify what your intentions are when you are considering changes to the business.  Moving on then to, to look at undertaking collective consultation in respect to its Fellow Star. Employers (stutter) and we’re tending to see, a lot of employers look at how best to manage the damage to their business caused by this COVID-19 crisis.  While many are making use of the government’s coronavirus job retention scheme which [inaudible] CJRS.  Uhm, their also considering whether redundancies may be required and a common question that we’ve seen is come up is whether employees can collectively consult with their fellow employees.  Our answer is yes.  And, however, we do acknowledge that meeting all of the collective consultation requirements is, is demanding. And we’ve already seen examples where trade unions are arguing that it’s not possible for an employer to take all the necessary compliance boxes.  For example, Unite, one of the biggest trade unions has in the last few days, told a national employer that they think that it’s not legally possible the employer to collectively, collectively consult with their Fellow Star, and they raised a variety of them, substantive and procedural reasons for this.  The government has made it clear that the purpose of our CJRS is to avoid large garrison disease under seize and to really try and help employers maintain a talent pool. And there’s no express prohibition in need of a treasury direction, which is the legal mechanism which under [inaudible] unpins the scheme itself or the guidance on making Fellow Star redundant.  And you can actually contrast this with government furlough schemes in some other countries which expressly prohibit making employees unfairly redundant while they benefit from the scheme and even for a period after the scheme has ended.  So as I say, our view is that employers are able to collectively consult with Star, during the furlough period and its worth mentioning the official employee guidance for the CJRS expressly says that employees can make redundancies once on furlough.  In addition to that it’s worth mentioning that the employee, employer’s guidance which, uhm, was amended just last week, it made clear that actually furloughed employees representative can carry out collective consultation with their employer, without breaching the furlough scheme prohibition and employees must not work once on furlough.  So this really reflect our thinking that employee can collectively consult and that employee representative are not providing services to their employer when representing the workforce, but rather they are providing services to the employees that they are representing.  Now if you’re thinking about starting the consultation process while employees are furloughed, there is no denying that there are a number of practical issues which, which make may difficult and especially if you got an employee population who are not accustom to technology. That in our view it’s [inaudible] means impossible, uhm, to elect employee representative and we accept that you probably already maintain various means of communicating with your fellow employees.  So you might for example chose to kickoff communications by phone or email or if your staff have access, uhm, to, to the web, you can direct them to a dedicated extranet page, and which we’ve actually seen, you can hold it town hall video conference and we could even rely on text messages or instant messaging services it work out for example.  So we did consider that it really is possible.  I mentioned that Unite had said that they think employers can’t comply with that collective consultation obligations.  Among other things, they argue that it’s impossible for effective comm- communications to take place representative to gain sufficient access to furloughed employees, but we think that it is possible as I say, uhm, to collectively consult. Although it says to me, too, that employers will need to work harder to ensure that their communication and the access requirements are met when dealing with, with them your furloughed workforce.  That’s all for me, I’m going to hand over to Katherine whose going to talk about other effects and employees need to consider in the same context.  Katherine, over to you.

Katherine Turner: Thanks very much Natalie.  Uhm, good morning everyone.  So we now heard from Natalie that employers can consult with employees on furlough and Natalie’s also set out the obligations surround that.  So the next question we’re going to look at is, can you get notice of termination to staff [inaudible] on furlough and if you can? And at what rate, so you’re going to be paying them the furlough pay or you going to be paying them the normal pay?  So can you give notice to terminate furlough staff?  Yes, we can.  And it seems entirely logical given what Natalie said about consulting with the [inaudible] furlough but also entirely logical given the ongoing employment relationship between the parties when the employee is on furlough. And Natalie has already mentioned the government gave in to employees on job retention scheme and that confirms that an employee can be made redundant while they are on furlough. The more difficult question is actually we waive the notice pay that needs to be given, and this is difficult because the legislation around this pay is complex, but getting that [inaudible]  rate is important because if you get it wrong employees have a potential; unlawful deductions from wages claims and a breach contract [inaudible] and the employee may also argue that because of the allege breach they don’t need to comply with their proclamation sections [inaudible] no classifications, that kind of thing. But to, to answer the question on what you need to pay we need to look at the contract of employment and what it says on notice and we need to know what the legislation says about entitlement to notice pay. So if we start by what we need to know, so we start by asking how much notice the employee is entitled to receive under contract and more specifically is the employee required to get only statutory notice or at least a week more than statutory notice. So if entitled to at least a week more than statutory notice then the employee does not benefit from the legislation which provides the minimal key protection notice pay and what this means is that the employee should receive notice pay based on the amount of pay that they received while on furlough. So if you get 80 percent while on furlough that’s [inaudible] they would get as part of notice pay or if they’re working a notice which is more likely. Now if entitled only statutory notice of less than a week’s normal statutory notice, then the employee benefits from legislation which provides the minimal pay protection, provided that the employee is ready and willing to work or [inaudible] of exemption.  So for example the employee is incapable to work due to sickness, he would still [inaudible] legislation. So what this means is that someone who benefits from the minimal pay protection and works normal hours is entitled to the normal remuneration even if their on furlough and they [inaudible]. But because the normal remuneration [inaudible] when they’re on furlough is their furlough pay and then that is the pay that they would receive if they were working normal working hours. But when it makes a difference if for those who don’t work normal working hours and then what you’re doing is you’re looking at a week’s pay and that’s calculated by reference to our vision of the 12 weeks before the notice was given so you could be looking at them getting 80 percent, anywhere between 80 to 100 percent of a normal pay, even if they are getting only 80 percent while on furlough. Though, I always think it’s about settling [inaudible] that legislation. But my key takeaway today is look at the contractual noted period.  If entitled, that the employee is entitled to [inaudible] notice and but less than a week’s normal notice than statutory notice, what the employee gets could be anywhere between 80 and 100 percent depends on what could happen.

Note, the final point I want to mention here, is that what we say the legal position is but there is a softer element to this as to what the employment tribunal might chose around an employer not paying full pay to those who are on furlough and whether they might try and [inaudible] employee and paying them their full pay during notice.  And I say that because Natalie has already mentioned the job retention scheme, it’s all about preventing redundancy, and fact remains, you can imagine a situation whereby it’s not clear cut. So, we say, OK, if an employee is on furlough and have agreed to go on furlough and has agreed to a pay cut, then that’s a term and condition and no term and condition should apply even if notice is given.  But what if, for example, an employer is just on the cusp of proposing redundancy was pretty much there and on the same day furlough the staff.  So would that make a difference? I don’t know the answer to that, but my feeling is that it might make a difference in employment tribunal.

Now moving onto the final question that we are going to look at today is the alternative to redundancy so what alternative to redundancy makes and employer consider.  So in our current climate, what we are seeing is that redundancy is very much seen by employers as a measure of last resort.  Though businesses want to be able to react to an upturn and maintain their existing workforce and your existing talent, it’s far more efficient and cheaper than recruiting and training new employees. So [inaudible] what I have done, I’ve had to think both what the top five alternatives to redundancy are that we seeing. So number one is furlough. So that means the government job retention scheme, this may be an attractive option for a number of businesses or even just a part of businesses. But I think the reality is there might be a number of employers who have large numbers of employees who are high earners, so the cap on what they can actually get back from the government may make furlough not really be a viable option at all, or maybe not viable on its own. And number two, we’re seeing salary reduction for set period of time, and this is normally expressed as percentage, um, of salary being reduced. Number three, we are seeing reduction in what can be their hours with a reduction in salary to reflect that. Number four, we are seeing employees being offered sabbaticals either on low pay or Regis pay and this is, um, for a minimum or maximum period of ten. And in number five, I have reduction or non-payment of bonus, or [inaudible] the cash bonus into share. So a key point to bear in mind when looking at these alternatives to redundancy is that, generally speaking, we need to talk to employees to get them onboard and consent to the change because we know what we are talking about here is a change in terms and conditions of employment. So some contracts may include a [inaudible] to vary the contract unilaterally but [inaudible] clauses are generally not only interpreted and by the court. And so what you’re saying is that there are not deficiencies these types of changes because these are fundamental terms of the contract. So for many of these changes, to reduce any risk of claims, um, what we would advise is, is a change is agreed and it’s agreed in writing in consultation with the employee so you are getting their expressed consent, and it may be because people are a bit uncertain as to what is going to happen and worried about getting another job that employees will be willing to agree to the change.

And what we are saying then, is that it’s been messaging, for the messaging for the need for the change and being very [inaudible] employee the paying period of it as well and how long it’s going to be imposed for.

Now, just a quick point from bonus because the position on bonus may be slightly different in terms of whether you need to get consent to do what you want to do on, on the bonus aspect and that’s because you may have a discretionary bonus scheme as opposed to a contractual boarding scheme, so as part of that, well it may not be absolute in terms of the discretion that you have.  The employer may have some power to withhold or name the leverage bonus or even amend the form of the bonus it pays instead of cash, you get shares.

Now the prime rules in the grand documentation, that’s what needs to be examined closely because it’s the language that’s really important to understand what type of discretion the employer has, and even if there is discretion, it’s always worth bearing in mind there are legal rules around exercising that discretion and not exercising it in a way which it appears irrational.

But, the final point I just want to make and it ties back to what Natalie discussed earlier is that, if employees refuse to consent to change and a decision is taken to impose it, then collected consultative obligations may arise and that is the cause. Even if it doesn’t feel like a redundancy situation, redundancy for the legislation practices is labeled the same.  So I think just bear that in mind in terms of the number of employees who don’t accept the change.  I mean, the obligations and financial payments that were not mentioned earlier are relevant here.

So that’s all I have time to speak to this morning as I’m going to pass back to Adam to close the session.

Adam Turner: 

Thank you, very much, Katherine and Natalie, um, I think you’ve highlighted some very important considerations there, and thanks to all of you for joining our call today.

For more information, or if you have questions about today’s topic, please feel free to contact Katherine or Natalie through our website at BCLPlaw.com

We are hosting a regular series of these calls with different and problem related COVID-19 topics and we hope that you would join us for future sessions.

Thank you, stay safe and enjoy the rest of your day.