COVID-19: Furlough end will leave your business overstaffed

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Redundancies may be the unfortunate but realistic and pragmatic option.

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The Chancellor has announced that the furlough scheme will be extended to the end of October 2020. There will be no changes to the scheme until the end of July 2020. From August 2020 the following changes are expected to be introduced:

  • Employees will be able to return to work on a part-time basis
  • Employers will be required to pay a percentage towards the salaries of their furloughed employees
  • The employer’s payments will substitute at least part of the government’s contribution

Following this announcement, the Treasury issued a modified Direction was issued. Interestingly, the Direction now sets 30 June 2020 as the end of the scheme. It can only be expected that the Direction, which remains the only law so governing the scheme will be changed again to extend the scheme again and implement the proposed changes.

Even if the furlough scheme remains unchanged until the end of July and the introduced changes will not be overburdening for the employer, the staff headcount may be too high for the reduced business. The announced departure from ‘all or nothing’ furlough approach and an option to let staff work part time while the payroll still remains subsidised will certainly be helpful. But when the furlough ends or is cut, will there be enough work for all employees?

Some businesses may have agreed to redeploy staff and then immediately put them on furlough, the option widely publicised by the Government. Unless the agreement to redeploy was carefully thought through, it is likely that the resignation or employment termination was simply negated and the employment would continue on previous terms. In this case, the employer will have to terminate the revived employment contract if there is no work at the end of furlough and this termination may be open to judicial scrutiny and the test of fairness.

Redundancies may be the unfortunate but realistic and pragmatic option. Of course, alternatives to redundancies should be considered beforehand, but will they provide the necessary solution? 

Lay-offs and short-term working are temporary solutions. There will become a point when the employee laid off or working short-term will be deemed as redundant and entitled to redundancy pay. These option either have to be stipulated in employment contract or agreed. The entitlement to lay off employees or put them on working short-term is specified in the furlough agreement template Lawgistics suggested and there are corresponding clauses in HR Manager self-drafting employment contracts.

Pay cuts or reduction in hours of work may be possible solutions. In almost all cases they will be viewed as contract variation or redeployment on new terms and will require consent of the employee. If the redundancy process has commenced and these options are offered as part of the redundancy consultation to avoid the redundancy, the staff is more likely to be persuaded to accept the reduction.

Flexible working, utilising parental leaves, going on unpaid leave may all be considered and get the employee’s agreement. The business will have to consider if these measures go far enough to prevent redundancies.

As Lawgictics explained, the fact that the employee is put on furlough is not an obstacle to the redundancy process. The consultation may continue for the duration of furlough so that the affected staff is made redundant at the furlough end.

To help businesses deal with redundancies, Lawgistics has developed a comprehensive manual with a library of templates, available to all our members free of charge, and telephone support is available if any aspect of the redundancy process needs to be explored in more detail.

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Please call 01480 455500 or email [email protected] to request your redundancy pack today.

Kiril MoskovchukTrainee SolicitorRead More by this author

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