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1st May 2020

Exiting furlough : How do we exit and what is next for employers?

1st May 2020

Exiting furlough : How do we exit and what is next for employers?

Sarah Hayes

Posted: 1st May 2020

T: 023 8048 2165

E: Email Me

As we look towards exiting furlough, this is an important time for businesses to plan and implement the measures that will enable them to exit furlough and navigate the coming months.

For the majority of our employer clients, the past month has been a whirlwind of change, absorbing and reacting instantaneously to ever shifting government guidance, acclimatising to remote working practices, managing the increased anxieties of employees, alongside the usual operational aspects of running a business.

The Coronavirus Job Retention Scheme (better known as the “furlough leave scheme”), launched on 23 March 2020, has been in place for over a month. HMRC are now processing payments lodged via the online portal promptly, and payments to employers are being made within 6 working days of receiving the claim.

As the initial chaos of navigating the scheme has, to an extent, settled down, many employers are now looking forward and reflecting on their next steps over the coming months. The focus for many will now be upon mitigating the economic impact of the pandemic. As the scheme is currently proposed to end on 30 June 2020, this will prompt employers into making challenging decisions and implementing cost saving measures. Some employers will, regrettably, need to commence redundancy exercises in the coming months. 

Exiting furlough – key legal questions and practical considerations 

We have set out some key legal questions and practical considerations for employers to consider when planning their furlough exit strategy.

How do we exit the furlough leave scheme and what do we need to do?

Once the Coronavirus Job Retention Scheme has ended, the first step for employers will be to notify the relevant employees that they are returning to work and resuming their normal duties.

Broadly, this process will involve writing to the employees to provide reasonable notice of their return to work and clearly communicating the ongoing arrangements. Written records should be kept of all correspondence surrounding this. Assuming that the employee will return to their normal terms and conditions of employment, this will be relatively straightforward from a legal perspective.

Employers should also consider how this transition will take practical effect. Whilst this will ultimately be led by government direction, it is likely that any announced return to work will be phased over several stages. In the same way that some employers have exercised a “rotation” system with employees on furlough leave, likewise, employers could implement a phased shift arrangement whereby different employees work alternative weeks from home and the office.

What steps can we put in place to support employees that are concerned about returning to work?

There will be practical aspects to reintegrating the workforce, as some individuals will, understandably, have anxieties about returning to the workplace. The extent of the impact of COVID-19 on mental wellbeing is not yet clear and is likely to have wide ranging implications. This means that now, more than ever, employers will need to recognise these issues in order to support employees.

Employers should consider implementing wellbeing initiatives and providing mental health first aid provision. Employees will have different preferences and circumstances to take into account. Some employees may be caring for family members and others may have suffered personal financial hardship or bereavement.

Employees will also be concerned about their personal safety when returning to the office. Employers should review their health and safety obligations in light of the crisis, and ensure that appropriate measures are in place. This may involve adapting working practices and undertaking workplace risk assessments to ensure employees are protected when returning to the office environment. This will, of course, be guided by government guidance, but social distancing is likely to be with us for some time to come, and so employers should, wherever possible, introduce social distancing measures into their workplaces. These measures should then be communicated to staff to reassure them that they are returning to a safe place of work.

Can we implement contractual changes e.g. reductions in pay or changes to working hours?

If the furlough leave scheme ends, as currently proposed on 30 June 2020, furloughed employees will then resume their usual duties as normal. Employers will be managing the financial impact of COVID-19 and may need to take steps to reduce their operational costs. Employers will, as ever, want to avoid redundancies if at all possible, particularly if the economic shock is temporary as many are predicting. Therefore, employers are likely to be creative in devising ways of retaining staff. This could involve making temporary reductions to pay, reviewing discretionary benefits and/or reducing contracted working hours for cost efficiency.

Ultimately, a change to an employee’s pay or contractual working hours, will be regarded as a substantial change. An employer will therefore need to obtain the employee’s express consent in writing in the usual way. There may also be collective bargaining obligations to consider.

It may be the case that, whilst on furlough leave, employees have agreed to a reduction in pay and therefore, may be willing to agree to further changes. There may be mutual benefits to a reduction in hours for a temporary period. Employees with childcare commitments, for instance, may have short term difficulties in obtaining childcare cover and a reduction in hours could assist. However, other employees will be less willing to agree to changes and employers need to communicate transparently on the reasons for any proposals being made.

Some employers may temporarily remove discretionary entitlements e.g. suspending bonus schemes or, in other cases, offering company shares instead of cash. If the scheme is discretionary, employers will have greater flexibility here. If the scheme is contractual employers will need to obtain consent, as outlined above.

Employers should also consider whether their decisions are engaging collective consultation obligations. If an employer is proposing to dismiss and offer to re-engage over 20 employees, if they do not consent to the changes, collective consultation will be triggered. This will depend on the circumstances proposed and employers should take legal advice.

We will need to make redundancies; how do we start this process?

In light of the COVID-19 impact, regrettably, some employers will be unable to reintegrate all employees back into the workforce and will need to commence redundancy procedures. Some employers will need to commence this process before the furlough leave scheme ends and should take legal advice on the practical implications of this.

A redundancy situation can arise in the following situations:

  1. Business closure (closure of the business altogether).
  2. Workplace closure (closure of one of several sites, or relocation to a new site).
  3. Diminished requirements of the business for employees to do work of a particular kind.

Redundancy is a potentially fair reason to dismiss but an employer must follow a fair process for an employee with over 2 years’ service. If the dismissal is deemed to be unfair, the employee can claim a basic award, plus an unfair dismissal compensatory award to compensate for financial loss.

As a broad summary, for an employer to follow a fair redundancy process they must:

  1. consult employees or their representatives about the proposed redundancy;
  2. adopt a fair basis on which to select the redundancy. The employer must identify appropriate pools from which to select potentially redundant employees and select against a fair criterion;
  3. consider suitable alternative employment.

An employee made redundant will be entitled to notice pay, accrued holiday and a statutory redundancy payment (or any enhanced terms) if they have the requisite service.

Do we need to collectively consult on redundancies?

If an employer is considering making 20 or more employees redundant within a 90-day period (at one establishment), it will also have a duty to undertake “collective consultation” with representatives of affected employees, rather than just meeting with each affected employee on an individual basis. The representatives will be either elected employee representatives or trade union representatives. Getting the collective consultation requirements wrong can expose the employer to significant financial liabilities, including a ‘protective award’ of up to 90 days’ pay per affected employee.

If an employer proposes to dismiss between 20 and 99 employees, a period of consultation must commence at least 30 days before the date the first dismissal takes effect. When 100 or more employees are to be made redundant (at one establishment), the period of consultation must commence at least 45 days before the first dismissal takes effect.

The employer will be under an obligation to notify the Secretary of State for business, energy and industrial strategy on Form HR1 when proposing to dismiss as redundant 20 or more employees within a 90-day period (at one establishment). A failure to do so is a criminal offence and the employer will be liable on summary conviction to a significant fine.

Given the COVID-19 crisis, will any special exceptions to the requirement to consult apply?

There is a limited exception to the obligation to collectively consult. The exception applies where there are “special circumstances which render it not reasonably practicable” for the employer to comply with the requirement:

  • to begin in good time and at least the relevant minimum period before the first dismissal;
  • to consult with a view to reaching agreement about ways of avoiding dismissals, reducing the numbers of employees to be dismissed and mitigating the consequences of the dismissals
  • to provide the statutory information required by law.

An employer remains obliged to “take all such steps towards compliance with that requirement as are reasonably practicable in those circumstances”. The burden of proof is directly on the employer to show (a) the existence of special circumstances and (b) that such steps as were reasonably practicable were taken to comply with the particular requirement concerned.

Case law has shown that the existence of “special circumstances” is a high threshold to meet and therefore employers should exercise caution if attempting to rely on this. Employers should consult as far as possible.

Next steps

If you would like to discuss any issues covered in this update please contact a member of the Employment team.

Our “Coronavirus – Legal advice and guidance” page is updated as and when new/amended guidance comes through from the government and other regulatory bodies. You can now sign up to receive notifications as and when the page is updated by visiting the page and completing the sign-up form.

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Sarah Hayes

Posted: 1st May 2020

T: 023 8048 2165

E: Email Me