Help for employers and their employees – what are the alternatives to redundancies?

The COVID-19 crisis is posing unprecedented challenges to businesses across the globe.

Throughout the UK, employers are sitting down for Teams, Zoom and Skype meetings, looking for long and short term solutions in a suddenly unfamiliar and rapidly changing business climate.

While grocery retailers and pharmaceutical companies launch recruitment drives to meet the rise in demand, other businesses are looking for ways to cushion the shock and may turn to redundancies. Our employer’s guide to the coronavirus crisis examines the options.

Are redundancies the answer?

Redundancies are not the quick fix solution they appear to be and early drastic action may actually expose your business to more claims and long term risks.

It is important to remember that your company will need to either maintain or recruit talent for when the “down time” ends.

Following a package of measures issued by the Government on Friday 20 March, the message from the Government is clear: keep people employed if at all possible. Much is still unknown about the “Job Retention Scheme”, including the precise criteria for eligibility and how it will work in practice, in terms of both accessing the scheme and payment. A key requirement of the measure is agreement with a relevant employee on its implementation. If the alternative is redundancy (where, in some cases, there will be little or no money available for redundancy payments) or being sent home with no pay, it is likely that many employees will take little persuasion to accept what is on offer.

It is advisable for employers, in these exceptional times, to appraise themselves fully of the options available and their limitations; what measures should they consider, in good time, before the potential economic consequences are overwhelming? For many employers the “Job Retention Scheme” may simply not be suitable.

Employers should note that Government guidance for support available is changing regularly. The below commentary is based on the position as at Monday 23 March 2020. Businesses can keep on top of the new information at https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

So, what are the alternatives to redundancies?

Before making redundancies during the COVID-19 crisis, employers should consider whether some of these “softer” options would help with the short-term financial pressure:

  • restricting recruitment
  • deferring the start date for any new joiners
  • voluntary unpaid leave
  • sabbaticals
  • redeployment or retraining (including refocusing resources on other more critical parts of a business)
  • remote/home working, flexible working, asking employees to take holiday (bearing in mind the employer needs to give 2 days’ notice for each day it wants the employee to take off)
  • overtime bans

Other cost-cutting or deferring exercises may also exist in respect of other significant overheads, such as reaching agreement with the landlord to make rental payments monthly.

Measures introduced by the Government on 20 March

Under the “Job Retention Scheme” (understood to be open for at least three months from 1 March 2020), businesses can designate employees as “furloughed” to avoid redundancy where they are unable to cover staff costs as a result of COVID-19. This is a new concept and has no legal definition under existing employment law. The designation is expressly subject to existing employment law. Accordingly, the change would need to be agreed with a relevant employee.

Subject to such agreement, information about the furloughed employee’s earnings must be submitted through a new online portal (not yet in place). HMRC will then reimburse 80 % of the furloughed employee’s wage costs, up to a cap of £2,500 per month. It is unclear whether this figure is the amount the employee is entitled to receive (subject to usual deductions) or whether this is the sum on which the 80 % is calculated. On the basis of the wording of current guidance, it seems likely that the £2500 is the maximum amount the employee is entitled to receive before usual deductions. Employers can top up this amount, but are under no obligation to do so. The system of reimbursement, which is not yet set up, is likely to take some time.

In order to qualify for support, employees should not undertake work for their employers while furloughed. This dramatically reduces the utility of the scheme for businesses, particularly small businesses that are struggling to meet salary costs because of reduced work. They may need their staff to continue doing what they can within the context of the new challenges they are facing, for example, working at home while simultaneously caring for children. In these circumstances, some of the alternatives outlined below may be better suited to needs of the business and their employees.

Other support includes:

  • deferral of VAT for the three month period from 20 March 2020 to 30 June 2020. Businesses will be given until the end of the 2020/2021 tax year to pay any liabilities which have accumulated during the deferral period;
  • small and medium-sized businesses (employing less than 250 people as at 28 February 2020) are entitled to reclaim statutory sick pay (up to 2 weeks) paid for sickness absence due to COVID-19 according to the new eligibility criteria. Repayment mechanisms are still being worked out;
  • Special support for retail, hospitality, leisure and nursery businesses that pay business rates;
  • Support for businesses (UK-based with a turnover of less than £45 million) through the Coronavirus Business Interruption Loan Scheme from 23 March 2020. Through the scheme, the Government will offer lenders guarantees on support loans of up to £5 million without charge to ensure lenders have confidence to continue to provide finance to small and medium-sized businesses. Businesses must meet other British Business Bank eligibility criteria (see https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/). Support is also available for larger firms in the form of the Bank of England’s acquisition of short term debt. Further information is available at https://www.bankofengland.co.uk/markets/market-notices/2020/ccff-market-notice-march-2020; and
  • Businesses with outstanding tax liabilities “in financial distress” may be eligible to receive support with their tax affairs. Applications will be assessed on a case-to-case basis and tailored to individual circumstances.

The position remains very uncertain for the self-employed, including partners and LLP members. Some support has been offered by way of deferral of self-assessment payments due in July 2020. However, this falls significantly short of the support offered to employees. Further support for the self-employed has been requested and is expected soon.

What about reduced hours or reduced pay?

Employers may wish to avoid redundancies but need to reduce pay/hours to keep the business afloat.

Now that schools have closed other than to the children of “key workers” and care facilities are becoming stretched, an open dialogue with parents about reduced hours may be welcomed.

Employers may also want to ensure they are appraised of possible additional support available to employees in relation to their outgoings, and which may make them more amenable to such changes. For example, three-month mortgage payment holidays may be available to drastically reduce the stresses facing home-owners, particularly in London where house prices (and mortgage repayments) are notoriously high. . Discussion about the alternatives, including potential redundancies may also help.

Employers will need to vary contracts of employment to avoid claims for breach of contract and unlawful deduction of wages if they go down this path without a contractual right to do so.

Many contracts of employment include a variation clause allowing for variations in certain circumstances. Under normal circumstances, this will only assist with variations of a minor nature and would not apply to salary reductions. It is impossible to say at present if an employment tribunal would take a different view in light of the pandemic. Given this risk, it would be advisable for employers to seek to agree a written variation. If not possible, they may choose to impose the pay/hours reduction unilaterally, risking claims and damage to employee relations. If employees continue to work under protest, provided they do not accept the breach, the right to claim unlawful deduction of wages is preserved and claims could be brought in the future both by employees who remain in employment and those who leave.

Dismissal and re-engagement is also a possibility. Where 20 or more employees are affected, the collective redundancy consultation requirements will need to be complied with. The time taken to complete that process is unlikely to be available to many employers at the moment.

Could temporary lay-off and short-time working work for you?

Lay off is when employers ask employees to stay at home and not attend work or be paid for a temporary period in response to a lack of work. For as long as the scheme operates, the Job Retention Scheme is likely to be a better alternative for employers and employees if an extended period of no work is contemplated.

Short-time workingis when employers require their employees to work less than half their regular contractual hours, for example a two-day week.

Both strategies are provisions many employers will neither have used nor contemplated before – but the COVID-19 crisis is an exceptional time.

A contractual right is required to implement the statutory schemes.

There is no limit to how long an employer can lay off someone, but it must be reasonable, and there are mechanisms within the lay-off scheme through which redundancy is triggered.

Entitlement to money if put on lay-off or short time working

Some employees may be entitled to be paid a statutory guarantee payment (SGP) by their employer on up to five “workless days” in a three-month period. Guaranteed pay is low at only £29 per day (£30 from 6 April) making the current max £145.

What if there is no lay-off or short time working provision in an employee’s contract?

The employer and employee can agree to a lay-off or reduction in hours and pay. This would be a change to contractual terms and the process discussed above would apply.

The employer should consult with employees (and any relevant trade unions or representative bodies) to see whether agreement can be reached. A voluntary discussion could also take place before any formal consultation process is commenced.

Under normal circumstances, employees are unlikely to agree to such measures. However, in the current economic climate and particularly if the alternative is redundancy or business closure, this may be the lesser of evils.

If agreement cannot be reached, and an employer imposes lay off or short-time working on an employee without an express or implied right to do so, it will be in fundamental breach of contract entitling the employee to resign and claim constructive dismissal (provided they have two years’ of service).

Remember, you do have options

Options do exist. Businesses should quickly appraise their financial position during the COVID-19 crisis and think carefully about what best suits their long and short term objectives. It would be advisable for businesses to undertake some urgent financial modelling and consider how they can cut costs in other ways.

Whichever route businesses decide to take in relation to their employees, the key is to have sound business reasons for decisions and to implement those decisions in a transparent way, respecting their loyal workforce who are undoubtedly facing incredibly stressful and difficult times of their own.

How employers approach this pandemic and treat their employees will be remembered long after the uncertainty subsides.

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