Managing redundancy and restructuring post-furlough

Published by Andrew Tate  on 26 May 2020

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The Coronavirus Job Retention Scheme has been at the heart of government support to businesses. It has been widely recognised as both helping employers manage the cost of staff wages and preventing widespread redundancies.

The scheme as it currently stands has been extended by a further month to the end of July. Then from the beginning of August until the end of October the scheme will become more flexible, allowing employers to bring furloughed employees back part-time. With this flexibility will come a requirement on employers to share the burden of paying salaries with the Government, and with businesses not able to afford or not needing pre-COVID-19 staffing levels on August payrolls, are we about to see large scale redundancies?

Rhona Darbyshire, Partner and Head of Employment Law at Cripps Pemberton Greenish, and Andrew Tate, Partner and Head of Restructuring at Kreston Reeves, explore and explain the steps businesses must follow when considering redundancy programmes.

Consultations

Businesses that wish to make 20 people or more redundant are required in law to hold a collective consultation. Consultations must address the avoidance of redundancies, reducing the number of dismissals, and mitigating the consequences of redundancy.

Consultations must run for a minimum of 30 days where 20 or more people are to be dismissed and for 45 days where 100 people or more are to be dismissed.

This means larger employers wishing to make redundancies before the 1 August must start those consultations by the 15 June, with smaller businesses by the 1 July. The clock is ticking.

Collective consultation must take place with ‘appropriate’ representatives of the affected employees. If the employer recognises a trade union, it must consult with the union representatives. Otherwise, employers can choose whether to consult with existing employee representatives, perhaps through a staff consultative forum, or representatives elected specifically for the purposes of the consultation.

Consultation must take place “with a view to reaching agreement”, although there is no obligation on the parties to reach an agreement. The employer should explain the business case for the proposed redundancies and listen to the representatives’ views.  The consultation should be meaningful and so an open discussion between the parties is very much encouraged.

Employee representatives may in the current conditions be more willing to accept the business rationale , meaning the consultation can quickly move on to other issues, such as alternative employment and any redundancy package on offer.

Businesses should keep in mind that staff on furlough are likely to feel particularly vulnerable to possible redundancy and it is important that the consultation is not entered into with prejudged outcomes.

Consultations can be conducted via video conferencing technology and video briefings, via email and letter.

Businesses face stiff penalties if they fail to consult in the required way, with each employee made redundant entitled to receive the equivalent of 90 days’ pre-furloughed pay.

Financial considerations

The furloughing scheme has been a great buffer for businesses. In a recent survey 828 SME businesses in the UK by the Association of Practicing Accountants, of which Kreston Reeves is a member, 89 percent of businesses which responded stated that the job retention scheme was critical to business survival during the crisis.

However, the dynamics of bringing employees back into the business is difficult. Some businesses may find that turnover leaps back to normal levels when the lockdown eases and bringing their workforce back into the business with the attendant cost will be matched by income. However, other businesses will find that turnover only returns slowly, or they may not be able to reopen immediately after the end of the furlough arrangements.

With the furlough scheme as it currently stands due to change at the end of July, businesses need to look ahead and try to predict what turnover may look like from that point onwards. Further details of the new flexible furlough scheme will be published at the end of May, but in the meantime if the business cannot sustain the additional cost of employees coming back into the business, albeit on a part time basis, consideration may need to be given to redundancies.

The cost of redundancies needs to be modelled by businesses before embarking on the redundancy process. Many businesses enjoy a long relationship with their employees, but the cost of redundancies can be high if long-serving employees have to be made redundant.

A decision has to be made as to whether employees will be required to work their notice period or whether the company will pay them for their notice without requiring them to work. In some cases, the cost of making employees redundant could be the difference between a business surviving or failing.

If a business does go bust, a government scheme allows employees to make a claim against the government for statutory redundancy pay. In some cases, if a company is going to go bust as a direct result of having to pay redundancy, it is possible to avoid this by obtaining a loan from the government to cover the statutory redundancy payments. This scheme is not widely known but could be a lifeline for a business experiencing difficulties when the job retention scheme ceases.

Like so many business decisions in the current crisis, developing financial models to scenario plan different economic outcomes is a vital tool to reaching a well thought out strategy for survival.

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