Furlough Scheme and Redundancy

The vast majority of employers are behaving responsibly in these unusual times and furloughing employees where they can. Under the furlough scheme an employer can claim up to 80% of their employee’s wages from HMRC, subject to a maximum of £2,500 per month.

However, some employers will not be able to keep their employees on indefinitely when the business is struggling. The employer may have to consider redundancies. Redundancy is a potentially fair reason for dismissal but the way in which it is done is everything. If it is not done correctly then the employee may have a claim for unfair dismissal.

Genuine redundancy

When dismissing for redundancy, an employer must first establish a genuine redundancy situation and second, act reasonably in treating that reason as sufficient to justify dismissing the employee.

A redundancy situation can arise where there is a business closure. Much more commonly there is a “reduced need for employees of a particular kind or likely to be so”. For example, if a factory operates two production lines of 18 production operatives and the same factory loses a major customer – such that business falls by half – they may need to make 9 operatives redundant. That business has a reduced need for production operatives/employees of a particular kind. A genuine redundancy situation will have arisen. The employer will then have to conduct the redundancy process fairly.

Procedure

In practice, that means that the employer will not act reasonably (and a dismissal will therefore be unfair) unless it: (1) warns and consults the employees about the proposed redundancy; (2) adopts a fair basis on which to select for redundancy, and (3) considers suitable alternative employment.

Consultation means (a) consultation when a firm decision to make redundancies has been made; (b) providing adequate information to the employee to which the employee can respond; (c) providing adequate time in which the employee can respond; and (d) conscientious consideration of any response from the employee.

An employer would usually carry out the following steps:

A group meeting with all 18 employees warning all that they are at risk of redundancy due to the loss of the contract. At that meeting the employer would also set out the method for selecting for redundancy.
Individual consultation meetings with all affected employees. The employees would be scored using a section matrix containing broadly objective selection criteria i.e. disciplinary record, time-keeping, skill set, absence. More subjective criteria can also be used such as ‘ability to develop’ and ‘attitude’.
The employee should be shown their selection matrix and allowed to challenge it.
Alternative employment must be considered.
The lowest scoring employee/s will then be selected for redundancy and given the chance to appeal the decision.

In the case of Polkey the Court held that in exceptional circumstances, it might be reasonable for an employer to conclude that the normal procedural steps would have been “utterly useless” or “futile” making an otherwise unfair dismissal, fair. However, in practice, there are very few cases in which an employer has been able to successfully argue this point. Even in these times the ‘exceptional circumstances’ defence is unlikely to work.