Redundancy vs Furlough. Is this unfair dismissal?

By 3rd June 2020 COVID 19

Unfair dismissalWill it be an unfair dismissal if an employer makes someone redundant rather than placing them on furlough?’

This is a question that we are frequently being asked by clients and I’m afraid the simple answer is- it is not a one answer fits all. There are always risks associated with terminating employees, for whatever reason,  and now more than ever this is the case. This is an entirely new situation with no case law or direction to be taken from employment tribunal decisions. It is therefore extremely difficult to determine whether an employment tribunal would find such a dismissal to be unfair at this stage.

There is a general test for reasonableness in respect of making an employee with over two years’ service redundant under section 98(4) of the Employment Rights Act 1996. However, it will depend on the particular circumstances of the case, including the size and resources of the employer.

Financial Contributions by Employers

This is of relevance given the Chancellor’s announcement last Friday where it was confirmed that the Government will expect employers to make a financial contribution towards furlough pay from 1 August 2020.  At present, furloughing employees is close to cost neutral in most cases. However, furloughing employees beyond that date will come at a cost to employers which increases in September 2020 and October 2020. Therefore it could be a fair reason for employers to make furloughed employees redundant, if they can demonstrate that it was justified due to the financial impact. A cautionary note however, will it depend on the individual employer’s circumstances whether this can be justified in August, September or October or indeed justified at all.

Therefore, if there is a genuine redundancy situation, the option to furlough employees in itself will not definitely mean that an employee’s dismissal will be unfair.

This is true of those jobs that have genuinely been eliminated e.g. due to the loss of a major customer or workplace closures unconnected to coronavirus. In these instances, it may be that a redundancy during the furlough period can be justified.

The employee guidance says that “your employer can still make you redundant while you’re on furlough or afterwards”. However, the normal rules of employment law will apply in respect of whether that redundancy is fair.

Of note is that the guidance is clear that the furlough grant cannot be used for redundancy pay.

Is the furlough scheme a reasonable alternative to redundancy?

One danger an employer may face is for a Tribunal to determine that it was not reasonable for the redundancy to occur prior to the end of the furlough scheme; but it would be fair at the end of the furlough scheme if they consider the furlough scheme a reasonable alternative to redundancy. This could leave the employer with a compensation bill to the end of the furlough scheme with the appropriate payments being made to the employee to the end of the scheme.

In that scenario the employer would not be entitled to retrospectively claim for those payments via the CJRS scheme and would be liable for paying the furlough pay itself. Times that cost by multiple staff and it could start getting very expensive!

Another point to consider is that in the event of an employee being successful with an unfair dismissal claim, any compensation could be minimal insofar as the employer could argue that although the Tribunal may have considered it unfair to dismiss an employee whilst the furlough scheme is available, it would have been acceptable to have dismissed them fairly at the end of the scheme. As such, any compensation could be capped for loss of earnings from the dismissal date to the end of the scheme.

At the end of furlough, if trading conditions have not improved sufficiently for a business to take all the furloughed employees back then an employer will be able to make them redundant, subject to the usual rules on redundancy.

This is significant because other European countries that have similar schemes in place are imposing restrictions on employers making redundancies. Currently, no such conditions are being imposed in the UK.

As a minimum, employers should be able to show that they have considered furloughing as an alternative to redundancy for each type of role they consider redundant and document their reasons why it would not be suitable in the particular circumstances of the case. Those reasons need to be reasonable and convincing enough to lead an employment tribunal to consider that a redundancy dismissal is fair. All other usual consultation rules apply and so I urge Employers to take advice early on in the process so that they don’t incur costly unfair dismissal claims at a later date.

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Unfair dismissal

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