Coronavirus legal guide and options for Employers

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Wages are a major cost for many businesses, and when unexpected challenges arise employers may need to explore how to reduce the amount they pay their staff. While the Coronavirus job retention scheme has allowed businesses to furlough staff and reclaim 80% of their wage cost from HMRC, this is still an uncertain time for employers. From 1 July the job retention scheme is closed to new entrants, and the level of government support will be reduced until the scheme finally ends on 31 October.

The extent to which coronavirus will affect businesses depends on the nature of their work and the adaptability and demographic of their workforce.  We have explained how to approach the economic downturn and management of coronavirus.

We look at:

Redundancy due to coronavirus

Where a business is struggling to make ends meet, it may be forced to make some of its employees redundant. For a redundancy to be lawful there must first be a “redundancy situation”, such as a business or workplace closure or a diminished requirement for employees doing a particular kind of work.

Coronavirus is likely to reduce demand for services and may also restrict important suppliers or force workplaces to close entirely for a time. Each of these could potentially give rise to a redundancy situation.

Redundancy procedure still important even during fast moving coronavirus crisis

An employer is not entitled to start sacking staff just because a redundancy situation has arisen. To avoid potential liability for unfair dismissal an employer will need to show that they have dismissed employees as a result of a genuine redundancy situation and acted reasonably in dismissing its employees.

There are certain procedural steps which indicate that an employee has acted reasonably, for instance:

  • Warning and consulting employees about the proposed redundancy.
  • Adopting a fair basis on which to select for redundancy, usually by identifying a ‘pool’ of employees from which candidates for redundancy are selected using defined criteria.
  • Considering suitable alternative employment within the organisation.

The Covid 19 situation is presenting employers with unique and incredibly difficult employment law situations. The speed and depth of the economic as well as health impact has meant that employers are having to fast track decisions. This is very hard to reconcile with the need to comply with redundancy procedures.

Some employers, particularly in the leisure, retail, hospitality or travel sectors are having to make very difficult and brutal employment decisions and may be tempted to skip process.

This is not a good idea legally and at Gannons, we can help you make rapid, legally justifiable, properly documented decisions and we can act extremely fast. Equally importantly, we can take some pressure off you at this very difficult time.

Covid – alternatives to redundancy?

Redundancy is time consuming and permanent – staff who have been made redundant usually cannot be rehired when the situation has improved. Therefore, it is worth considering if there is an alternative to redundancy which might be more suitable to a temporary setback.

The coronavirus job retention scheme was established to allow employees to furlough staff as an alternative to redundancy. From 1 July 2020 the furlough scheme is changing in two important respects. First, employers will be able to bring furloughed employees back to work part time, while claiming a government grant to cover 80% of the wage cost for the time the employee is not working. Secondly, only employees who have previously been furloughed are eligible for the scheme. This means that unless an employee has been on furlough for at least three weeks prior to 1 July, their employer can no longer recover their wage costs from HMRC.

Outside the furlough scheme, there are 2 other methods at an employer’s disposal to reduce staff;  laying off and short-time working. It is essential to understand that these depend on the employment contract and depending on what that says, mutual agreement with the employee may be necessary.

If the employee in question has previously been furloughed, the employer should consult the furlough agreement alongside their employment contract. Some furlough agreements included provisions which allow employers to lay off employees or place them on short-time working.

It is essential to ensure legally that any discussions and agreement of the type below are documented properly. We are available to help with this at very short notice and can act fast.

Laying off staff due to coronavirus

Laying off refers to the situation where, without actually terminating their employment, an employer provides no work and no pay to their employees for a period of time. Laying off is an interim solution, but it can help avoid the need for redundancies where a business closes temporarily or is forced to reduce its spending.

Short-time working due to coronavirus

Short-time working means providing employees with less work (and less pay) for a period while still retaining them as employees. Like laying off, it is a temporary solution which may be an alternative to redundancy when businesses face unexpected challenges.

Check your employment contracts

Usually it’s a breach of contract for an employer to lay off or put employees on short-time working. To avoid a claim for breach you need the employee’s consent. If the employee does not consent but you go ahead then even though you may face a breach of contract claim you can avoid successful claims for unfair dismissal if you approach the situation correctly.

Some employment contracts contain an express term allowing employers to lay off employees or to place them on short-time working. Certain industries (such as manufacturing) may through custom and practice grant employers an implied right to reduce the work they offer.

However, such terms will only be implied where the business in question has a regular practice of using short-time working or laying off staff.

As noted above, some furlough agreements also incorporated express lay-off and short time working provisions into the contracts of employees who were furloughed under the coronavirus job retention scheme.

If there is no express or implied term which allows an employer to lay off staff or place them on short time working, and the employee does not consent to the change, then an employer who seeks to lay-off staff will be in fundamental breach of contract as they are paying less than the contractual salary.

The effect of imposing lay offs, shortening hours or reducing pay

Where an employer has breached an employment contract by laying-off an employee or seeking to put them on short-time working without consent, the employee has a number of options. They can either:

  1. Accept the breach of contract and treat the contract as continuing, while potentially claiming a statutory guarantee payment.
  2. Sue for damages for breach of contract.
  3. Claim before an employment tribunal that there has been an unlawful deduction of wages under Part II of the ERA 1996.
  4. Claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to potential claims for unfair dismissal and/or redundancy pay.

Employees are more likely to accept being laid off or placed on short-time working where they anticipate that the situation will soon improve. This is in the employer’s interest. If an employee treats their contract as continuing it prevents them from bringing any claims. Once again, communication is key.

Employers should make sure their employees understand why they are being asked to work less and whether there is a realistic prospect that the business will recover.

It is also worth noting that by considering alternatives to redundancy an employer may strengthen their  argument that any redundancies which they do eventually make were reasonable.

Follow the government guidelines

There is fake news and propaganda in plenitude.  Employers should follow the guidelines set out by the government but are not required to do more in the vast majority of cases –

Schools closed

Employers may wish to take a pragmatic view to allow as many people as possible to continue working. Employers should  identify business critical roles and consider how they can be maintained. They should determine what pay employees will receive if they work part-time to fit around childcare, and whether the business would be best served by encouraging employees to work flexibly.

Employers should also consider encouraging  parents and those with caring responsibilities to make use of annual leave,  parental leave or their statutory rights to time off to care for dependants.

Gannons can help

Coronavirus presents a multifaceted challenge to employers and employees alike. With business closures likely, and the potential for business to radically slow down, many employers will be seeking to cut costs to keep their businesses afloat. But reducing staff numbers without following the proper procedures can expose employers to liabilities for breach of contract and unfair dismissal.

Gannons are experienced at guiding businesses through tough times, and we would be happy to help.

Please do give us a call to see how we can help your business on 020 7438 1060.