The aim of this note is not to deal with the specifics of the Coronavirus Job Retention Scheme (‘the JRS’), which is being covered extensively in the media and is clear for all to read in the guidance itself.
‘Employers should discuss with their staff and make any changes to the employment contract by agreement. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.’
That is reference to the following legal issues which employer faces when furloughing employees:
- The JRS that does not give an employer a contractual right to lay-off on reduced pay.
- If the employer does not have the right to lay-off under the contract then, as the guidance recognises, and employer will need to seek agreement with employees to a change to the contract, allowing them to be put on furlough leave on pay supported by the government under JRS. I would recommend where possible that an employer seeks express written consent – courts are very slow to imply consent to a contractual variation in an employment context.
- That begs the question what happens in circumstances where an employer cannot get agreement from its employees? It is faced with the following options:
- Press ahead and place employees on furlough leave despite their lack of agreement;
- Dismiss and re-engage employees on notice to give effect to the change of contract to allow for lay-off;
- Effect the necessary savings by dismissing the employee on the grounds of redundancy.
- The first of these options has risks associated with it, not least of which is that the employee resigns and claims unfair dismissal or works under protest, reserving his/her position to make a claim for unfair dismissal. An employer might, however, conclude that faced with the damage to its business presented by paying employees, in circumstances where it has no orders or has been closed down in compliance with the law, that these are risks it has no choice other than to run.
- As the guidance alludes (albeit it obliquely), a large-scale imposition of furlough leave (or options 2 and 3, above – dismissal and re-engagement and/or dismissal on the grounds of redundancy) could trigger collective information and consultation obligations under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (‘TULR(C)A’). This is engaged where an employer proposes to dismiss as ‘redundant’ 20 or more employees at one establishment, in a 90 day period.
- A redundancy dismissal in this context is wide and will relate to any dismissal ‘not related to the individual concerned’ (s 195 TULR(C)A). It is clear that a dismissal to achieve a variation in contract will be a redundancy dismissal in this context but also where an employer merely makes a proposal in the hope that there would be agreement, such that the actual number of redundancies would be below 20, that did not of itself avoid the engagement of the duty to inform and consult.
- Employers might have a defence to a claim that it has failed to inform and consult on the basis that the circumstances where so special as to render compliance not reasonably practicable. For example an employer may not have time to elect representatives where they do not recognise a trade union. But if an employer has a recognised trade union and more than 20 employees are initially refusing to consent to furlough leave, it would be prudent to comply as far as possible with the collective obligations.
- Dismissing employees on the grounds of redundancy (the third option, above) requires a process of individual consultation (as well as collective if more than 20 employees at one establishment). That can be time consuming and although an employer might reasonably argue that the emergency meant even individual consultation was not practicable, it will likely be a costly route as redundancy pay is not being covered by the government.
- In every case where 20 or more employees are being proposed as furloughed and for whom the alternative is dismissed on the grounds of redundancy, the best advice is to write to the recognised trade unions or if possible employee representatives in the terms prescribed by s.188 of TULR(C)A, and also complete a HR1 form.
- An employer therefore needs to act with caution in these circumstances and there is a balance to be struck between economic imperative, legal compliance and practical day-to-day management.
Steeles Law has recently launched a new Business Consultancy and Restructuring Team which is focused on helping businesses who find themselves needing to restructure in light of the current situation. The team is offering a free initial consultation, for more information please visit the Business Consultancy and Restructuring team page.
To discuss any of the matters detailed above or should you need legal advice, please contact do not hesitate to contact us via email using firstname.lastname@example.org or by calling 01603 598000.
*The information provided in this article is designed to provide useful information on the subject, not to provide specific legal advice.