Covid-19 and recession: Is redundancy the only option?

With job losses never far from the headlines and the end of the furlough scheme looming, businesses are evaluating the future shape of their workforce. Adam Penman explains how HR should approach redundancy decisions and reflects on the alternatives.

The UK is now confirmed to be in recession, which is defined as two consecutive quarters of economic decline. The Office for National Statistics reports that gross domestic product, the traditional indicator of economic prosperity, fell in the second quarter of 2020 by over 20 per cent and subsequently large scale redundancies have been announced by businesses as diverse as John Lewis, British Airways and Jaguar.

The depth of the current Covid crisis surpasses the economic crash of 2007-2009, but it remains to be seen whether the width of this recession is comparable.

Particular sectors in the UK and globally have felt the shocks of the crisis more acutely, such as the hospitality and travel industries. However, most sectors have been impacted by the decline in consumer confidence and reactive redundancies are following suit. The UK has already reported the highest number of job losses since 2008.

The unprecedented Coronavirus Job Retention Scheme, or furlough, is being phased out and wound up on 31 October 2020, with each phase expected to see further collective consultation culminating in more redundancies.

Businesses are reevaluating their long-term resilience and implementing alternative coping strategies to avoid or reduce redundancies in advance of the expiry of the CJRS. But what do they need to consider?

Redundancy process

Planning a redundancy process is key. During the pandemic, employees have the same rights as before in respect of a redundancy exercise – fundamentally, the right not to be unfairly dismissed or to be discriminated against on grounds of a protected characteristic.

Collective redundancy consultation with employees or their representatives will still be required where 20 or more redundancies are proposed within a 90-day period at the same establishment.

Employers need to be alive to the prescribed timeframes for consultation, which must last for at least 30 days if 99 or fewer employees are proposed to be dismissed. The consultation period for 100 or more redundancies is 45 days. Accordingly, larger employers considering redundancies must trigger the consultation process by, at the latest, 17 September 2020 if dismissals are to occur on the expiry date of the CJRS.

The mechanics of a redundancy consultation and its inherent fairness also need to be carefully considered and comply with social distancing measures and the need (if any) to implement reasonable adjustments for those employees who remain on furlough.

For example, employers may consult with such employees over video call or be more flexible with how those employees exercise their right to be accompanied and the like. Redundancy selection criteria must be fair and objective; accordingly, employers must be wary about inadvertent discrimination in selecting employees.

For example, some employers may automatically select certain employees because they have been furloughed due to having a vulnerability which qualifies as a disability or because they have been shielding a household member with a disability, which would be discrimination because of disability.

Additionally, employers must also consider “suitable alternative employment” to redundancy to ensure such dismissals are indeed fair and offer the suitable position, if vacant.

Alternatives to redundancies

The government’s “Plan for Jobs”, announced in July, is an attempt to aid economic recovery and mitigate redundancies post-CJRS. The Job Retention Bonus is part of that plan and is a one-off payment of £1,000 to employers for every employee who was previously claimed for under the CJRS, and who will remain continuously employed by them up to 31 January 2021.

Acas advises employers to consider alternatives to compulsory redundancies such as offering voluntary redundancy or early retirement to all employees to flush out those employees who are able or willing to do so. Early on in the Covid pandemic, some employers agreed cuts to base pay and certain contractual benefits, with employees to preserve jobs.

The mechanics of a redundancy consultation and its inherent fairness also need to be carefully considered and comply with social distancing measures and the need (if any) to implement reasonable adjustments for those employees who remain on furlough.”

Some employers have agreed reductions in hours, stopped overtime or have asked employees to cease work altogether for a short period to aid resilience.

Other businesses have agreed to prolonged periods of unpaid leave and suspended non-contractual reward incentives to insulate cash flow. The market has also seen other employers, for example large supermarkets, retain staff to do other jobs within the business, such as cleaning services, whilst implementing hiring freezes and letting go of agency or temporary workers.

Some businesses may seek opportunities in the Covid crisis by merging with or acquiring a competitor at a depressed market value or dispose of an underperforming business line.

No doubt some employers may also seek to use this period as an opportunity to shed non-performing employees through redundancy by circumventing often long performance improvement plans (although for a redundancy to be genuine, an employer must demonstrate that the employee’s job will no longer exist).

Looking forward to looking backward

Just one of the many “unknown unknowns” is that it is too early to predict how the pandemic will end or when, and what impact the current recession will have in the long-term.

It is also too early to predict just how businesses’ redundancy decisions will be challenged in the employment tribunals, but it is likely that any associated redundancy consultation process and dismissals will generate litigation.

However, employees with unfair dismissal or discrimination claims relating to their redundancy are likely to be waiting for over a year in some tribunals for their claims to be heard and the Covid crisis is likely to exacerbate an already congested tribunal system.

What is for certain is that employers’ failure to adequately plan redundancy exercises and implement them fairly and indiscriminately will inevitably cause those employers to enter into costly settlements with employees or face them at tribunal in the long-term.

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Adam Penman

About Adam Penman

Adam Penman is an associate in the employment department of McGuireWoods
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