In this insight we look at the mechanics of implementing furlough. We also look at the legislation relating to collective consultation obligations where an employer needs to dismiss employees.
The reality is that many employers will have to implement redundancies either now or at the end of the furlough scheme period in light of the economic impact of the pandemic.
Can we just designate staff as ‘furloughed workers’, or do we need agreement?
Employees generally have the right to be paid their full wages if they are willing and able to work, even if their employer cannot provide them with any. In some cases, the contract of employment may provide the employer with a right to vary terms, including the hours of work (and accordingly the amount that the employee is paid), the most obvious example being a typical zero-hours or minimum-hours contract.
However, in the absence of any such terms allowing an employer to vary the contract any changes to an employee’s contract, particularly any which are likely to be considered as detrimental to the employee, will need to be agreed. Even if there is a clause permitting variation, it must be exercised in a reasonable manner and where a change will involve a reduction in pay, that will involve consultation and agreement with staff, if possible.
Employers seeking to make use of the Government’s Job Retention Scheme to furlough employees and to reduce the employee’s pay during any period of furlough will be making 2 variations: not only will the status of the workers change to being furloughed but these employees might also only be paid 80% of their usual wage (or less, in the case of higher paid employees). Both of these are significant changes and whilst in the current circumstances – in particular due to the likely alternative being redundancy (or possibly dismissal for “some other substantial reason”) – it is likely that in the majority of cases employees will be willing to agree to be furloughed and the associated pay reduction (provided that it is made clear that this is a temporary arrangement). However, this might not always be the case and it should not be taken for granted.
What if an employer does not secure agreement and does it anyway?
This would likely amount to a breach of contract. If the employee’s pay was reduced as a result, it would be likely to amount to a fundamental breach of contract.
This would entitle the employee to resign immediately and, if they had 2 years’ service, seek to claim unfair (constructive) dismissal. Even where the employer has very strong commercial reasons why it needs to ask employees to accept a furlough and a pay reduction, imposing this would mean that any constructive dismissal claim would be likely to be successful. It is possible that the current circumstances might be enough to persuade an Employment Judge that the employer was justified in acting the way it did, but we wouldn’t be confident that this line of defence would be successful.
A resignation in these circumstances can also be a wrongful (constructive) dismissal, giving rise to a claim for notice pay even where the employee has less than two years’ service.
A fundamental breach of contract can also result in the loss of post termination restrictions, even if the employee does not resign.
In the current crisis situation, we suspect that a resignation would be less likely to be the response by an individual who was unhappy at being furloughed and having a pay reduction imposed (furlough and reduced income being a better option than unemployment).
A far more likely response would be the employee not formally accepting the variation and effectively working “under protest”, which would entitle them to seek to bring a claim for unlawful deductions from wages (either now or in due course when the emergency has passed), which would be likely to be successful. An employee might even serve a statutory demand on the employer, which if not satisfied within 21 days could give grounds for a winding up petition.
Do we need to get representatives in place and file the HR1 Form before trying to reach agreement about furlough?
There is case law that suggests that if an employer has decided that the employees cannot continue on their current contract of employment then the duty to collectively consult is triggered even if the employer hopes to agree the terms of a new contract with the employees. This would be relevant where the only course that the employer can take is to bring the current contracts to an end.
Taking a pragmatic approach, if the intention is that employees move to furlough and there will not be 20 or more dismissals at one site in the next 90 days, we do not regard it as essential to file HR1 before seeking to agree furlough.
What if we think dismissals will be needed anyway during or at the end of the furlough period even if everyone agrees to furlough?
Under s.188 TULRCA no dismissal can take effect (i.e. the termination date) until a minimum period has passed from the date of the first consultation meeting with employee representatives. The minimum period is 30 days if at least 20 and fewer than 100 dismissals are proposed. That increases to 45 days if 100 or more dismissals are proposed.
By way of example, if the first meeting with employee representatives was on 1 May, the first date on which any employee’s effective date of termination could occur would be 31 May, if say 30 dismissals were proposed at one establishment. Notice of dismissal can be served within the minimum period, but only after consultation has concluded with the employee representatives.
With this in mind, if the employer contemplates from the outset that redundancies are likely to be needed anyway, preparing the HR1 form and sending it to the Secretary of State, and ensuring that there are appropriate representatives in place is an option that some employers may wish to follow as it will have saved time and the process of collective consultation could be started immediately.
Who has to be collectively consulted?
Where the employer recognises a trade union in respect of the affected employees, consultation must be with the union (and for many employers they will have discussed furlough with the recognised union as part of the normal application of the collective agreement).
Where there is an existing elected employee body which has a mandate for consultation about staff changes, consultation may be permitted with that body although this requires careful analysis to be certain that the remit of the employee body properly covers the subject matter for consultation.
However, where there is neither a union nor existing elected representatives, arrangements have to be made for the election of representatives from amongst the affected staff.
In some cases, the appropriate representatives will be a combination of trade union and elected representatives.
What should an employer do if it wants to avoid the risk of either of these claims, and cannot secure agreement?
If the employer needs to implement furlough for some/all of its employees, with or without pay reductions, and employees are not prepared to agree to these variations voluntarily, the employer may need to implement the change by proceeding with a “dismissal and reengagement” process.
This is actually a case of giving the employee notice of the termination of their employment (i.e. in accordance with their employment contract) and at the same time making an offer to the employee of immediate reengagement, but on the new terms including a right for the employer to furlough the employee and a reduction in the employee’s pay where they are furloughed.
If they did not accept the offer by the employer’s deadline then their employment would end at the expiry of their contractual notice period. Where the introduction of furlough and a pay reduction are being made to address the short-term impact of the coronavirus emergency and the employer has made it clear that the reduction in pay is only intended to be a temporary measure, in our view, this may well amount to a fair dismissal.
However, employers might be more inclined to commence redundancy consultation albeit while making clear that it is still open to ways of avoiding, reducing or mitigating the proposed redundancies by keeping the option of furlough or other changes to contracts of employment open.
When does collective consultation apply?
Under section 188 Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”), where an employer proposes to dismiss 20 or more employees at one establishment within a 90-day period there needs to be collective consultation with employee representatives. This applies when the reason for the proposed dismissals is to bring about a change in terms and conditions or to reduce headcount. The process is the same in either scenario.
Whenever section 188 applies, an employer also has as an obligation to give advance notice to the Secretary of State by completing a HR1 form (see below).
Failure to comply with section 188 duties could give rise to a claim for a protective award of 90 days’ pay for each affected employee.
What if there is a union and it objects to furlough?
In this situation if the union is not willing to agree the furlough a direct approach to the employees might exceptionally be only the only way forward.
There is a degree of risk associated with such an approach as there may be financial penalties if the employer is seen as bypassing the collective bargaining arrangements agreed with the union with the purpose of seeking to persuade employees to forego collective bargaining going forward. As case law currently stands though the risk is limited to where the union is able to show that the employer is attempting to permanently put an end to employment terms being determined by a collective agreement.
In the current crisis situation employers should be able to establish that what they are attempting to achieve is a one-off agreement not an abandonment of future collective bargaining. However, any communication with the employees and the union about the variation that the employer is asking employees to agree to should be drafted carefully to make it clear that they remain committed to collective bargaining into the future.
(N.B. There is a risk that this situation may change in the future as there is ongoing litigation on this point that is due to be heard in the Supreme Court later this year but given the extremely difficult circumstances that employers are facing it may be regarded commercially as an acceptable risk.)
How can an employer carry out collective consultation safely given the Government guidance on social distancing?
The collective consultation process requires meetings with employee representatives. Given the Government guidance relating to social distancing and the advice that certain vulnerable employees should stay at home, arrangements would need to be made where possible for these consultations to be carried out remotely. This could be by telephone conference or through Skype, Webex, Microsoft Teams or other virtual means of communication.
Would employee representatives breach the ‘furlough’ arrangements by taking part in consultation meetings?
When on furlough employees are prohibited from carrying out work for their employer.
The Government guidance suggests that they can still undertake training or do volunteer work subject to public health guidance, but they cannot be making money for their employer or providing them with a service.
The guidance was updated on 30 April 2020 to make clear that employee or union representatives may undertake duties and activities for the purpose of individual or collective representation of employees or other workers during the furlough period.
If the employees agreed to be furloughed could we start collective consultation to make them redundant?
There is no prohibition on this in the Government guidance. The difficulty may be in ensuring that effective consultation is possible. The role of the employee representative is to consult with the employer and then have the ability to feedback to the employees they represent and to listen to their views, so as to be in a position to represent those views when next meeting with the employer.
Employers need to consider how employee representatives will have access to the employees whilst furloughed. One option may be to ensure that furloughed workers provide email addresses/mobile numbers for contact purposes whilst furloughed with the employer and also any employee representatives. This is likely to be more effective and more practical than use of post. Employers may need to facilitate conference calls between employee representatives and the employees they represent.
We do not think is likely that employees who engage in collective consultation with their representatives would be deemed to be working during a furlough period.
What do we need to do during collective consultation?
Employers need to explain their proposals to the employee representatives. They also need to share the HR1 form with them.
Consultation is then necessary “with a view to agreement” about the proposals, including any ways of limiting the dismissals and mitigating any detrimental impact to the affected employees.
The more detailed the initial information shared with the representatives, the more likely it will be that consultation can be concluded quickly. Employers will need to be able to demonstrate that they acted in good faith, maintaining an open mind on representations made on behalf of the employees. Ultimately, however, it is for employers to make decisions on how to run the business. There is no minimum period that the process of meetings with the representatives must last for, but notice of dismissal cannot be served until it is complete (and as stated no dismissal can take effect until 30+1 or 45+1 days from the first meeting with the representatives).
Can employees be dismissed during a period of furlough?
The Government guidance suggests that an employer is not prevented from dismissing the employee during the period of furlough or immediately afterwards. However, that would be subject to the terms of their contract and the usual statutory protections that would apply including the right not to be unfairly dismissed. In a redundancy context an employer would be expected to warn and consult with an employee prior to dismissing on grounds of redundancy (applicable whether or not the collective consultation obligations apply).
Can employers use the “special circumstances” defence to a failure to consult about collective redundancies or submit a form HR1?
This is difficult to answer in the present circumstances as they are unprecedented. TULRCA does provide that where there are "special circumstances which render it not reasonably practicable" for the employer to comply with the requirements “the employer should take all those steps that are reasonably practicable in those circumstances”.
This means that even where there are special circumstances the employer should at least do what they can to carry out consultation. The fact of “special circumstances” will rarely justify a complete failure to consult. This includes filing Form HR1 and there will be scenarios in which the HR1 could be filed as a reasonably practicable step even though special circumstances render full compliance with the general obligations not practicable.
Insolvency alone, or the imminent prospect of it, would not usually be regarded as special circumstances. If a business has cash to keep it going and is making redundancies to remain profitable or to make a smaller loss, it will be practicable to consult, even though it may be costly - consultation is regarded as a “cost of business”.
The introduction of the Job Retention Scheme, guaranteed loans, tax relief and business rate relief will make it even more difficult for employers to rely on the special circumstances defence to justify no or short collective consultation. The financial help that has been made available will need to be taken into account when considering what is reasonably practicable in relation to consultation.
Will there be any further employment law changes in response to Coronavirus?
It is possible that given the aim of the Government measures has been to ease the burden on business that further changes may be made to the collective consultation and notification obligations in the coming weeks. This may address the difficulties employers will face in respect to carrying out consultation during a period of social distancing.
Watch this space.
This article was originally published on 6 April 2020, it was last updated on 01 May 2020.
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