Can employers make employees redundant at the end of the furlough scheme?

The clock on the government's furlough scheme is ticking. The scheme, which has been a crucial lifeline to millions of businesses up and down the country during the pandemic, is now entering its final stages.

The scheme – also referred to as the Coronavirus Job Retention Scheme – is due to end on 30th September 2021. The government has already extended it, so we will need to remain alert to any further extensions, but no such announcement is expected at the time of writing. And with an estimated 1.1 – 1.6 million employees still sitting on furlough (as of the end of July 2021), it is decision time for many employers.

It is certainly not a given that all employees will return to work from furlough. Many employers plan redundancies due to difficult economic conditions, rising furlough costs, and other organisational factors.

Employers can continue to recoup 80% of the wages of furloughed employees (up to a limit of £2,500 per month) until the end of the scheme. However, the costs of furloughing staff have risen, and employers are now required to contribute 20% to the wages of furloughed workers for the working hours they spend on furlough leave. Employers also need to cover National Insurance and employer pension contributions.

Unfortunately, many remaining furloughed employees are now faced with changes to their terms of employment or the risk of redundancy. This article outlines the considerations that need to be made for the end of the furlough scheme and explains how employers can potentially avoid expensive and reputationally damaging legal claims from affected employees by following robust and fair procedures.

Can you make an employee on furlough redundant?

Yes. However, this will need to be approached in the right way.

Furloughed employees still hold all the same employment rights as non-furloughed employees, so the normal principles in relation to individual or collective consultation will need to be followed. Collective consultation rules will apply where 20 or more employees "at one establishment" are proposed to be dismissed within the same 90-day period.

If an employee has two years' service, their dismissal will be unfair if their job role is not genuinely redundant or if a fair process is not followed. Therefore, an employer should take the time to consider the business reason for the redundancy risk and take the time to patiently consult with impacted employees about the situation.

An employer should not be selecting an employee for redundancy simply because they have been on furlough and other employees have not. Instead, objective business reasons for the redundancy situation should be communicated to employees, which may range from offices having to close, to a downturn work in the employee's area, to restructure proposals meaning their role will disappear.

Do I need to give any consideration to the furlough scheme during a redundancy process?

Employers must give careful thought to which employees are impacted by the redundancy situation. An appropriate "pool" of employees that are potentially at risk must be identified, in respect of whom a selection process for redundancy will be completed. It may be that an employee occupies a role that is uniquely impacted by redundancy. However, employers must be careful not to single out employees on furlough. Despite potentially not having worked for a long time, if an employee on furlough performs the same duties as other employees (or could do so), then it will normally be safer to include them in a pool with employees in overlapping roles than to try and argue that they alone are uniquely impacted by the redundancy situation.

An employer is obliged to look for suitable alternatives to redundancy for at-risk employees. This normally involves checking for any internal opportunities for redeployment. However, if an employee is due to be made redundant before the end of the furlough scheme, this could also mean considering the option of leaving the employee on furlough until the end of September.

It is not compulsory for an employer to leave an employee on furlough instead of making them redundant, but they should at least have considered why this is not a viable alternative. For example, this could be due to the costs of the scheme or that leaving an employee on furlough whose role is, in reality, redundant, could leave the employer liable to HMRC for unlawful use of the furlough scheme (given that the purpose of the scheme is not to temporarily prop up redundant roles). Recent case law has shown that where this reasoning is not recorded and communicated to an at-risk employee, their dismissal can be unfair.

It is also worth remembering that employers will not be able to recover redundancy payments and notice pay under the furlough scheme.

What if we only want to change the terms and conditions of employment?

Some employers may want to agree to reduce an employee's hours or pay or cancel bonuses and incentives instead of carrying out redundancies.

Assuming there is no contractual right to vary the contract, an employer will need to seek the consent of the employee to the proposed changes.

The ability of the employer to persuade an employee to accept the changes will depend upon how detrimental the changes are to the individual. If an employee refuses to accept, the employer will need to consider watering down the proposals or dismissing and re-engaging the employee on the new terms. Such dismissals can be fair if there is a clear business need for the change and a fair process has been followed.

Be aware that such dismissals can trigger collective consultation requirements. If the employer is seeking consent before it has formulated any proposal to dismiss 20 or more employees, a collective redundancy consultation will not be triggered. This means that the business must not have formulated a plan that is likely to cause dismissals if employees disagree with the proposals. If a proposal has already been formulated to dismiss as redundant anyone who does not agree or to force the change through by dismissing and re-engaging, if necessary, then collective consultation will arguably be triggered.

For more information around refusals to accept contractual changes and dismissals, we recently wrote about the recent case Khatun v Winn Solicitors Ltd, which is a useful study on what not to do.

Where can we find more information about redundancies and reorganisations?

You can read our detailed guide to redundancies for employers here.

Our Redundancies and Reorganisations Hub also has a wealth of guidance, including:

Here to help

If you need help navigating redundancies and reorganisations or need advice in relation to any of the issues raised in this article, you can contact a member of our Employment Team on 0161 941 4000 or email The Employment Team.