Returning to work after furlough, redundancy and settlement agreements

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Posted by Suki Harrar on 29 September 2020

Suki Harrar - Employment Law Solicitor
Suki Harrar Partner

Outline transcript

Hello, I'm Suki Harrar, a partner in the employment team Wright Hassall. Today, I have Joanne Duck, an associate with me between us we're going to be covering off most of the common questions asked about returning to work after furlough, redundancy and settlement agreements.

So kicking off, first of all, with redundancy, perhaps, Jo, if I ask you a redundancy question, that would be helpful to put things into context, to start with.

Are there any instances where redundancy is automatically unfair?

The simple answer is, yes, there are, for example, selection for redundancy, if the selection is based on a protected characteristic, that would be automatically unfair. So the protected characteristics are the characteristics that are protected by the Equality Act. We have age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marital status and pregnancy or maternity. So if there isn't a genuine redundancy situation, but you have been selected for your employment to be terminated based on one of those protected characteristics, that could potentially be an automatically unfair redundancy situation.

So what you need to do as an employer is ensure that there is a genuine redundancy situation. So we'll cover this later. But basically, a redundancy situation arises in three situations. Firstly, if an employer is closing entirely. Secondly, if the place in which the employee works is closing. And thirdly, if there's a reduced requirement for work of a particular kind, that can amount to a genuine redundancy situation. The other thing that employers need to do when going through a redundancy process is to make sure the correct process is followed. And if all that is done correctly, you have a better case of mitigating against a successful claim for automatically unfair dismissal.

The other question, which may lead back to you Suki that we've been asked is, and it touched on it slightly, is what is a formal redundancy process. And we've been asked the question, do I need one as an employer?

OK, it's a good question, and I think a lot of employers think that they have to have a formal written redundancy policy. Well, the good news is that they don't. However, there are obviously rules and guidance that have to be followed before a redundancy can be effectively carried out so that the employer does, as you've said, mitigate any claims that they may have against them.

It's important to note the guidance would be helpful also to follow in terms of the process itself. It really depends on how many redundancies or proposed dismissals there are within a period of 90 days. Where you have proposed dismissals of 20 or more within a period of 90 days, it is necessary for the employer to do what we call collective consultation, which is a process in itself which will look at a bit later because of the specific question on it. If you have less than 20 redundancies, the process is really a lot more straightforward in that you can just do individual consultation with those employees concerned before any redundancy is actually confirmed. So in terms of individual consultation, in brief outline, I always say to clients there are three aspects to cover for consultation and redundancy process, and they are, first of all, consult appropriately. The second is to look at suitable alternatives, and the third is selecting fairly from a pool, an appropriate pool.

So in terms of consultation, first of all, what that would entail is telling the employees what is happening, why it's happening, what it means for them, why their post is at risk of redundancy. You'll then explain to them the process that the employer will go through in terms of inviting them to meetings to discuss at those meetings.

It would be necessary then to look at alternatives to redundancy. And it could be that an employee suggests perhaps they could reduce their hours or they're happy to reduce their pay, or they're happy to look at alternative roles. And all of those things need to be explored fully within a consultation process.

If those items have been explored and there is no prospect of potentially avoiding the redundancy, then employers need to select fairly from a pool, and that would involve the employer putting together some objective criteria to score those employees within that category upon and score them objectively and fairly. And normally, the lowest scoring employees are the ones that are then selected for redundancy. And then the employer has documented evidence as to why that particular employee has been chosen. And it's important to say that employees must be given the opportunity during the individual consultation process to have their say, to feedback, to put forward options and most importantly, to be listened to. The other thing I would say is, whilst the there is no statutory right to be accompanied to the consultation meetings other than the final meeting at which the redundancy is confirmed, the ACAS has a code of practice, suggests that it is absolute good practice to allow the employee to be accompanied. And that right to be accompanied extends to trade unions or fellow employees only unless the employer wishes to make an exception. So they can attend the meetings with their companion, and in particular, that right must be given for the final meeting before the redundancy is actually confirmed. Once the redundancy has been confirmed, it is necessary to reiterate the right to appeal. So, in summary, you don't need a formal process. You can do individual consultation, providing it's under 20 employees. And that would consist of consultation, looking at alternatives and selection, and once all of that has been done, the redundancy can be confirmed, but you must advise of the right to appeal. If there's more than 20, then we'll look at collective consultation and what's involved there. So I hope that it's really helpful. So you just want to summarise the statutory consultation period, and I've just touched upon them.

Yeah, OK, so there's no defined time scale for individual consultation other than you need to make sure the consultation framework is reasonable and it covers everything that Suki's just discussed. For collective consultation, there is a statutory minimum period over which consultation must take place, and that period has to expire before any dismissals can take place. So if there are over 20 employees, up to 99 employees, that may be dismissed by the process for a reason not connected to themselves, so via redundancy means and not for a performance-related reason or misconduct related reason, the employer must consult for at least 30 days with trade union representatives or elected employee representatives prior to the first dismissal taking place. If there are ninety-nine or more employees, the employer must consult for a minimum period of 45 days again with the trade union reps or the elected employee reps prior to the first dismissal taking place. It's important also to make clear that the election process so if the company doesn't have a recognised trade union and employee reps need to be elected, and there are a nomination and ballot process that doesn't form part of the minimum consultation period. So all that has to take place prior to then the consultation period taking place.

Another question we've been asked, and I've touched on it slightly, so you may not have a lot more to add to this, but just so we cover it for completeness, is an employer has asked how do we demonstrate that there is a genuine redundancy situation? OK, yeah.

I mean, that's one of the first things an employer has to consider before they embark upon any redundancy program. And as you touched upon right at the outset, you can arise in three main situations where the actual or the intended closure of the whole business happens, where the actual intended closure of part of the business happens, i.e. the workplace location where the employee works, if a part of a multiple site organisation or there's a reduction in the employees required to carry out a work of a particular kind. So if you've got ten operatives and you had eight, and there's going to be two redundancies, then it is the two that you are putting at risk. And see the whole eight of the pool would need to be considered if they do same or similar work, but that would be classed as a redundancy if you're reducing from the 10 to the eight.

Another question that we're asked is, well, how much do we have to pay for redundancy, statutory or otherwise?

OK, so this normally comes in in three parts. Again, we keep referring to number three, but the first part is notice. So an employee that has been with an employer for at least a month is entitled to notice a notice comes in two parts. So there's statutory minimum notice which dictates how much notice an employee is entitled to receive at a minimum level. And that basically is one week for each completed year of service, up to a maximum of 12 weeks. So, for example, an employee who has been with you for three complete years would be entitled to a minimum of three weeks notice unless, of course, their contract gives them a contractual right for greater notice period. So they may have a three month notice period in their contract. Now, if the employer doesn't want the employee to work the notice period, then they would have to either be placed on garden leave where they are still effectively an employee, but they're placed away from work. So they're not delivering any service, and they're just receiving a salary in the normal way month or pay a payment in lieu of notice. So that's the first potential payment. So taking my three-week example, if you don't want your employee to work for the three weeks notice, you would have to pay them a three-week salary payment representing the three weeks.

Have they worked their notice? And that would, of course, be taxable in the same way if they receive a salary. The other payment is payment for any accrued but untaken holiday calculated to the date of termination. So again, what an employer must do is calculate how much holiday an employee has accrued from the start of the holiday year up to the date of their termination. Calculate how many days they've actually taken and any unexpired. So any days they haven't taken, they would either have to take them during the notice period or receive a payment in lieu for those days. And again, that's a fully taxable payment. And then the most important payment for redundancy situation is the statutory redundancy payment that only applies to employees that have over two years service with an employer. And the calculation of the statutory redundancy payment is based on the employee's age at the date of termination, their length of service in complete years at the date termination and their gross weekly pay. A gross weekly pay is actually capped by legislation at five hundred thirty-eight pounds per week. But that figure increases each year. I think it's revised each April. Is that right? I think that's right, yes.

So currently for 2020, it's 538 pounds, and there's a formula that's undertaken. You can go on the government website just to cross-check how it works. But basically, an employee is entitled to half a week's pay for each full year of employment up to the age of 22, a full week's pay for each full year of employment between the ages of 22 and 40 and one and a half weeks pay for each full year service over the age of 41. And that that gives the statutory redundancy payment calculation. Statutory redundancy pay can be paid free of deductions. And the maximum statutory redundancy payment is currently based on the five three eight a week gross weekly pay amounts to sixteen thousand one hundred forty pounds.

Employers can enhance that if they want to. They can have an enhanced redundancy payment scheme. But this is the basic legal entitlement for an employee with over two years service.

And I think Jo is fair to say that people can get bogged down in redundancy calculations so they can go to various websites, which calculate this for them if they've got any doubt as to the correct calculation because it can be quite difficult to work out.

So another question we've been asked, and I'm asked this is can we use a redundancy process to get rid of a low performing employee as a front when there isn't really a genuine redundancy situation?

Oh, OK. I laugh because it is actually a question that we're frequently asked when somebody comes on the phone and says, I've got somebody they're not very good at. What they do is just get rid of them. Let's just say it's redundancy. Well, the correct answer is actually you should follow employment law and go through a performance management route rather than dismiss them for redundancy, because it's not redundancy, it's just performance. And for performance management, I mean, that's probably the subject of another webinar in itself. But what you're looking at there is does the employee have the required length of service, perhaps to bring a claim now whilst the face of it, if they have under two years, you would think, well, no, they don't have the required service. I can just get rid of them. And there's no process to go through. Employers need to be mindful of things like automatic unfair dismissal where you don't need the two-year service and also claims under the Equality Act, if they have what we call a protected characteristic, which is one of the things you mentioned in the first answer to the first question, things like sex discrimination, race discrimination, disability, discrimination.

And if they have those, they wouldn't need two years service to bring a claim. So there are potential risks with terminating people without going through a process, even if they have under two years. And employers are well-advised to, first of all, seek legal advice as to what risks they may be exposed to before they dispense with any process at all. But if you have an employee who isn't performing, then you should use your performance management tools and the process to go through rather than going through a redundancy. If an employer says, well, actually they're not performing, but actually, it's not a role we really require going forward that may qualify as a redundancy if the employer doesn't need that role going forward. And they could therefore opt to go through a redundancy process. But I must say, and I can't stress it enough, that just because they have under two years, it doesn't mean you could simply get rid of them and terminate their employer without any process. You should seek legal advice and assess the risks to your organisation first.

Following on from that, another question that we commonly get is, if two people do the same job, how do you decide between the two of them? Which one should be made redundant? So, for example, in the example I gave you earlier about the ten operatives, you only need eight. How do you decide which two are going to go?

OK, so the first thing you'd have to do is work out if they are genuinely doing the same role because some people occupy roles with the same job title, but they're not actually doing the same thing because the job title isn't reflective of what they're actually doing. So it's important to step away from job titles or descriptions in contracts as to what people are doing and actually look at the skills and responsibilities and the tasks that they're actually required to do on a day to day basis. And if after doing that, you think, yes, they are genuinely doing the same role, that would then form a pool. So in Suki's example, you have ten operatives in a pool, and you want to reduce that pool by two so that you have eight remaining operatives. And in order to do that, you would need to select who remains in terms of the actual employees and who goes basically.

So to do that, you would need to apply objective selection criteria to the employees themselves rather than to the roles to the employees themselves and score them against that criteria. Now, we don't use subjective management opinion. It has to be objective selection criteria. Objective criteria potentially could be an employee' disciplinary record. So if they've got warnings on their, cost of employment, so an employee's salary, their level of qualification, their attendance levels, and if they've got cross transferable skills. It's important, though, to make sure that when we are applying that criteria, that we don't use potentially discriminatory methods of selection. So if we do use absence as a selection criteria, we need to make sure that if an employee has been absent due to a potential disability or for maternity-related reasons, that that isn't used against them. So that would have to be excluded from the absence that we count when we are assessing the employees against the criteria. So that's how we would select we would, in summary, make sure we get the pool right, so we know which employees form part of the pool, and then we apply objective selection criteria to that pool, score employees against that criteria. And as you mentioned earlier, the employees generally that score the lowest are the employees that are removed. Just another point, it's important, I think, to have more than one person do the scoring so that that reduces the risk of an employee raising an issue of bias. For example, if there's a panel that does the scoring or two or three people do the scoring, and then there's an average applied that's less subjective from the employer's perspective and makes the potential dismissal more risk-free.

Another question which I think you've touched on, so again, it may just be a short answer for completeness is can an employee claim unfair dismissal if we make them redundant?

Yeah, the short answer is yes, they can. And I know employers will say, well, I did everything correctly. Why can they claim unfair dismissal? They have the right to bring a claim if they feel aggrieved by either the process or they don't think it's a genuine redundancy. That's why we've said you must establish a genuine redundancy situation. You must follow the correct process, consultation, alternatives and selection. And also those with under two years service have the potential to also bring a discrimination claim as well as those over to your service. So that's an added burden for the employer to have to consider potential discrimination claims and also a breach of contract by employees of any length of service. So if you don't follow your own correct contractual processes, they can bring a claim against that for any damages that they've suffered as a result of you not following those processes. If they're not paid their dues for their notice pay, which is contractual, they can bring a claim for that. So, yes, they can bring a claim if you make them redundant.

There are some methods of safeguarding against claims, which is one of the questions were asked, which will look at a bit later.

Another question, I think it's almost a final question on redundancy. Do employers with less than two service have the same rights that we have touched upon that already as to whether they have the same rights? I've mentioned it in my question about the performance management, so that's quite quick to answer that. Don't have the right to bring an unfair dismissal claim, but they may have the right to bring either an automatic unfair dismissal claim or discrimination claims or contractual claims, as I just mentioned.

The final question then, so can we hire people to do the same role and just change the job title?

What do you think, Jo? Yeah, I've had this question a lot. I think employers often stated they want the role done. They just don't want the person that's employed to do the role to carry on doing the role. But the short answer is, if we're relying on redundancy as a reason for dismissal, then no, we can't just do that because redundancy arises, as we said a few times in three situations. The first one is if we still need the role to be done, we can't say that the requirement for the role is ceasing or diminishing. So we couldn't just change the job title because the role is still needed. What you could potentially do there is change the role enough so that it could amount to a redundancy situation. So in very, very rough numbers, removing at least half of the role from the organisation and then redistributing the remaining duties within other roles that exist within the organisation, that would be a reorganisation that could then lead to a redundancy of the current role holder. But to answer that specific question, no, you can't just change the world title because the important thing is looking at the duties that fall under that title. And if those duties are still required, there isn't a genuine redundancy situation.

So we've talked a lot about managing risk and dealing with potential claims. That leads us on to talk about settlement agreements, which we often advise on, and we've been asked, under what circumstances would you recommend using a settlement agreement? What are they and why are they used?

Well, quite simply, keeping it very simple, wherever an employer considers they may be exposed to a claim. We would advise a settlement agreement is appropriate to use should the parties so desire. And it is if the parties agree because it is a compromise for both parties and they both have to enter into it willingly. So it's usually advised where employees have more than two years service or where there is a potential discrimination claim, where a protected characteristic, sex discrimination, race, disability, etc.. So wherever an employer considers are exposed to a potential claim, it is advisable to at least consider the use of a settlement.

Another question we're asking, can employees still claim unfair dismissal if they sign a settlement?

Again, they potentially could technically bring that claim in the employment tribunal, but the purpose, the whole purpose of the settlement agreement is that they've given away their rights to bring that claim. So by signing the agreement, they're signing that in full and final settlement of all potential claims that they have against a company and an unfair dismissal claims one of those claims. So they have waived their right to bring that claim by signing the settlement agreement. So if an employee, despite having signed that contract, in effect, that they're not going to bring a claim and usually received some money to compensate them for losing the right to bring that claim, if despite that they still decide to bring a claim, an employment tribunal, which is very, very, very rare when an employer would do is seek to claw the money back that they've paid the employee under the settlement agreement, which makes it really disadvantageous for an employee to want to bring a claim such as that once they've signed a settlement agreement confirming that they won't bring that type of claim.

And I mentioned money payments in my answer to entice an employee to sign a settlement agreement, which leads to the question that I'm always asked, always ask this do settlement agreements cost a business more than going through a normal redundancy process?

Yeah, I mean, usually, yes, simply because the employer has to pay the employee some sort of compensation for waiving their rights, so they'll be looking for an ex gratia payment, compensation for loss of offices, it's sometimes called the usually an employer will pay the redundancy, pay the notice pay under the settlement, plus an amount in addition, which is compensation for loss of office. So it can cost some more.

The question that flows from that is how much more or how much should we offer to pay under a settlement agreement and the ideas?

Yeah, well, it's sort of how long is a piece of string that question, really? Because it varies depending on the circumstances of the particular claims that the employer is seeking to waive before a redundancy termination, where we're just trying to compromise a potential unfair dismissal claim as an agreement. So as a general basis, a minimum, the agreement normally offers what is known as the basic award in an employment tribunal, and that's basically calculated the same way as a statutory redundancy payment because that's what the employee would be entitled to receive had they not signed the agreement. It also covers notice because, again, that's an employee's basic entitlement and any accrued but untaken holiday would cover a payment for that then the ex gratia payment. So the incentive payment to offer to the employee is calculated based on. However, the employer wants to structure that. So normally you can potentially base it on a number of months salary, or you can remove the statutory cap on the statutory redundancy pay and base it on actual salary to give an ex gratia payment, something that's over and above the employee's minimum entitlement to payment on termination. But that is just enough to prevent them from wanting to bring a claim in tribunal as a rough guide.

The final question for this webinar that we've been asked to cover, and I think Suki is going to take this one is what the COVID secure guidelines that an employer must adhere to when asking its employees to return from working from home back to the workplace are?

Yes, of course, no webinar these days would be complete without mentioning COVID, I guess. So, yes, we've all worked from home for so long and many of us successfully.

And the question arises now as employers try to get employees back into the workplace, what do they need to do to get employees back into the workplace? How can they support the reopening of their business and premises? And in support of that, the government have issued five steps to working safely, which businesses can look at to help them navigate their way around how to make their workplace COVID-19 secure.

The first one, the first step is to carry out a COVID risk assessment in accordance with the health and safety executive guidance. And they do encourage the workplace to share those results with the workforce and trade unions. And if possible, they should consider publishing the results on their website is one of the things that they say. The second step is to develop cleaning, handwashing and hygiene procedures. I mean, it is all common sense, and we have seen it on the TV for the last couple of months, day in, day out. But employers should increase the frequency of handwashing and surface cleansing by encouraging people to follow the guidance on handwashing and hygiene. Employers must provide hand sanitiser around the workplace, not just the washrooms. They should frequently clean and disinfect objects and surfaces that are touched regularly. They should enhance cleaning for busy areas. They should set clear use and cleaning guidelines for toilets. So, for example, if there's any capacity to allow one person in at a time, they have to have a mechanism to support.

About the author

Suki advises on all employment law issues, including unfair dismissal, redundancy, TUPE, appointments of senior executives and contract documentation.

Suki Harrar

Suki advises on all employment law issues, including unfair dismissal, redundancy, TUPE, appointments of senior executives and contract documentation.

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