Redundancy pay to be protected for furloughed workers

Redundancy pay to be protected for furloughed workers

The Government has announced new legislation today (30th July 2020), that ensures furloughed employees receive statutory redundancy pay based on 100% of their normal wage, rather than the reduced furlough wage.

The new law will come into effect from tomorrow (Friday 31 July 2020) and will prevent companies taking advantage of the current Covid-19 crisis and paying employees a lower redundancy pay.

This is in addition to recent legislation confirming that the Coronavirus Job Retention Scheme (CJRS) for furloughed employees can be used to pay notice pay if the notice period runs through the furlough period. The CJRS cannot be used for payments in lieu of notice or statutory redundancy payments.

There is still uncertainty around whether notice pay can be paid at the furloughed rate. In most cases where the notice is equal to the statutory minimum notice entitlement, the notice pay must be at the 100% rate, not a reduced furloughed rate. The position is different if the contractual notice period is a week or longer than the statutory entitlement to notice. Effectively, employees with longer notice periods could be penalised by this lacuna in the legislation.

What is redundancy?

‘Redundancy’ is categorised as a fair dismissal under the employment protection legislation. It arises if the reason for a dismissal is ‘wholly or mainly attributable to’:

  • The employee’s workplace closing;
  • The entire business closing; or
  • The business having less need for the work the employee does.

These commonly arise where a business needs to close its offices, restructure or reduce its workforce.

For information on employer’s duties when making someone redundant, read our redundancy article here.

What does the new redundancy rule mean for employees?

Where a redundant employee has more than 2 years’ continuous service, they are entitled to a statutory redundancy payment. 

The statutory redundancy payment is based on an employee’s age, length of service, and weekly pay. This will be specific to each employee and legal advice should be sought.

Some employers had been using a loophole in the scheme that allowed them to pay furloughed staff redundancy pay based on the 80% furlough wage. As a result, the Government’s new legislation will ensure that employees who are on furlough receive statutory redundancy pay based on their normal wages, not the reduced furlough wage. The Government has confirmed that the new changes will not impact any enhanced redundancy pay that may be expressed in the terms and conditions of an individual employee’s employment contract.

Further changes being brought in will also ensure that any basic awards for employees claiming unfair dismissal will also be calculated on the employee’s full wage.

It is estimated that around 150,000 people have been made redundant during the Covid-19 pandemic, with experts expecting the figure to climb much higher when the scheme ends. The new laws “will ensure that furloughed workers are not short-changed if they are made redundant” which will hopefully provide a small bit of much-needed reassurance for employees and their families.

How Blaser Mills Law can help?

As a result of Covid-19, many businesses are being forced to consider changes and reductions to their workforce. Our dedicated team of employment lawyers is experienced in advising both employers and employees on all stages of the redundancy process. If you are looking for further advice, please contact our employment team on 020 3814 2020, or email James Simpson at jfs@blasermills.co.uk.