COVID-19 and collective redundancies

OVERVIEW

  • Despite government financial support for employers via the Job Retention Scheme which may avoid some redundancies, it’s likely that employers, faced with months of uncertainty, will have to consider redundancies.
  • Where an employer is considering large-scale redundancies, they must observe the requirements of s. 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
  • The legislation does however provide a ‘special circumstances’ defence (in s. 188(7)) where it is not reasonably practicable for an employer to comply with the consultation requirements.
  • This guide deals with
    • the scope of this defence and whether it might, in light of COVID-19, assume a greater significance, and
    • some Q&As on the impact of COVID-19/furloughing on collective redundancies

APPLICABLE LAW

  • The main obligations on employers under TULCRA, s. 188 can briefly be summarised as follows:
    • An employer who wants to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less must consult with appropriate representatives (recognised union or if there is not one, elected representatives)
    • Consultation must begin ‘in good time’ – and at least 30 days before the first dismissal if the anticipated redundancies are 20-99 and 45 days if 100+
    • For the purposes of consultation, the employer must disclose certain specified information to the appropriate representatives
    • The employer must, with a view to seeking agreement, consult on ways of avoiding dismissals, reducing the number of employees to be dismissed and mitigating the consequences of dismissal
    • Failure to comply with s. 188 may lead to the employer having to pay a protective award of up to 90 days full pay. Such awards are penal in nature and are calculated on actual earnings with no statutory cap, i.e. potentially very expensive
  • An employer must also file an HR1 form with the Insolvency Service. Failure to do so is a criminal offence.
  • See Redundancy - A Guide for a full discussion of the legislative requirements.

COVID-19 AND THE SPECIAL CIRCUMSTANCES DEFENCE

  • The s. 188 provisions will be well known to many employers - and certainly to anyone who works in HR – but what is less well-known is the ‘special circumstances’ defence.
  • Section 188(7) specifies that if there are ‘special circumstances’ which render it not reasonably practicable for an employer to comply with any of the above requirements relating to consultation, the employer shall take all such steps towards compliance as are reasonably practicable in the circumstances.
  • Although the statute does not define ‘special circumstances’, it does specify one situation that can never constitute a s. 188(7) defence. Where the decision leading to the proposed dismissals is that of a person controlling the employer (either directly or indirectly), a failure on the part of that person to provide information to the employer will not amount to ‘special circumstances’ excusing lack of compliance with the consultation obligations.
  • The scope of the s. 188(7) exception has been narrowly construed by courts and tribunals. While much of the case law is relatively old, the following are some examples of events which have - and have not been – held to amount to ‘special circumstances’:
    • While the circumstances relied on must be ‘something out of the ordinary, something uncommon’, insolvency, per se, is not a ‘special circumstance’ as a prudent management may well foresee such a possibility. There is a distinction between a sudden disaster striking a company causing closure which could constitute ‘special circumstances’, and a gradual run down of a company which would likely not (Clarks of Hove Ltd v Bakers Union, 1978, Court of Appeal).
    • The fact that an employer is a charity or run by volunteers is not a ‘special circumstance’ (E Ivor Hughes Educational Foundation v Morris, 2015, EAT).
    • The fact that a company is ‘in administration’ under the insolvency legislation is not, per se, a ‘special circumstance’ (In Re Hartlebury Printers Ltd (in liquidation), 1992, High Court).
    • An employer’s mistaken belief that it did not have to consult is not a ‘special circumstance’, even where it had relied on government advice (UCATT v H Rooke & Son Ltd, 1978, EAT).
    • Where an employer continues trading despite an adverse situation in the genuine belief that it can avoid redundancies, there can be ‘special circumstances’ (APAC v Kirvin, 1978, EAT).
    • A sudden withdrawal of a vital customer, or credit facilities, can amount to ‘special circumstances’ (USDAW v Leancut Bacon Ltd, 1981, EAT).
    • Even where ‘special circumstances’ exist, an employer must still ‘take all such steps towards compliance as are reasonably practicable’. In Shanahan Engineering v Unite, an employer who’d made out ‘special circumstances’ still had to pay a protective award. While the special circumstances made it inevitable that the workforce had to be reduced, it was open to the employer to decide how many staff should be made redundant, when that should happen and what could be done to mitigate the consequences of dismissal. All these were matters for consultation and, in the circumstances, it was reasonably practicable for some consultation to be attempted.
  • While COVID-19 is unarguably an extraordinary event, it should not be assumed that COVID-19 will automatically trigger the s. 188(7) defence.
  • A tribunal will scrutinise the particular facts. What might be ‘special circumstances’ in one case might not be in another.
  • Employers will need to demonstrate what about COVID-19 meant that complying with its s. 188 obligations was not reasonably practicable. The availability of financial support via the Job Retention Scheme will inevitably factor into this.

Q&AS ON FURLOUGHED EMPLOYEES AND COLLECTIVE REDUNDANCIES

  • Q: Do we have to wait until employees return to work to start a redundancy consultation?
  • A: No.​
  • Q: Can we consult furloughed staff about redundancies without infringing the ‘no work’ rule in the JRS?
  • A: Yes. HMRC guidance says employees cannot do anything which makes money or provides services to you. Consultation would not be covered by this.
  • Q: Can furloughed employees working as union or non-union representatives carry out their collective representation roles without infringing the ‘no work’ rule in the JRS?
  • A: Yes.
  • Q: We do not have elected employee representatives – do we still have to elect them while staff are on furlough?
  • A: Yes. You cannot ignore this requirement because if you do – and move straight to personal consultation instead – affected staff can potentially qualify for a protective award (up to 90 days’ uncapped pay). While there’s a special circumstances defence (see above), this is construed narrowly and, in our opinion, is unlikely to cover an employer who makes no attempt to elect employee representatives.
  • Q: Can we give notice to terminate on grounds of redundancy to furloughed staff?
  • A: Yes. HMRC and related guidance hasn’t changed employment law and furloughed staff retain their usual rights.
  • Q: Should employees get their full pay or furlough pay during any redundancy notice period?
  • A: If, following consultation, an employee is to be made redundant, he or she must be given notice. This will either be statutory notice or contractual notice if this is more generous. Statutory notice is at least 1 week for those who’ve been employed for between 1 month and 2 years, and one week’s notice for each complete year worked after 2 years’ employment, capped at 12 weeks’ notice. Most employees on furlough should receive 100% of their normal salary (uncapped) while on notice. This is because the law states that during statutory notice periods employees must be paid ‘guaranteed minimum payments’ if they are either unable to work due to sickness or injury, or if they are ready, willing and able to work but the employer has no work for them to do. There could however be a complication for certain employees. The Employment Rights Act 1996 stipulates that this guaranteed minimum does not apply if an employee’s contractual notice exceeds their statutory notice by more than a week. In such a case, they should only be paid what they were earning at the time. For example, if an employee’s contract says they’re entitled to three months’ notice and they have worked for eight years, they would only be statutorily entitled to eight weeks’ notice. As this exceeds the statutory notice by more than a week, by the letter of the law someone on furlough should only be paid furlough pay during such a notice period.