This is not intended to be legal advice and should not be relied upon as such.
Can an employer make employees redundant following lockdown being lifted?
Yes, the termination of certain employment contracts post lockdown is likely to meet the definition of redundancy. The main issue is often one of fairness of procedure. It is not simply the case that an employer can decide not to bring someone back from furlough and make them redundant. The usual redundancy consultation and fair selection procedure must be followed otherwise even a genuinely fair redundancy situation could result in claims for unfair dismissal.
The definition of redundancy is found in s.139 Employment Rights Act 1996 (“ERA”). This provides that the dismissal is by reason of redundancy if wholly or mainly attributable to
- the fact that his employer has ceased or intends to cease—
- -to carry on the business for the purposes of which the employee was employed by him, or
- -to carry on that business in the place where the employee was so employed, or
- the fact that the requirements of that business—
- -for employees to carry out work of a particular kind, or
- -for employees to carry out work of a particular kind in the place where the employee was employed by the employer,
have ceased or diminished or are expected to cease or diminish.
In short, there are generally two types of scenarios:
- Workplace closures, including entire business closing or just certain factories/offices (even if simply to relocate to a new site or if purely a “temporary cessation”);
- Reducing the number of employees carrying out work of a particular kind (in the relevant place).
Following lockdown and given the financial situation for many businesses, there may be many businesses or offices of businesses being closed. These would seem to be straightforward redundancy cases. Equally, there may be temporary closures of certain offices or changing types of business. These too may meet the definition of redundancy depending on the length of the closure and divergence between the original and ‘new’ business. Indeed, even reducing hours of employees to cope with the financial strains could amount to a redundancy.
Equally a reduction in the number of employees often amounts to a redundancy situation. Even if an employee, perhaps one who is more skilled, is moved into another role and that person has their contract terminated, a so-called bumping dismissal, amounts to a redundancy.
The main issue is therefore whether the procedure and process are fair. However, even if they are unfair it is still likely that the actual reason was redundancy and redundancy pay needs to be made (assuming at least 2 years continuous employment and there being no refusal of a suitable alternative role).
Will the employee be entitled to redundancy pay if their employment contract is terminated following lockdown?
It depends. In many circumstances, an employee who has at least 2 years continuous employment and whose employment is terminated post lockdown is likely to meet the definition of redundancy and, subject to not refusing suitable alternative employment with the employer, entitled to redundancy pay. To avoid making a redundancy payment the employer would need to show that the reason for dismissal was something else. But then there would still need to be a fair procedure followed.
The main barrier to entitlement for redundancy pay for an employee with at least 2 years employment is an unreasonable refusal of an offer of alternative employment (s.141 ERA). This is of course very fact specific. Critically, it has two elements: (a) the employee must unreasonably refuse the offer and (b) the offer must be for suitable alternative employment.
What type of procedure needs to be followed? Will redundancy amount to an unfair redundancy?
There is no statutory procedure as such to follow. However, often for a redundancy to be ‘fair’ one would expect to see (i) warning/consultation,
(ii) fair basis for selection (iii) consideration of alternative employment.
Can the employer reduce workers hours / working days / pay instead of redundancy?
Yes, with consent of the worker (which may be express or implied), or in certain circumstances if there is an express term in the contract (which is quite rare).
If there is no express term in the contract allowing for a reduction in working hours / working days / pay (which is usually the case), such a change would amount to a variation of contract.
Some contracts may have wide variation clauses, but these are unlikely to be interpreted to allow such a fundamental change to the contract and equally it has been held that such clause must not be used in a way likely to damage the employment relationship (or exercised irrationally): The ability to side-step the issue of consent, by means of something express in the contract (including wide variation clauses) allowing for a reduction of pay / working hours / working days will be rare.
In light of the above, the main issue is whether or not the worker has consented to the change. If there has been express consent, an express agreement, the contract will be varied and hours / working days / pay will lawfully be reduced. The more difficult issue is if no express consent has been given, will consent be implied from the worker continuing to work in line with the reduced pay / working hours / working days? This is a question of fact but the longer one works with the reduced term the more likely it is that consent will be implied. For this reason, it is advisable for a worker to make clear their objection to the term and that they are only working ‘under protest’.
How can changes to workers hours / working days / pay be made?
There are generally four ways: (a) by individual agreement (b) by collective agreement (c) by dismissing and rehiring on the new terms (d) by simply imposing the change.
There is no single route, or method, by which a reduction to working hours
/ working days / pay must occur. In most situations however it is advisable to first seek agreement from the worker, so-called express agreement.
Express Agreement: In terms of obtaining express agreement, the proposed change needs to be brought to the worker’s attention and it is often sensible to explain the rationale (as one is more likely to consent to a change that appears to their detriment if they are aware of the reasons for it). Normally it is advisable the employer to have in writing the worker’s express consent (agreement) to the change (as simple oral agreements can lead to disputes further down the line, including claims for unlawful deductions of wages).
Collective Agreements: In some cases, the individual employment contract may have incorporated collective agreements. In this situation, it may be possible for changes to all of categories of worker contracts, including a reduction in pay / hours / working days, to be done via this route. In these cases, it may be that new reduced pay / hours structure is agreed with the relevant union(s).
Fire and re-hire: In most situations where express agreement is not obtained, the employer would consider whether it simply terminates the contract and offers to rehire on the ‘new terms’. If the worker / employee accepts, the new terms are effective in relation to the continuing relationship. Note that, if there are several contracts being terminated under this method it may amount to collective consultation being required). However, whether or not someone accepts the new terms, the termination of the contract of employment (if they are an employee and have sufficient continuity of employment) may lead to an unfair dismissal claim being brought and/or a redundancy claim depending on the circumstances. For this reason, it is particularly important that a fair process is followed, meaning that efforts are made to transparently explain the change and seek agreement, before having to terminate the contract.
Imposed changes: An alternative to getting express agreement for the change, is for the employer to simply impose the change and see what the worker does in response. As noted above, if the worker does nothing and continues to work, consent to the change may be implied (it could also be said that they ‘affirmed’ the change to the contract). However, as noted below, there is inherent risk in this course as other claims could be made (for example deduction of wages, or, if one is an employee with sufficient continuity of employment, resign claiming unfair constructive dismissal).
Can an employer unilaterally impose a reduction to working hours / working days / pay? Can consent be implied where a worker keeps coming to work after the unilateral reduction to their hours / working days / pay?
Subject to an express term allowing a unilateral change, unilaterally reducing a workers’ hours / work day / pay is unlikely to ‘immediately’ be lawful and binding. However, the change may be lawful and binding after a period of time whereby the worker without protest continues to work under the new terms.
Can reduction in a workers’ hours / working days / pay be time limited?
Yes. There is nothing to stop one agreeing to a reduction in working hours / working days / pay to be time limited. Indeed, it is likely that a worker is more likely to agree to this rather than an open-ended change to their detriment.
The employer could make the reduction conditional until the happening of an event. For example, the parties might agree that working hours or working days will be reduced for as long as official government guidance recommends social distancing. Upon the expiry of that guidance, the contract reverts to the previous one. An alternative way is to specify that the alteration is purely for a fixed period of time and agree to extend that period as and when required. For example,
The parties agree that [name of individual] pay will be reduced from [X] to [Y] for the period of June 2020. After this period elapses and subject to any further agreements to reduce pay, [name of individual] pay will revert to [Y]. For the avoidance of doubt, all other terms in [name of individual] contract of employment as dated [Z] remain unaffected.
If reductions to working hours / working days / pay are not agreed, is that a termination of the employment contract and unfair dismissal?
Yes, it is likely that such a fundamental change will amount to the employment contract being terminated (although the worker may expressly say it is not accepting the breach, not terminating the contract, seeking to sue under the contract). Equally there is a serious risk that the dismissal will be found to be unfair (although this depends on the circumstances and in particular on the efforts to agree the change/the reasonableness of the change).
Terms such as working hours / working days / pay are fundamental terms in an employment contract. Reducing these all have a negative impact on an employee’s pay – which is a critical feature of the wage-work bargain (the employment contract). Accordingly, such a change where not agreed is likely to be a repudiatory breach.
However, the worker may make clear that they do not accept the breach and instead ‘stand and sue’ on the contract. This means that they bring a claim for breach of contract and/or bring a claim of unlawful deduction of wages for any shortfall in pay.
Alternatively, the contract may be taken as so drastically different that it amounts to a new contract. That is the continued work will be taken as being under a new (fresh) employment contract. This is referred to often as a Hogg v Dover ( ICR 39) dismissal. In this situation an employee who had sufficient continuity of employment under the ‘old’ contract could bring a claim of unfair dismissal even though they are still employed by the employer they are suing (under the ‘new’ contract).
As to whether the dismissal would be unfair or not, this will depend on whether the employer can show a potential fair reason for the change, in this context most likely some other substantial reason, in particular a refusal to accept changes to terms and conditions, and that the dismissal is fair under s.98(4) Employment Rights Act 1996. Experience dictates that the following factors are relevant to this: (a) employer’s evidence of sound business reasons for the change and its reason for the change(s)
-the employee’s reasons for refusing to accept the change (c) level of warnings/consultation prior to the change (d) alternatives to this course being taken (e) reaction of other employees (f) acceptance/objection by a relevant trade union of the changes.
If an employee with at least two years continuous service refuses to accept the reduced working hours / working days / pay are not agreed, is that an unfair constructive dismissal?
It is likely that changes to working hours / working days / pay will amount to repudiatory breaches which the employee can resign in reliance upon (a constructive dismissal). If this occurs the employee would be entitled to notice pay (it is a wrongful dismissal claim). It will be fact specific whether or not it is an ‘unfair’ constructive dismissal claim also.
A claim of unfair constructive dismissal requires:
- a repudiatory breach by the employer;
- the employee to resign in reliance on the breach (it has to be a cause but not the cause);
- no earlier affirmation / waiver of the breach prior to the resignation;
- the constructive dismissal (i.e. elements (a)-(c)) being unfair under s.98(4) Employment Rights Act 1996 (“ERA”).
In the case of changes to pay, these are fundamental terms, so changes to this directly (or indirectly via hours / days being reduced) are likely to be a repudiatory breach. The Court of Appeal in Cantor Fitzgerald v Callagahan  IRLR 234 at 42-43 made it clear that any deliberate reduction in an employee’s agreed remuneration package (including basic pay and bonuses) would be a repudiatory breach of contract, and that there was probably no “de minimis” exception.
In terms of whether such a dismissal would also be ‘unfair’ this is a question of fact. It is of course possible for the dismissal to nevertheless be ‘fair’ even if a constructive dismissal. The employer would need to show that the alleged breach was for some other substantial reason and then the Tribunal would need to be satisfied that it is fair under s.98(4) ERA. The relevant factors in these cases would be the same as those set out in the last paragraph of the question immediately above.
If an employee with over two years continuous employment refuses to agree a reduction to hours / working days can redundancy be claimed?
Potentially but there are also issues as to whether there has been a refusal to accept an alternative job offer which might mean there is no redundancy pay owed.
As noted above working hours / days without agreement can amount to a dismissal, be it by the employer (the change is so fundamental there is a new employment contract) or by the employee (resigning to claim constructive dismissal).
If the employee remains in employment and is treated as having moved on to a ‘new’ employment contract (i.e. Hogg v Dover dismissal, see above) for a period theoretically the reason for the dismissal could amount to redundancy in s.139 Employment Rights Act 1996 (“ERA”). Equally and more likely to be brought is a claim of constructive redundancy dismissal: the reason for the employer’s breach of contract that caused the employee to resign being ‘redundancy’ (a constructive redundancy dismissal).
In these changes to working hours / days cases it is most likely to fall within s.139(1)(b) ERA:
– the fact that the requirements of that business—
- for employees to carry out work of a particular kind, or
- for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.
It is therefore possible to envisage of scenarios that following ‘lockdown’ and a return to work, with potential social distancing still in place, a reduction of days / hours falls within this. For example:
- there may simply be less business, less work available, so there is a need for fewer employees doing the kind of work, and the employer seeks initially to reduce all people’s days / hours, or a group of workers days / hours, or just needs to part of one job;
- there is an anticipation of future business temporary / permanent closure even after lockdown is the reason for the reduction.
- (Note of course not all changes to terms and conditions would fall within redundancy, but the focus on hours of work / working days in effect means that the kind of work, or ‘full time employees’ is likely to be going down).
There is of course a further question however, which is whether in relation to any claim for redundancy pay, the ‘new’ job (the amended contract or the proposed change) amounts to suitable alternative employment under s.141 ERA which the employee unreasonably refused / terminates during the trial period. This is of course a question of fact but the more significant reduction in hours / pay, the more likely that it will be reasonable to refuse the offer / the offer would not amount to suitable alternative employment.
What notice pay does an employer have to pay employees if they reduce the rate of pay or reduce the number of hours under the contract of employment?
Any valid changes to the contract of employment would result in a change to the rate that should be paid.
Can an employer pay an employee only 80% of their normal pay during the notice period terminating their contract of employment if they are furloughed on 80% of their pay?
It depends on the furlough agreement. A Tribunal can be expected to approach a furlough agreement from the perspective of an employee.
If an employee is furloughed on 100% of pay then there is no issue in respect of notice pay. It remains the same. An issue arises where an employee is placed on furlough and is then paid 80% of their pay. Does that apply to any notice payment under furlough too? The employee would have a good argument that their agreement to be paid 80% was, as the title of the Coronavirus Job Retention Scheme implies, to retain their job. The employee would argue that the compromise to 80% of wages was to retain their job – it was not an agreement to accept 80% of the notice that they would need to be paid if they were to be dismissed. A tribunal would be likely to be sympathetic. However, express agreement to vary the amount of notice pay to the 80% level during furlough would be likely to be enforceable but no agreement could vary the length of notice to be less than the statutory minimum above.
With thanks to Cloisters Chambers for their Covid-19 toolkit