Wake-up call: How to handle redundancy during coronavirus

The problem

Covid-19 is having a devastating impact on businesses across the country. The lockdown measures are likely to hit the hospitality industry especially hard, as they are preventing people from eating out, congregating in bars and going on holiday. What do hospitality businesses need to know in these tough times when faced with the need for redundancies?

The law

A genuine redundancy situation will exist if there is:

1. a reduced requirement for employees;
2. a workplace closure; or
3. a whole business closure.

Employees who have over two years service have protection from unfair dismissal. This means that an employer needs a ‘potentially fair reason' to dismiss, one of which is redundancy. In addition the employer has to go through a fair process prior to dismissing.

Where a business is proposing to dismiss more than 20 employees by reason of redundancy at one establishment within a period of 90 days or less, additional ‘collective consultation' requirements apply.

However, the government has just announced a new scheme which may avoid the need for redundancies during this pandemic (see below).

Expert advice

Covid-19 is likely to cause genuine redundancy situations for many hospitality businesses: most restaurants, bars and hotels are likely to have a much-reduced requirement for employees, many may need to close temporarily for the lockdown period, and unfortunately some business will go under altogether.

Prior to making redundancies businesses should consider whether there are other measures that could avoid the need for redundancies, such as offering unpaid leave or negotiating a reduction in hours or pay.

Another new option for businesses to consider as an alternative is the Coronavirus Job Retention Scheme, under which all UK employers can access financial support to retain employees. In brief:

• An employer can choose to designate employees who would otherwise need to be made redundant as ‘furloughed workers' for a minimum period of three weeks.
• The government will cover 80% of the lower of each employee's salary or £2,500 per month.
• While on furlough leave, employees cannot do any work.

As long as the employee agrees, the employer does not have to top up the furloughed employee's salary to 100% of their normal earnings (and in practice most employees are likely to agree if the alternative is losing their job altogether).

This scheme will be in place until the end of May although the government can extend this. More details will follow about this scheme.

If the business has considered the above alternatives but does still need to make redundancies, then it is crucial for a fair process to be followed for any employees with over two years' service in order to avoid liability for unfair dismissal claims.

A fair process means the business must:

1. Fairly select employees for redundancy. For example, a restaurant which can now only serve take out food and therefore has a reduced need for chefs would need to consider how to pool its chefs, and then apply objective selection criteria to determine which chefs should be made redundant.
2. Have a meaningful consultation with at risk employees. This should last at least two weeks, though longer minimum periods apply if collective consultation obligations are triggered.
3. Consider suitable alternative employment. However, during these trying times it is quite possible that there might be no suitable alternative employment.

To-do checklist

When faced with a potential redundancy situation as a result of Covid-19, consider alternative options, for example:

• Offering unpaid leave.
• Negotiating reduced hours/pay.
• Designating and the placing affected employees on furlough leave.

If redundancies are necessary:

• Determine whether the collective consultation obligations are triggered. If so, ensure the additional obligations are complied with.
• Fairly select employees for redundancy.
• Carry out a meaningful redundancy consultation.
• Consider suitable alternative employment.

Beware

Compensation for unfair dismissal claims can be expensive, especially if multiple employees bring claims. In addition, if collective redundancy obligations are triggered and not complied with, the business may also face a ‘protective award' of up to 90 days' gross pay for each dismissed employee.

Emily Kearsey is an associate in the employment team at law firm Goodman Derrick LLP