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Furlough scheme and redundancies - a change in policy?

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Furlough scheme and redundancies - a change in policy?

Last night (10 November), the government published updated guidance notes dealing with how the Coronavirus Job Retention Scheme (CJRS) will work between 1 November and 31 March, when it is due to end. They are available here.

Who is this opinion piece for?

HR professionals and business leaders involved in strategic workforce decisions, structural planning and redundancies

Furlough Scheme: Significant Change of Government Policy over Redundancies?

Last night (10 November), the government published updated guidance notes dealing with how the Coronavirus Job Retention Scheme (CJRS) will work between 1 November and 31 March, when it is due to end. They are available here.

Far and away the most important new development was this sentence buried within one of the guidance notes:

"The government is reviewing whether employers should be eligible to claim for employees serving contractual or statutory notice periods and will change the approach for claim periods starting on or after 1 December 2020, with further guidance published in late November." 

It is hard to understate the importance of this development, both legally and politically. 

In contrast to how the CJRS did work until 31 October, this development makes it distinctly possible that CJRS claims for periods on and after 1 December will not be possible if an employee has been served with notice of redundancy.

The political reasoning for this is not currently being discussed openly, but seems reasonably clear. Before changing tack and extending the CJRS on 31 October, the government expressed concerns about the existence of "zombie jobs" (i.e. jobs that are not really economically viable in the longer term) if the CJRS was to continue. This latest development appears to be at least partly aimed at discouraging employers from putting employees on furlough in circumstances where, in reality, they know that redundancies are inevitable because those jobs are not viable beyond the end of the CJRS.

Although, like everyone else, we are to some extent speculating, pending further government announcements/guidance, this is how we see things in the light of this latest development:

  • Many employers will need to make decisions about whether to start redundancy consultation processes before the "further guidance" is published "in late November”

  • The government is keeping its options open, and is being slightly opaque at this stage about its intentions for the reclaiming of furlough grants during notice periods on and after 1 December. A potential consequence of this, unless there is government clarification quickly, could well be that employers rush to make redundancies before 1 December.

  • Although some commentators have suggested that furlough grants may be available in respect of notice periods starting on or after 1 December where notice is issued before 1 December, we currently think this is unlikely to be the government’s approach. (“Unlikely”; but not “impossible”). If issuing notices of termination before 1 December were to have this benefit for employers, we could expect to see many employers rushing to make mass redundancies during November. That would be a political firestorm that we just don't think the government is up for right now.

  • As has been the case previously with CJRS guidance, there are also bits of the guidance published on 10 November which seem to partially contradict the thinking behind this apparent change of policy direction. In the paragraph immediately above the one quoted at the start of this article, the government says: " can continue to claim for a furloughed employee who is serving statutory notice....". At the moment however, it is only safe to assume that this applies to statutory notice periods being served during November. 

  • The wording "...statutory notice..." in the sentence quoted above is either sloppy or a further change of government policy. Previously under the CJRS, furlough grants could be claimed in respect of statutory notice periods or longer contractual notice periods.

  • Our view of the likely policy approach now being articulated by the government (i.e. that notices served before 1 December will not enable employers to claim grants for periods on or after 1 December), the position is not completely certain. Employers who had, before this latest guidance, been budgeting to use the CJRS to effectively subsidise wages during notice periods may decide to accelerate their decision-making about redundancies. Some may well take the view that, if there is even a small chance that notices of termination issued before 1 December will mean that wages during furlough periods on or after 1 December are covered under the CJRS, they might prefer to accelerate redundancy consultation during November to achieve that. 

  • In terms of a policy approach, this development around redundancy notice periods is also perhaps inconsistent with the thinking behind the part of the CJRS which enables employers to re-employ and furlough those who have been made redundant since 23 September. Any employer still thinking along those lines should certainly seek legal advice before reinstating. But if it still does decide to re-employ, it should be particularly careful about the wording of any re-engagement agreement. Fixed term agreements which expire automatically without the need for further notice periods would be sensible.

Our final thoughts and observations

This is a potentially huge change to the CJRS. (Or the government might just backtrack at the end of November!) Either way though, employers now need to carefully weigh up their options in the light of this development.

Separately (and somewhat speculatively on our part), we also suspect that this change may be indicative of the government policy "direction of travel" in connection with the CJRS. Although the CJRS is presently scheduled to continue until 31 March, the government are going to review it in January.

If a shortish lockdown is successful in curbing the virus, and if optimism over vaccination picks up during November and December, we could well see the CJRS rules which apply in February - March 2021 requiring significantly higher employer contributions than is presently the case. This may be particularly so if the rebellion within the Conservative Party about the continued use of the supposedly "untargeted " and "indiscriminate" nature of CJRS funding gathers pace. Which it well might.

All things considered, given this development, when it comes to potential restructures and redundancies, we think that a greater number of employers are now likely to focus earlier than they perhaps otherwise would have on considering their medium-term strategic options.

For advice and support with making redundancies whilst using the Coronavirus Job Retention Scheme or advice on furlough agreements, call us now for a friendly chat about your needs.