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Employment Law News

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Redundancy: new rules prescribe pay entitlements for redundant furloughed workers

As the Coronavirus Job Retention Scheme (Scheme) winds down we consider what employers are required to pay to redundant furloughed employees.

The Coronavirus Job Retention Scheme (Scheme) has recently begun to wind down, with Government contributions dropping to 70% of pay from 1 September 2020 and then to 60% from 1 October 2020.  The Scheme will close altogether on 31 October 2020.  Employers with employees still on furlough must now grapple with whether they are able to bring those employees back to work, or whether the workforce will need to be restructured in the wake of the pandemic.

Where a redundancy situation has arisen, employers may commence redundancy consultation and, ultimately, make furloughed (or previously furloughed) employees redundant.  On 31 July 2020, new regulations came into force which stipulate what employers must pay to redundant employees who are, or have been, furloughed. 

Notice pay

Can the cost of notice payments be recovered under the Scheme?

Where an employer opts to make redundancies during the life of the Scheme, the guidance provides that an employer is able to make a claim under the Scheme for wages paid to an employee serving both statutory and contractual notice periods.  However, claims may not be made under the Scheme to cover payments made in lieu of notice. 

Where an employer opts to make redundancies after the closure of the Scheme, it will not be able to make any claim under the Scheme in respect of wages due for either the statutory or contractual notice period (assuming that notice period commences after the Scheme has closed).

This may act as an incentive for some employers to complete redundancy consultations and allow the notice period to run before the Scheme closes on 31 October 2020.

How should notice pay be calculated for furloughed employees?

The amount of notice pay due to a furloughed employee (or previously furloughed employee) will depend on the length of their notice entitlement and their particular working arrangements.

Where the employee is entitled to statutory notice only (or less than one week more than statutory notice), new regulations set out how a “week’s pay” is to be calculated:

• where the employee has normal working hours, their pay does not vary with the amount of work done (e.g. most salaried employees) and notice is calculated on or before 31 October 2020, then a week’s pay will be the employee’s normal, contractual rate of pay; and
• where the employee has variable working hours or pay, it is calculated by reference to their pay over the preceding 12 weeks.

In either case, any reduction in pay as a result of being furloughed should be disregarded.  In practice. this will usually mean that the employer will need to top up the employee’s pay for the notice period. 

The position appears to be less favourable for employees who are entitled to notice of at least one week more than statutory notice.  The new regulations are only engaged where the legislative provisions governing what employers must pay in respect of the statutory notice period apply – and they do not apply to this cohort of employees.  This means that the notice pay (both for the portion equivalent to the statutory notice period and for the additional contractual notice) should be based on the pay the employee would otherwise have received during their notice period.  Both the employment contract and furlough agreement should be reviewed to understand the employee’s entitlement here.  In practice, this may mean that the employer is able to take into account any reductions in pay as a result of being furloughed.  However, employers should give careful consideration to the public relations consequences of reducing notice pay in this way.  Employers such as Arcadia Group who are seeking to rely on this exception are facing heavy criticism for doing so.

As the rules in this area are complicated, we would recommend that employers take advice before calculating notice payments.

Redundancy pay

Employers cannot claim under the Scheme for an amount to cover either statutory or enhanced redundancy payments.  The employer must cover the cost of any redundancy payment which is due.

Where the employee is entitled to a statutory redundancy payment, the new regulations set out how a “week’s pay” is to be calculated:

• where the employee has normal working hours, their pay does not vary with the amount of work done (e.g. most salaried employees) and the statutory redundancy payment is calculated on or before 31 October 2020, then a week’s pay will be the employee’s normal, contractual rate of pay; and
• where the employee has variable working hours or pay, it is calculated by reference to their pay over the preceding 12 weeks.

Again, in either case, any reduction in pay as a result of being furloughed should be disregarded.  However, the maximum cap on a week’s pay for the purposes of calculating statutory redundancy payments still applies (currently £538). 

Where an employee is also entitled to an enhanced redundancy payment, the amount payable will turn on what is said in the employment contract, any relevant policy and the furlough agreement. In practice, this may mean that the employer is entitled to take into account any reductions in pay as a result of being furloughed. 

BDBF is currently advising many employers and employees on the challenges presented by the coronavirus.  If you or your business needs advice on furlough or other coronavirus-related matter please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

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Unfair dismissal: employer’s loss of trust and confidence relevant to whether the Tribunal should order re-engagement

In a recent case, the EAT considered whether a Tribunal was right to order an employer to re-engage a former employee in whom they had lost trust and confidence and place them into a role for which they lacked the essential skills.

What does the law say?

Where an employee has been unfairly dismissed, the usual remedy is to award compensation designed to compensate for lost earnings. However, employees can ask the Employment Tribunal to order that they are reinstated or re-engaged by their former employer. 

“Reinstatement” means that the employee is placed back in his or her original job and treated as if they had not been dismissed.  “Re-engagement” means that the employee is re-engaged in a job that is comparable to their previous role.  A Tribunal’s decision to order reinstatement or re-engagement is based on various factors including: the employee’s wishes; whether the employee contributed to the dismissal; and whether it is practicable for the employer to comply with the order. 

What happened in this case?

The Claimant began working for the PGA European Tour (PGA) in 1989 as its Marketing Director.  By 2015, he had been promoted to Group Marketing Director. Around the same time, PGA appointed a new Chief Executive who decided to dismiss the Claimant on performance grounds.  The Claimant brought a claim of unfair dismissal and PGA conceded that the dismissal was procedurally unfair.  Therefore, the Employment Tribunal proceeded to consider remedy. 

The Claimant asked to be reinstated to his role or, alternatively, re-engaged in a comparable role.  PGA argued that such an order should not be made because the Chief Executive had lost trust and confidence in the Claimant, stemming from his concerns about his performance and also his integrity (it had been discovered after the dismissal that the Claimant had covertly recorded meetings with him). 

The Tribunal declined to order reinstatement but concluded that PGA’s concerns were not a barrier to re-engagement.  In its view, the Claimant has 26 years’ service and had not been given enough time to prove himself to the new Chief Executive.  Further, the concerns about integrity could be overcome.  It ordered that the Claimant be re-engaged in the role of “Commercial Director, China PGA European Tour”, despite the fact that the Claimant could not speak Mandarin, which was required for the role.  The fact that the Claimant was good at languages and was willing to learn Mandarin meant that it was still practicable to engage him in the role.  PGA appealed the re-engagement order.

What was decided?

The EAT allowed PGA’s appeal and overturned the re-engagement order. 

The EAT rejected the argument that trust and confidence is only relevant to practicability where the dismissal was for conduct reasons – it could also be relevant to capability dismissals.  A genuine loss of trust and confidence may mean re-engagement is not practicable.  The relevant question was whether PGA had a genuine and rational basis for believing that trust and confidence had been lost.  The Tribunal had gone wrong by considering for itself whether trust and confidence had been damaged; its role was to test whether PGA had the necessary genuine and rationally held belief.

The EAT also held that the Tribunal had gone wrong by substituting its own view on whether the ability to speak Mandarin was essential for the role.  The Tribunal had failed to give weight to the employer’s cogent commercial judgement in this respect.  Where an employee does not meet an essential requirement of the role this will usually mean that re-engagement is not practicable.

The case will now be sent back to the Tribunal to decide what compensatory award should be made to the Claimant.

What are the learning points for employers?

Although orders for reinstatement or re-engagement are rare (they are made in less than 1% of cases), if ordered, they have serious consequences.  Firstly, the employer will usually be ordered to make up all the employee’s lost salary and benefits for the period between the date of dismissal and the date of the reinstatement or re-engagement.  Secondly, the employer is faced with either taking back the dismissed (and probably unwanted) employee or refusing to comply with the order and paying an additional award of between 26 and 52 weeks’ pay (on top of other compensation).  The amount of a “week’s pay” is capped for this purpose.  Currently, the minimum award is £13,988 and the maximum award is £27,976. 

Where there is a risk that an unfair dismissal complaint will be upheld, employers should turn their mind to how they would respond to an order of reinstatement or re-engagement.  Employers who wish to argue that such an order is not practicable because trust and confidence has been irreparably damaged must be ready to demonstrate that: (i) they genuinely believe that to be the case; and (ii) that belief is not irrational.  Helpfully, employers are able to rely on relevant events occurring after the dismissal if they have contributed to the loss of trust and confidence. 

Kelly v PGA European Tour

If you would like to discuss any of the issues raised in this article or how BDBF can help your business navigate a dismissal process, then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

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Dismissal for loss of trust and confidence was fair despite lack of dismissal procedure

A recent decision shows that where there has been an irretrievable breakdown in relations between colleagues, an employer may be able to dispense with a formal dismissal process and still dismiss fairly.

What does the law say?

It is potentially fair to dismiss an employee for a substantial reason other than conduct, capability, redundancy or illegality.  Such dismissals are known as dismissals for “some other substantial reason” or “SOSR” for shorthand.  There is no statutory definition or guidance on what reasons fall within the scope of SOSR, but the reason must be substantial and justify the dismissal of the employee holding the job in question.

The dismissal process set out in the Acas Code of Practice on Disciplinary and Grievance Procedures applies to “disciplinary” dismissals only (i.e. misconduct and poor performance) and so will not normally be engaged in SOSR dismissals.  This means that employers have a little more leeway in how they run the dismissal process when dismissing for SOSR.  However, employers will still usually be expected to follow some form of process involving discussion, consultation and listening to the employee’s representations.

What happened in this case?

The Claimant was employed between 2007 to 2017.  In 2014, she developed negative feelings towards her line manager, Ms Taggart, after she had failed to authorise a salary increase.  In the years that followed, their relationship deteriorated further.  Ms Taggart felt that the Claimant did not trust her, was intransigent, disrespectful and made poor business decisions.  Separately, the Claimant’s direct reports had raised concerns about her leadership qualities and her ability to delegate and provide support.

Ms Taggart concluded that there had been a breakdown in trust and confidence, which was disruptive to the team and the wider business.  This conclusion had been reached at a critical time for Ms Taggart’s team, which needed to take forward key deliverables to help the business navigate a trading loss.  Taking all of this into account, Ms Taggart decided to dismiss the Claimant.

The Head of HR advised that because this was not a conduct or performance dismissal, and because the decision had already been taken, there was no benefit to following a dismissal process.  Accordingly, Ms Taggart told the Claimant that she was to be dismissed in her annual appraisal meeting.   Her employment terminated about 3 weeks later.  No right of appeal was offered.  The Claimant claimed that she had been unfairly dismissed.

What was decided?

The Employment Tribunal concluded that the dismissal was not for either conduct or performance reasons, but for SOSR, namely the loss of trust and confidence between two senior employees which had become a barrier to delivering the objectives of the business.  Accordingly, the employer was not obliged to follow the Acas Code of Practice prior to dismissal.  Further, the Tribunal did not feel that any other form of dismissal process would have served a useful purpose and, in fact, may have worsened the situation.  It also concluded that any appeal would have been going through the motions because “it was not a situation where an alternative decision could be reached”.   Despite the lack of dismissal process or appeal, the Employment Tribunal concluded that the dismissal was fair.

On appeal, the Scottish EAT noted that a failure to follow a dismissal procedure would often mean that the dismissal was outside the band of reasonable responses and unfair.  Although it would be unusual and rare for a dismissal to be fair without any procedure, this was one such case.  The loss of trust and confidence had been mutual, there was no suggestion that the Claimant had been interested in retrieving the relationship and following a formal process would have been futile and even damaging.  The appeal was dismissed.

What are the learning points for employers?

This decision highlights that a dismissal due to a breakdown in relations between colleagues may be treated as being for SOSR, rather than conduct or performance.  However, employers should also be prepared for greater scrutiny of SOSR dismissals where a junior employee is dismissed following a breakdown in relations with a more senior employee.  The EAT warned that “…any substantial disparity in seniority between protagonists [is] likely to put the Tribunal on high alert that the alleged breakdown in relations is a cloak for another reason for dismissal”.

Where a dismissal is categorised as for SOSR, rather than conduct or performance, this will permit greater leeway over the procedure to be followed.  Exceptionally, as here, it may be reasonable to dispense with a procedure altogether.  However, in the vast majority of cases it would be prudent to follow some form of dismissal procedure (including offering a right of appeal) to limit the risk of an unfair dismissal claim.  Once the process is underway, it remains open to an employer to make a without prejudice settlement offer to the employee in order to accelerate the exit.

Gallacher v Abellio Scotrail Ltd

If you would like to discuss any of the issues raised in this article or how BDBF can help your business navigate a dismissal process, then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

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Further details of the Job Retention Bonus for employers announced

The Government has published further details of the Job Retention Bonus which will be payable to employers who employ furloughed employees until at least 31 January 2021.  Fuller guidance is due to be published in September.  In this briefing, we outline the key information for employers considering making claims.

What is the Job Retention Bonus (JRB)?

The JRB is a taxable one-off payment of £1,000 that will be paid to employers in respect of every eligible employee that is claimed for.

Which employers are eligible to claim the JRB?

Employers of all sizes and from all sectors are eligible to claim the JRB. 

Which employees can be counted for the purposes of a JRB claim?

A claim may be made in respect of all employees (or other types of eligible workers) who:

• were furloughed under the Coronavirus Job Retention Scheme (Scheme) at any point;
• were continuously employed by the employer from the date of the most recent claim under the Scheme (for each employee) made until 31 January 2021;
• are not serving a notice period that started before 1 February 2021;
• were paid at least £520 per month on average between 1 November 2020 and 31 January 2021 (i.e. a total of £1,560 over 3 months); and
• have up-to-date Real Time Information (RTI) records for the period up to 31 January 2021.

Claims may also be made be in respect of employees who transferred to the employer by virtue of TUPE or the PAYE business succession rules provided that the employees transferred on or before 31 October 2020 and were furloughed by the new employer.

How and when may JRB claims be made?

Claims may be made on a Government website after the employer has filed PAYE for January 2021.  Payments will be made to employers from February 2021.  Further details of the application process will be published in September 2020.

Do employers have to pass on the JRB to the employees?

No, the JRB is a payment intended to provide additional support to employers who kept furloughed employees in employment after the closure of the Scheme on 31 October 2020.  An employer could elect to make an equivalent bonus payment to the affected employees if it wished, but there is no obligation to do so.

Are there any conditions attached to the use of the JRB?

No, employers can use the JRB as they wish.  The JRB will be taxable, so the employer must include the whole amount as income when calculating taxable profits for Corporation Tax or Self-Assessment.

What steps should employers who wish to make JRB claims take now?

Employers can prepare for making JRB claims by ensuring that:

• all claims made under the Scheme are accurate and any necessary amendments have been notified to HMRC;
• relevant employee records are up to date; and
• employees’ details and wages have been accurately reported through the RTI system;

If HMRC considers that a claim made under the Scheme was invalid it will withhold payment of the JRB until it has completed an enquiry into the matter.

BDBF is currently advising many employers and employees on the challenges presented by the coronavirus.  If you or your business needs advice on furlough or other coronavirus-related matter please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

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AWARD-WINNING EMPLOYMENT LAW FIRM BDBF LANDS SENIOR EMPLOYMENT LAWYER PAULA CHAN

Market-leading, specialist employment law firm BDBF, ranked as one of The Times’ Best Law Firms, today announces the appointment of new equity partner Paula Chan. Previously a senior employment lawyer who led the employment department at a top national firm, Paula’s hire adds significantly to BDBF’s already strong market lead for representing senior individuals in regulated sectors in their employment disputes.

Since its launch eight years ago BDBF has risen quickly to the top of the rankings in its chosen areas of practice, according to the leading legal directories. Paula’s appointment continues BDBF’s growth trajectory both in terms of size and market stature.

Over her 10 years in practice, Paula has worked on high-profile employee exits and high-value whistleblowing, breach of contract, and workplace discrimination disputes. Her professional pedigree further strengthens BDBF’s offering to senior individuals in the financial and professional services sectors, also in the technology, healthcare, and other regulated industries.

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Gareth Brahams, Managing Partner of BDBF said,

“We are delighted Paula has joined the firm, bringing her expertise and energy for representing senior executives which aligns with our strategic focus. Paula joins at a time of unprecedented change in the workplace and her experience, particularly in the financial, legal and professional services sectors, will ensure that we continue to cement our position as the go-to firm for senior regulated individuals in their employment disputes.”

Paula said,

“I am excited to be joining BDBF and to working with a team of other market-leading employment law experts with a reputation for excellence and groundbreaking work. I look forward to contributing to the next chapter of the firm’s growth.”

You can learn more about Paula here.

Brahams Dutt Badrick French LLP is a specialist employment law firm with expertise in advising senior executives, based in the City of London; a Times Best Law Firm in 2019 and 2020, and top-ranked in both Chambers & Partners and Legal 500 legal directories. Established in 2012, its lawyers have decades of experience resolving the toughest workplace disputes for senior executives. It has a solid track record of successful and ground-breaking litigation, advancing the law in complex areas such as whistleblowing. BDBF provides responsive, engaged, and hands-on advice to employers from start-ups to multinationals.   Its diverse staff collectively own over 15% of the firm through an innovative employee ownership model. BDBF has 4 female Equity partners and 2 male Equity partners.

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