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New Law on Redundancy and Notice Pay – Furloughed Employees

New law came into force on the 31st of July 2020 relating to redundancy and notice pay for furloughed employees.  The new law will apply to any employees made redundant between 31st July and 31 October 2020.

The government incredibly announced and passed these new regulations within a 48- hour window.  The Employment Rights Act 1996 (Coronavirus, Calculation of a Week’s Pay) Regulations 2020 were announced on the morning on 30 July, passed the same day and came into force on 31July 2020.

The new laws are intended to ensure that furloughed employees who are made redundant receive statutory redundancy and notice pay based on their “pre-furlough” rate. Perhaps owing to the lack of time for parliamentary scrutiny, the new regulations are cumbersome and difficult to distil into clear, concise rules. 

The furlough scheme requires employers to ask employees for their consent to be furloughed. When doing this, many employers made a commitment that if an employee subsequently had to be made redundant, they would pay notice or redundancy pay based on the employee’s pre-furlough wages or salary. However, not all employers were so generous. The government has now moved to close a “loophole” allowing employers in some cases to pay severance sums based on less generous furlough pay.

For employees with normal working hours, if the calculation date for statutory redundancy pay or statutory notice pay falls on or before 31 October 2020 (when the furlough scheme comes to an end), the amount which is payable “is to be calculated disregarding any reduction in the amount payable as a result of [the employee] being furloughed”. This also applies to contractual notice, if this is not at least one week more than statutory minimum notice. 

Similar provisions apply for employees whose pay varies with the time of or amount of work, or who have no normal working hours. In these cases, pay is normally averaged over the last 12 weeks. The new rules apply where this period includes at least one week during which the employee was furloughed.  In essence, pay for any period of time on furlough is not included in the calculation of notice pay, ensuring that the averaging is based on full rather than reduced pay.

The new regulations also protect employees’ pre-furlough position in respect of certain other claims where the calculation of a week’s pay is relevant, such as unfair dismissal basic awards, and claims relating to a failure to provide a statement of employment particulars. 

The new rules also do not preclude employers paying a lower rate of pay for contractual notice periods which exceed the statutory minimum by at least one week.

As the regulations come into force on 31 July 2020, any redundancy or notice payments already made before that date will not be covered by the new rules, meaning that employees who have already been made redundant may have missed out.

What it does mean for employers planning redundancies, or in the midst of consultation, is another drastic change in the wind.  The additional cost implications, which could not have been foreseen or factored into fiscal planning, may well cause even more employers to capsize under the storm of covid-19.

If a free consultation on this or any other employment law related issue would be of help, don’t hesitate to reach out to us

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