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Alternatives to the Coronavirus Job Retention Scheme

April 3, 2020
Insight

The Government’s recently launched Coronavirus Job Retention Scheme has been described as an “unprecedented” step to help employers subsidise their staff’s wages.

Covering up to 80 per cent of an employee’s wage costs, capped at £2,500, the scheme is due to go live imminently – with the first payments being made by the end of April.

However, as the Government’s guidance makes clear the Scheme is only available where an employee is not working.

There may also be other reasons why employers and workers are either unable or unwilling to use the Scheme, so it is important that they consider alternative options.

Options available to businesses as an alternative to furloughing employees can be categorised as follows:

Seek agreement from affected staff to reduce pay/ hours/ take unpaid leave

  • Seek agreement to a temporary reduction in:
  • Salary
  • the number of days/hours that they work
  • Seek an agreement to a temporary period of unpaid leave.

In essence these are all fundamental changes to an employee’s terms and conditions of employment.

Such drastic changes to terms and conditions of employment will therefore need to be negotiated and agreed with the affected employees on a one to one basis. Any such agreement should be confirmed in writing by a letter of variation to their contract.

This could be negotiated on the basis that it’s an alternative to redundancy. With the Coronavirus job retention scheme now open to employers though this may not be as an attractive an argument for an employer to try to put forward.

Be warned also that trying to unilaterally impose such significant changes to terms and conditions risks those employees with over two years’ service resigning and bringing a claim for unfair dismissal exposing an employer to financial liability.

An award for unfair dismissal comprises of a basic award, calculated in the same way as statutory redundancy entitlement, together with compensation for loss of earnings of up to one year’s salary capped at a maximum of £88,519 from 6 April.

Unilaterally trying to change an employee’s terms and conditions also exposes an employer to claims of breach of contract and unlawful deduction of wages.

In circumstances where the employee will not agree to such a fundamental change to their working arrangements the alternative route available to an employer is to terminate the targeted employee’s existing contract on notice and offer them a new contract with the reduced contractual entitlements.

Be warned against this though, as it is a high-risk strategy that also exposes an employer to a claim of unfair dismissal in the case of those employees with over two years’ service where they are unwilling to accept the new contract.

Whilst the loss of earnings element of any award will be reduced, being made of the pay differential between the respective salaries, as the employee is under a duty to mitigate their losses, such a route still needs to be handled very carefully.

With regard to employees with less than two years’ service the position is more straightforward. These can be dealt with by terminating their current contract on notice and offering them a new one on the reduced terms without the risk of a claim for unfair dismissal.

That gives an employer more flexibility and agility in terms of this category of workers.

Temporary suspension or withdrawal of bonus schemes

This is another option that would potentially be worth exploring for employers to save costs.

It is worth noting that these performance related schemes cannot be claimed for under the Job Retention Scheme anyway, so even those using the Government’s help should consider withdrawing them.

Where the outline of performance related pay is included within an employee’s contract, you may need to seek a variation to these clauses.

Encourage staff to take annual leave

An employer could encourage staff to take annual leave if the business is struggling.

An employer ought to expressly reserve the right to ask staff to take holiday at a specific time in its contracts.

Under statutory rules the position is it is obliged to provide notice of at least twice the amount of time as the leave you want them to take.

Temporary layoff/ short term working

Employers can temporarily lay off staff, but unless they have specific layoff clauses in their contracts, employees need to be paid their full wages during this time.

Employers with layoff clauses in their contracts would only need to be paid the statutory guarantee pay – currently £29 a day for five days (limited to a maximum of £145 within any three-month period), increasing to £30 a day from 6 April.

The statutory right to temporarily lay off staff is only available if there is a contractual right in the contract of employment.

This is not a common clause seen written into contracts of employment (it may be in future!) so not a route available to many employers.

Offer unpaid sabbaticals

An employer could ask staff to take up the offer of an unpaid sabbatical of a couple of months. They would need to agree this.

Frankly though it’s not a very attractive option to put to staff given the Coronavirus Job Retention Scheme is now available.

Postponing new starters or withdrawing job offers

Regarding new joiners, employers may have to consider postponing their recruitment.

In terms of any job offers already made and accepted, any withdrawal may give rise to a claim of breach of contract to the extent of the relevant individual’s notice entitlement.

Making staff redundant

This should only be seen as a last resort for employers given the alternative options available as outlined above.

Redundancy in essence involves the loss of a job or at the very least a significant reduction in work.

In the event that an employer did decide they wanted to go down this route then good grounds would need to be established for making redundancies and proper procedures followed (involving giving waring of potential redundancy, followed by consultation and then notice) to avoid claims of unfair dismissal for staff with over two years’ salary.

Making staff redundant with over two years’ salary takes time – typically consultation would take at least a couple of weeks and then notice of up to 30 days needs to be given.

Employees with over two years’ service have an entitlement to statutory redundancy pay. This can be calculated by clicking here.

For staff with less than two years’ service they do not have unfair dismissal rights and can simply be terminated on notice. There is no entitlement to statutory redundancy entitlement.

The Coronavirus Job Retention Scheme is specifically intended to avoid businesses in every sector, including the law, going down this route.

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