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Confusion over redundancy payments could lead to employers breaking the law

Employers who calculate redundancy pay based on furlough pay, rather than an employee’s previous full salary are breaking the law, Mander Hadley’s employment law expert has warned.

Recent media reports suggest some companies have been using the lower 80 per cent rate of furloughed pay rather than an employee’s full salary when calculating redundancy payments – a move which risks hefty fines for breaking employment laws.

More than 8.7million workers have been furloughed under the Government’s scheme to protect jobs.

However, as many roles may no longer be sustainable, it is expected that there will be a significant increase in redundancies in early autumn, as employers begin downsizing consultations ahead of the closure of the furlough scheme on 31 October.

Amanda Hyam, a Senior Associate with Mander Hadley, who specialises in employment law, said: “It is important to understand that employees’ rights are not affected if they are put on furlough. Their rights relating to redundancy remain unchanged and this fact is clearly outlined in the Government’s Coronavirus Job Retention Scheme (CJRS) guidance.

“Although employees will have agreed to a lower salary of 80% in order to be placed on furlough, this does not change their rights to have their full salary amount used in any subsequent redundancy calculations.

“Different rules will apply for notice pay which will be dependent upon whether the employee is entitled to statutory notice or contractual notice. If the employee is only entitled to statutory notice, the notice pay is based on full salary, not furlough salary. If the contract gives at least one week more than statutory notice, notice pay depends on the furlough agreement.

“If the employee is on furlough for the duration of the notice period, then notice will be paid at the same rate as furlough pay. If the furlough period comes to an end before the end of the notice period, then the employee is entitled to 100% for the period in which furlough has ended.”

Redundancy and notice pay entitlement may not be the only issues that employers will need to contend with over the coming months.

Amanda continued: “Early indications suggest we will see an increase in employment disputes as a consequence of the emergency measures employers have deemed necessary during the Coronavirus outbreak.

“The increase in the number of redundancies will inevitably lead to some accusations of unfair or discriminatory selection.

“Where employers have varied staff contractual terms and conditions, disputes may arise if employees allege a failure to consult and obtain agreement.

It is widely expected that in order to resolve employment disputes, settlement agreements will significantly increase in the coming months.

“If this route is under consideration, it is important to remember that an employee must receive legal advice prior to signing a settlement agreement and that the cost of this is usually borne by the employer.”

For help and advice with all aspects of employment law including redundancy, disputes and settlement agreements, please contact us.

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Amanda Hyam

Amanda Hyam

Associate – Dispute Resolution / Employment
I have specialised in Dispute Resolution, Civil Litigation and Employment law for more than 15 years.  I understand how daunting the prospect of litigation can be and because of this I am always available to discuss concerns.

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