As the Corona Virus pandemic spreads, businesses in the UK are understandably concerned, with the government requiring the closure of all businesses where social gatherings take place, such as restaurants, pubs and gyms. Widespread travel bans, a fall in oil prices, and drop in trade demand globally has led to many employers in the travel, leisure, retail, logistics and hospitality sectors considering their options and looking to ride out the storm through making cuts where they can.
This situation is unique. Has there ever been a sharp economic and social downturn like this before? Yes, history is littered with pandemics, outbreaks, economic crashes and scandals and there have been many large scale downturns before - world wars, embargoes, financial crashes - but arguably there has never been an event like this that has so quickly taken ahold and impacted every major trading country, nor one where every government seems to have adopted the same approach in tandem in ordering the effective shut down of society. Globalisation and interconnected cross-border business exacerbates and magnifies the risk of the current situation. The brakes have been slammed on the world and a chain of events put in motion - even when the virus risk begins to subside, starting up the engine of the world is not going to happen overnight. Governments and businesses alike are now in damage-control mode.
The UK government has announced extreme fiscal and monetary measures to try and combat the adverse impact of what is happening, and the Chancellor has pledged the government's commitment to support UK businesses, business owners, and employees alike.
However, despite the Chancellor introducing interim measures to help support our businesses and to even pay wages for some employees, it seems that many people are losing their jobs through dismissals (some redundancy, some not). At the moment, people are preoccupied with monitoring what is going to happen with the Corona Virus and runs on the supermarket. Disruptions are widespread, even to the courts. At this time, nobody is really questioning employment decisions being made, but the question must be asked, have fair employment procedures gone out the window?
"...nobody is really questioning employment decisions being made, but the question must be asked, have fair employment procedures gone out the window?"
Employers must act in accordance with their employee's contract of employments and the Employment Rights Act 1996. These laws are people's protections for their job security. What good would they be if they were not enforceable during times when people need their jobs most, such as in crises or sharp downturns. Are employers acting in accordance with the correct procedures, and if the answer is no, will they be liable to tribunal claims against them after the virus has been contained?
Coronavirus has immediately reduced demand for services and economic earning reports in the coming months will confirm the real damage done. There is potentially redundancy situations arising. However, even where there are instances of redundancy, employers would be well advised to remember fair process and what their obligations as an employer are, not acting prematurely and to read government advice on what support is available to them before making decisions.
"...employers would be well advised to remember fair process and what their obligations as an employer are, not acting prematurely and to read government advice on what support is available to them before making decisions."
An employee who has been continuously employed for more than 2 years has the right not to be unfairly dismissed. There are two stages to an unfair dismissal. First is whether the dismissal itself is for a fair reason (ERA 1996, s98); and second, is whether the procedure followed in making the dismissal was fair (procedural fairness). In this instance, it will largely be the latter that will be important for employers to consider and to ensure that, whilst swift action may need to be taken, they still need to follow a fair procedure in consulting with their employees.
In a redundancy situation, to avoid potential liability for unfair dismissal an employer will need to show that they have dismissed employees as a result of a genuine redundancy situation and acted reasonably in dismissing. The actions of the employer will go a long way in indicating whether they have acted reasonably, for instance, an employer should:
- Communicate with its employees - consult with them about the proposed redundancy and the impending situation;
- Adopt a fair criteria on which to select for redundancy. This is done by identifying a ‘pool’ of similar employees from which candidates for redundancy are selected using defined criteria.
- Consider whether there are suitable alternative employment roles within the organisation, or in this current pandemic, consider whether there are non-permanent short term options to lay off employees until the situation recovers.
Redundancy is permanent and costly – staff who have been made redundant usually cannot be rehired because that would evidence that the dismissal reason was unfair. Therefore, employers should be considering all of their options at this time:
- Have they consulted the government guidance and spoken with their local authorities as to what reliefs and assistance is available to them?
- Are there alternatives to permanent redundancy which might be more suitable to a temporary setback.
- Can the employer and employee reach express agreement on their contractual employment terms as to how staff can be paid during the downturn?
Unlike unfair dismissal and redundancy, an employee has protection against wrongful dismissal from day one. Wrongful Dismissal relates to where an employer has acted in breach of the employee's contract.
Where an employer has breached an employment contract by laying-off an employee or seeking to put them on short-time working without consent, the employee has a number of options. They can either:
- Accept the breach of contract and treat the contract as continuing, while potentially claiming a statutory guarantee payment.
- Sue for damages for breach of contract.
- Claim before an employment tribunal that there has been an unlawful deduction of wages under Part II of the ERA 1996.
- Claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to potential claims for unfair dismissal and/or redundancy pay.
Laying off and short-time working as temporary measures.
It is rare that a right to lay off or short-term working would be provided for in a full time contract of employment as standard, unless in a certain industry. This may be possible in zero hour contracts or worker contracts. However, with a contract of employment without such option, it may still be possible to consider obtaining mutual agreement with the employee as to how to deal with this situation in the interim. If you were to do this, this must be legally documented in a proper written agreement before the onset of any such arrangement.
Laying off refers to the situation where, without actually terminating their employment, an employer provides no work and no pay to their employees for a period of time. Laying off is an interim solution, but it can help avoid the need for redundancies during this time.
Short-time working means providing employees with less work (and less pay) for a period while still retaining them as employees. Like laying off, it is a temporary solution which may be an alternative to redundancy when businesses face unexpected challenges.
Employees are more likely to accept being laid off or placed on short-time working where they anticipate that the situation is temporary. This is in both the employer’s interest, because if an employee treats their contract as continuing it prevents them from bringing any claims, and the employee's interest as it protects their job for future. Communication is key. Employers should make sure their employees understand why they are being asked to work less and whether there is a realistic prospect that the business will recover. At this moment in time, it is fair to say that most would understand.
"...Communication is key."
Consult Government Measures and the support available to you
The Chancellor has set out a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19.
This includes a package of measures to support businesses including:
- a Coronavirus Job Retention Scheme
- deferring VAT and Income Tax payments
- a Statutory Sick Pay relief package for SMEs
- a 12-month business rates holiday for all retail, hospitality and leisure businesses in England
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
- the HMRC Time To Pay Scheme and delaying self-assessment tax payments by up to 6 months.
Consider all available Options; Communicate with your staff; Act reasonably and fairly in good faith documenting your decision making process.
During this uncertain time, employers have a responsibility to its employees to show them a duty of care, whilst managing its own bottom line and in worst hit cases, trying to survive. It is important that employers do not overreact during this time or 'shoot from the hip' in a bid to reduce its overheads. Employers are well-advised to consult professional advice in how to handle the current ongoing situation in relation to its employees and to consider all of its options, including the assistance that may be available to it, before making permanent decisions that could result in incurring liability for failing to comply with its duties, rather than helping the situation.
This information is in no way to be taken as legal advice or tax advice. It is for information purposes only and is in no way to be relied upon. You should always seek the appropriate professional legal advice before attempting to act on any of the information given here.
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