Martin Lewis, Money Saving Expert, has in his latest newsletter encouraged employees who have recently been made redundant to contact their employers and seek to be re-hired and furloughed, following confirmation from the Government that employers are entitled to do this on the extended scheme.  However, whilst that would probably seem an attractive prospect for many cash-strapped job hunters, there are potential pitfalls for the employer.

How does re-hiring work?

Starting with the basics of who can be rehired, employers are entitled to rehire employees who were employed as of 23 September, and on the payroll on or before 30 October. 

The process itself is relatively simple, the reemployment would simply need to be offered and accepted, we would suggest in writing.  The employee would need to agree to be furloughed, and this would have to be a written agreement per HMRC rules regarding inspection of agreements.

What are the pitfalls?

Whilst rehiring sounds very easy, and will likely be tempting to employers who have close relationships with their staff and/or did not want to make redundancies in the first place, there are significant employment law implications. 

Costs

In addition to potential legal complications (set out below), the employer would have to consider costs.  The Government will cover up to 80% of the employees remuneration but employers should also consider:

• What if the employee earns more than the monthly cap of £2,500?  Are you expected (or obligated) to top up?

• What about administrative time?  You have just invested your resources into complying with the ‘leaver requirements’ such as producing P45s, and will now have to reverse that process.

• What about pensions and NI? Employers are responsible for this and, depending on your pension scheme, this could be costly.

• What about other benefits?  Is the employee entitled to have these reinstated, e.g. private medical insurance?

Employers should also be aware that the current scheme, where the Government contributes 80% will be reviewed in January 2021, and employers may then be expected to make contributions as they did in September and October.

Does the employee have to repay any redundancy pay?

The answer to this is that we are not sure.  However even if the employee was required to repay this, it cannot be guaranteed that they will be able to if they have already spent the money.

What happens to employees’ rights?

There seems to be no definitive answer to this, and it will probably be taken on a case-by-case basis.  Rehiring employees could either be seen as ‘new’ employment or a continuation of the ‘old’ employment.  The position is likely to depend on a number of factors, including the time which has elapsed between the dismissal and the re-employment. However the latter, if the employee was/will be employed for more than two years, means that they will have full employment rights, including the right not be unfairly dismissed and the right to a redundancy payment.  This may significant if the additional period would take the employee over that all-important two-year anniversary.

What happens at the end of furlough?

This is likely to depend on a case-by-case basis again, but most employees will probably be asking to be rehired whilst they look for another job, but what happens if they haven’t found a job by the end of March and then refuse to leave?  The answer would probably have to be tested in the Tribunals but it seems to us that the employer would be forced to dismiss.  Any agreement to resign is probably not enforceable, particularly if it is only verbal.  Bearing in mind that there would need to be a fair reason (especially if the employee has more than 2 years’ service), the employer would probably be relying on either:

1. Redundancy, which could mean that the employee is entitled to a redundancy payment (or possibly a second redundancy payment!); or

2. Some other substantial reason, with the risk that the Tribunal may subsequently determine that the employee was, in fact, redundant and the dismissal is unfair.

In either event, the employer would need to invest the time into conducting a fair process and, as is always the case when dismissing, opens themselves up to possible Tribunal claims.  It is also most likely that the employee would need to be given notice and payment of accrued but untaken holiday (potentially for the second time).

Maternity leave

What would happen if the employee became pregnant during furlough?  Would they be entitled to maternity pay?  If they are an employee, the answer is yes. 

The employee may also be in a protected position in respect of any dismissal, including potentially the right to a preference over alternative roles in any redundancy process.

Sickness

What are the employer’s obligations if the employee became sick, particularly long term sickness.  Could there still be a duty to make adjustments?  In any subsequent dismissal/redundancy this is likely to raise complex issues as discrimination.

Training

What if the employee is in a training-intensive job where skills must be kept up to date?  Here we are considering careers such as pilots, engineers, and lawyers.  We know that employees can undertake training whilst on furlough, but in this scenario is there an obligation for the employer to provide training, potentially at a significant cost?

Company insolvency

What would happen if your business went bankrupt during the period of furlough?  Aside from any moral standpoint that other employees may take over the company taking additional costs (as set out above) during a period where they could not sustain their business, would the furloughed employee be redundant?  It appears that the answer would be yes with all the potential complexities set out above.

If the company were purchased whilst in administration, would the employee be entitled to TUPE transfer to the purchaser?  Again, this appears likely which may make the business less attractive to prospective purchasers.

Other practical issues

The company may need to check its insurances and confirm that re-hired employees are covered.  They would also need to bear in mind their duties, such as health and safety, would continue to that employee. 

Settlement Agreements

If the employer has signed a settlement agreement given a tax-free payment to the employee, how would HMRC view that?  They may determine (though we have no case law on this point yet) that the original agreement was a fraud, bringing significant problems for both parties.

The spirit of the scheme

Whilst possibly not a consideration which all employers will be concerned about, is there a moral obligation to consider the spirit of the scheme? 

On the one hand, you might argue that these employees might otherwise apply for universal credit or other Government funded assistance, and therefore it makes no real difference where that assistance comes from. 

However, on the other you might consider that the furlough scheme was intended to avoid redundancies by taking the pressure off businesses to pay employees where there is a temporary downturn in work.  If you have already made the decision that an employee is redundant, it is likely to be because there is no prospect of the business recovering sufficiently to ‘save’ their job, and particularly in light of the above, should employers ask themselves whether they are simply prolonging the inevitable?  One probable consideration, which will mostly apply to larger businesses, is whether there is the prospect of bad PR for ‘misuse’ of the scheme, such as the likes thrown at Victoria Beckham, the Arcadia Group and Zoe Sugg aka Zoella.

Summary

Overall, it is clear that the situation is far from simple.  It is the case that, with furlough being so new and the Tribunals having such a backlog, we simply do not have the answer to many of these questions and are unlikely to do so for months, if not years.  Many employers may feel re-hiring is ‘doing the right thing’, particularly if pressure is being brought from ex-employees, and potentially colleagues they remain friendly with.  However, employer should carefully consider the risks that they are opening their businesses up to if they agree.  The decision is not one, in our view, that can be made lightly.

If you have any queries regarding furlough, employment issues in light of the Coronavirus measures, or redundancies, please do not hesitate to contact Charlotte Braham in our Employment Department on 01494 893529 or charlotte.braham@allanjanes.com.