Redundancy – can employers use furlough money towards notice pay? 

With the lockdown restrictions easing, and the economy beginning to return to some form of normality, many companies are planning for the recovery of affected business. Unfortunately, for some this will mean cutting their overheads, and in particular reducing head count. With this in mind, many employers are exploring redundancies within their organisations and looking at the interplay between the Coronavirus Job Retention Scheme (the furlough scheme) and redundancy. 

The current Government guidance on the furlough scheme states that employers can make employees redundant whilst they are on furlough leave, or after their period of furlough leave expires. An employer cannot recover statutory redundancy payments under the scheme. 

There have been some concerns voiced by the Government about furlough payments being used in circumstances where they are not being used to support the continuation of employment, i.e. where employers are using the Government grant to fund the employee’s redundancy notice period. 

British Airways has recently attracted public attention by using furlough payments as a means of terminating the employment of its employees and re-engaging them on less favourable terms. Kelly Tolhurst, Aviation Minister, hit out at British Airways by saying “The scheme was not designed for taxpayers to fund the wages of employees only for those companies to put the same staff on notice of redundancy during the furlough period.” The UK Government has subsequently warned airlines to act with social responsibility, whilst  some MP s have urged the Government to change the furlough scheme to stop employers using it to fund notice pay of employees.  

There is no formal guidance on this at present, but the Third Treasury Direction at paragraph 2.4 (and 2.2 respectively) highlights that the Government grant should only be used for “the continuation of employment”. It remains unclear, but it appears to be the case that an employee who is working out their notice is still in continuing employment until the expiration of their notice period. The effect of the Treasury Direction is that the Government grant cannot be used to fund payment in lieu of notice (PILON), or statutory redundancy payments. If an employer has used or intends to use the grant for this purpose, it is likely that, if this is investigated by HMRC, the company could be subjected to fines and/or penalties. 

If a business becomes insolvent due to an inability to pay notice periods and/or statutory redundancy payments, it is likely that this sum will be picked up by National Insurance Fund. Redundancies could be funded by the Government regardless of the debate over the interplay with the furlough scheme. 

We shall continue to keep you updated regarding any further developments in Government advice on the furlough scheme.