May 2020 – Furlough – planning an exit strategy

23 April 2020

The government’s Coronavirus Job Retention Scheme is currently due to end on 30 June 2020 (having been extended from 31 May). It has provided employers with some important breathing space and there is no question it has saved jobs. But as the end of the scheme draws closer, it is important for employers to start considering their furlough exit plans.

Here are some key considerations:

End furlough and bring employees back to work on their previous terms and conditions

There is no prescribed mechanism for bringing employees back to work, but we would anticipate giving no less than 48 hours’ written notice. In practice, most employers are likely to communicate their plans to employees no later than the middle of May

Extend furlough (on the same or revised terms) without benefit of the government grant

The Coronavirus Job Retention Scheme created a form of agreed lay off even where there was no contractual lay-off provision. The scheme does not allow employers to compel employees to be furloughed, but it enables the payment of a grant where they agree. 

End furlough and bring employees back to work on reduced pay but the same hours

Employers are likely to use this where they anticipate being able to return to near normal trading conditions soon, but the restricted period has created cash-flow challenges making it difficult to pay employees their full pay without risking the financial security of the business.

End furlough and bring employees back to work on reduced hours and pay

This approach will help employers who wish to retain trained employees and avoid the cash-flow challenges of redundancy costs.

End furlough and bring employees back to work on reduced pay but the same hours

Employers are likely to use this where they anticipate being able to return to near normal trading conditions soon, but the restricted period has created cash-flow challenges making it difficult to pay employees their full pay without risking the financial security of the business.

Offer unpaid (or part-paid) leave or sabbaticals

This is likely to be considered by employers who want to retain all their employees (e.g. because they are highly skilled or trained) but need to “buy some time” to allow the business return to normal trading conditions. From an employee perspective, this option might be particularly appealing to those with school-age children (assuming schools do not return before September) or those with caring responsibilities.

Make redundancies/headcount reductions

There are unfortunately likely to be many employers who, in the absence of any extension to the furlough scheme on the same or similar terms to those currently applying, will see no other option but to reduce headcount by implementing redundancies. This will trigger individual and possibly collective consultation obligations.  

With the furlough scheme currently set to end on 30 June, employers need to start planning their next steps quickly. We can help by: working with you to forecast future staffing requirements against your cost base; helping identify options to reduce or defer staffing costs in the short, medium or longer term; identifying the legal and other risks attaching to each option; advising on EWCs and providing international support; assisting with implementation and providing you with the required documentation; supporting you if you need to consider insolvency proceedings. Contact: yoko.nakada@lewissilkin.com