Furloughs and Lay-offs

The last thing employees and employers want is lost jobs. It means financial uncertainty for everyone involved, which is why most employers do everything they can to prevent downsizing or prolonged closures. However, reality sometimes forces the situation, as is the case with the coronavirus disease 2019 (COVID-19) pandemic. Many businesses without the ability to have employees work from home have been ordered to close by the UK government, compelling employers like you to make tough decisions—namely, whether to lay off staff or furlough them.

What are furloughs?

Furloughs are periods where employees are not working nor getting paid. Essentially, workers are placed on temporary unpaid leave until the business reopens. Depending on the employer (and potential contract stipulations), employees may even be allowed to work for other businesses while on furlough from their primary employer.

What are lay-offs?

Whereas furloughs are temporary arrangements, lay-offs are permanent. Lay-offs are mass firings of employees, sparked by a need to cut expenses to save an organisation in crisis—not typically due to employee performance.

Pros and Cons

Laying off employees might seem like an enticing option to an employer who needs to save money, but it may not be the best decision in every situation. Consider these pros and cons when determining whether a furlough or a lay-off is the best option:

  • Laying off most or all of the workforce would necessitate recruiting and training a similar number of people once the ordeal is over. This can be extremely costly and time-consuming.
  • Furloughing some employees enables employers to keep a ‘rotating’ schedule, where everyone has reduced hours instead of only a few having full hours.
  • Lay-offs immediately free up lots of money in terms of salary payments.
  • Furloughs enable employers to resume operations quickly after the situation changes.
  • Furloughed employees may resent the business if they don’t receive any compensation during this period. Disgruntled workers may not be eager to be productive when they return.
  • Furloughing your staff due to the economic impact that COVID-19 has had on your business could make you eligible for some degree of employee wage compensation under the Coronavirus Job Retention Scheme. For further information on this temporary government scheme, click here.

Making the Decision

At the end of the day, employers should do what’s best for their business. Even if that means lay-offs, employers should handle the situation with tact. Here are a few tips for navigating this tough decision:

  • Develop a plan—Be it a furlough or a lay-off, employers must decide how they will handle an impending crisis. This could mean a limited staff reduction or something more severe. In the case of a furlough, employers should try to be as accommodating as possible. If only some workers must be furloughed, a rotating schedule may be a more equitable decision.
  • Communicate honestly—Regardless of what an employer chooses, transparent communication is crucial. Let employees know that this situation is not a result of anything they did. Employees should also know that the precipitating factor was outside of the employer’s control (as opposed to mismanagement).
  • Keep in touch with furloughed employees—Employees on furlough should not conduct any work whatsoever for your organisation. However, that doesn’t mean they can’t stay in contact with their manager or co-workers. In fact, occasional check-ins are encouraged to help workers maintain a sense of normalcy. Through email or text, try to keep workers updated on the status of the business and when to expect resumed operations.

Legal Considerations

Employers should consult a legal professional prior to laying off or furloughing employees, as employers must ensure compliance with all applicable UK employment laws. Be sure to keep the following regulations in mind:

  • Employment Rights Act 1996—Under this law, furloughed employees have the same rights as they would in the workplace. This includes maternity and parental rights, rights against unfair dismissal, redundancy payments and statutory sick pay. If you decide to lay off employees, your organisation is required to provide each employee with adequate notice before terminating their contract of employment. Specifically, you must:
  • Provide at least one week’s notice before terminating the contract of an employee that has been continuously employed by your organisation for less than two years.
  • Provide at least one week’s notice for each year of continuous employment before terminating the contract of an employee that has worked for your organisation for more than two years but less than 12 years.
  • Provide at least 12 weeks’ notice before terminating the contract of an employee that has been continuously employed by your organisation for 12 years or more.

For further information on this regulation, click here.

  • The Equality Act 2010—This law protects employees from various forms of discrimination (eg age, race, gender, religion, sexual orientation and disability) in the workplace. When making decisions regarding which employees to lay off or furlough, this regulation still applies. With this in mind, it’s crucial to provide valid reasoning to your employees when discussing a lay-off or furlough decision. Failure to comply with this law during the lay-off or furlough process could result in costly discrimination claims. For more information on this regulation, click here.

Conclusion

Deciding whether to lay off or furlough employees is not a simple task. Employers must weigh the welfare of their employees against the financial realities of running a business. In these situations—regardless of what you decide—transparency is key for a smooth transition.

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