Furlough fallout – Four lessons from the employment tribunal

Until recently, employers have had little guidance on furlough from the employment tribunals, but several interesting furlough decisions have now emerged, and we comment on their implications.

One of the key challenges for employers this autumn is the imminent closure of the furlough scheme on 30 September 2021. According to the latest figures, 11.6 million jobs have been on furlough at some point since the scheme began and 1.6 million people were still on furlough at the end of July this year.

Many businesses have relied on the financial crutch offered by furlough over the last 18 months and its cessation represents a crossroads. The end of the scheme means that the UK Government will not cover any salary costs of furloughed employees. Since July, employers have had to contribute only 20% of the pay bill for furloughed employees, with the state picking up the balance.

If there is still no work for furloughed employees, a business wishing to deal with the additional cost will need to consider measures such as redundancies or reductions to pay or benefits. The latter option should involve careful planning, consultation and implementation and will inevitably carry a risk of employment claims if relations break down.

Although the recent tribunal decisions we highlight are first instance and will not bind future employment tribunals, they offer guidance as employers continue to address the fallout from furlough over the coming months.

Mhindurwa v Lovingangels Care Limited

In this case, the employment tribunal held that an employee was unfairly dismissed in July 2020 when her employer failed to consider placing her on furlough, as an alternative to redundancy.

Ms Mhindurwa was a care assistant who, over a period of 16 months up to February 2020, provided live-in care to a vulnerable person, until that person was admitted to hospital and subsequently moved into a care home. Her request to be furloughed in May 2020 was rejected because “there was no work for her”. She was subsequently informed that she was at risk of redundancy due to the lack of live-in care work available, as a result of the COVID-19 restrictions. Following a remote discussion, Ms Mhindurwa was offered domiciliary care (which she rejected due to the location) and received notice of dismissal and a redundancy payment in July 2020.

Decision

Ms Mhindurwa’s unfair dismissal claim succeeded. Although the tribunal accepted that the reason for her dismissal was redundancy, the dismissal itself was unfair for two reasons (only one of which is relevant here). The tribunal held that, in July 2020, a reasonable employer would have considered whether Mr Mhindurwa should have been furloughed to avoid a redundancy dismissal. The purpose of furlough was to provide financial support to employers whose staff were unable to work, to avoid them being laid off or made redundant because of COVID-19. Lovingangels had failed to explain why the furlough scheme was not considered suitable as an alternative to redundancy.

Handley v Tatenhill Aviation

Mr Handley was a flying instructor, offering lessons and flight experiences to customers of a small airfield. Tatenhill placed Mr Handley on furlough when the flying school was closed after the first lockdown. The furlough period was expressed to be for an initial three weeks, or until Mr Handley could return to normal work.

However, the airfield’s precarious financial position meant that Mr Handley was ultimately selected for redundancy in August 2020. He brought an unfair dismissal claim arguing, among other things, that he should not have been dismissed, given the furlough agreement he had entered into with Tatenhill.

Decision

While the employment tribunal held that Mr Handley had been unfairly dismissed, it rejected his argument that the availability of continued furlough prevented Tatenhill from fairly dismissing him. The tribunal noted that a different employer may have taken a different approach, but it was for Tatenhill to decide how best to structure its business and whether redundancies were necessary. despite the alternative option of continuing furlough.

Jimenez v Firmdale Hotels Plc

In this case the employment tribunal has decided at a preliminary hearing that an employee’s victimisation claim based on the decision by his employer not to place him on furlough, can proceed.

Firmdale Hotels was facing various employment claims from Mr Jimenez, which in this decision were accepted as being a protected act for the purposes of a victimisation claim under section 27 of the Equality Act 2010. However, the claims have subsequently failed following a tribunal hearing earlier this year.

Mr Jimenez had been absent from work due to long-term sickness and as such, the hotel group had mistakenly decided that because he was not receiving statutory sick pay he was “ineligible” for furlough. Firmdale had also not provided Mr Jimenez with an adequate explanation as to why he was considered ineligible for furlough.

Decision

The employment judge concluded that the victimisation claim based on furlough could proceed. It will be for Firmdale Hotels to show that their actions did not amount to a material detriment because of Mr Jimenez’s previous protected act. Note that this is a procedural decision rather than a substantive decision on the merits of the claim. As such, it remains to be seen whether Mr Jimenez’s claim will succeed, and the issue of comparators may prove to be a stumbling block. Rather than Mr Jimenez having been singled out for his protected act (of bringing employment claims), Firmdale Hotels have suggested that other long-term sick employees were treated in the same way.

What are the lessons for employers?

The three cases discussed above provide useful guidance for employers in similar situations and those facing other pandemic-related employment issues:

1. Alternatives to redundancy must be considered carefully. The Mhindurwa case offers a timely reminder of the duty on employers to consider alternative options before proceeding with a redundancy dismissal. The failure to utilise the financial support available to the employer through furlough ultimately tainted the fairness of the dismissal. If redundancies are likely, employers should consider whether alternatives such as client secondments, unpaid sabbaticals, redeployment, and a recruitment freeze would achieve the same overall financial aim.

2. Think about delaying redundancies to remove risk. From a risk management perspective, delaying redundancies until after cessation of the furlough scheme in a few weeks (while perhaps proceeding with consultation in the meantime), is likely to be the preferred option. However, while the Mhindurwa case acts as a warning, it does not mean that all redundancy dismissals that have already taken place, or are upcoming in September, will necessarily be unfair.

In particular:

• If Ms Mhindurwa’s employer had been able to demonstrate careful consideration as to why furlough was inappropriate in their circumstances, the decision may have been different.
• Furlough may not always have been the best solution for employers over the last 18 months, as the scheme has not been cost neutral. Employer contributions to furlough pay have been required at various points and the payment of employer’s National Insurance and pension contributions has been required since August 2020.
• While employees have remained “on the books” during furlough, they have also continued to accrue employment rights, such as paid annual leave.

3. There is more than one right answer. The cost issues outlined above may well have been prohibitive for some employers and the Handley case is an example. The tribunal held it was for the employer to decide how best to structure its business (given its dire financial situation) and despite the option of continued furlough. It provides a general reminder of the core unfair dismissal principle that as long as a decision to dismiss was within the range of reasonable responses available, the employment tribunal should not substitute its own view for that of the employer.

4. Keep records of all decisions and their reasons. Finally, all three cases also underline the importance of a robust and transparent paper trail when it comes to making difficult employment decisions in the context of the pandemic. Keeping records of the background to any decision, the justification for it, and management’s thought process, will assist both with communicating the decision to the workforce and defending any subsequent challenge.