Redundancy and notice pay for furloughed employees

The Government has today announced that they are bringing legislation into force to make it clear that furloughed employees who are made redundant will receive statutory redundancy payments and notice payments based on their normal wages rather than the reduced furlough wages. The new law will take effect tomorrow (31 July 2020).

At present the Employment Rights Act 1996 sets out that redundancy pay is calculated using the average weekly wage taken from the 12 week period before the date the employee is dismissed as redundant. Since furloughed employees will have been on lower pay for some or all of this time some employers might wrongly use this lower pay rate to make the calculation.

This confirms the advice we have been giving to our clients in these situations, which is that a short-term variation to contract (such as that agreed under the furlough arrangements) does not alter the need to refer to the original contract to calculate a week’s pay for redundancy purposes. This was established by case law in Dutton v Jones UKEAT/0236/12 where the employee was on short-time working before being made redundant.

Although the Government has announced these new provisions, there is no sign of any statutory instrument to give you a link to just yet!