Redundancies and the Wage Subsidy

01 April 2020

Last week many employers will have terminated staff following the announcement of the Level 4 lockdown and for other employers they will still be contemplating the possibility of redundancy. However, the availability of the Government wage subsidy raises the question of whether any business should be making redundancies at the moment, or simply sitting things out to see what happens.

Remember last week?

Last week seems a long time ago now, but when the wage subsidy was first introduced employers were struggling with the concept of using best endeavours to pay 80% of wages. The prevailing view at the time was that if you couldn’t afford 80% then redundancy was the next option. However, given the Finance Minister’s comments on Friday, ‘best endeavours’ seems to mean that you will do all you can to pay 80%, but if you can’t, then your minimum obligation is to pass on the subsidy.

I believe the reason for this is because of the difficulties currently being experienced by people trying to access the unemployment benefit. The Government realises that the easiest way to get money into people’s hands is through the wage subsidy. This means they would rather people be paid the wage subsidy than join the many people trying to access unemployment benefit. In relative terms, the wage subsidy is easier to administer because employers are being used to pass it on based on a high trust model. It is easier to deal with one employer, than their 20 or so employees.

If you have received the wage subsidy for an employee, is redundancy an option?

If you have received the wage subsidy for an employee, then you have given a declaration to ensure that the employee remains employed by you for the duration of the subsidy. That would preclude any termination by the employer during that period. It wouldn’t necessarily preclude a redundancy process providing the effective date of termination wasn’t before the date the subsidy ran out. I say that partly because the wording in the declaration around repaying the subsidy doesn’t anticipate an employer-initiated termination (only a resignation).

Therefore, if you are going to run a redundancy process during the period of the wage subsidy payment, my recommendation is to ensure that as part of that process you ensure the full subsidy is still passed on to the employee. The wage subsidy should form part of your consultation process with options around payment of the subsidy canvassed with your employee.

If you are eligible for a wage subsidy, is it right to deny an employee access to the subsidy by making them redundant?

In my view, if your business is eligible for a wage subsidy then you have an obligation to apply for it rather than make employees redundant. That view is based on the premise that the easiest way for an employee to access benefits is through the subsidy and if you deny them that opportunity then you are denying them income they are entitled to.

So even if you take the view that an employee’s role will be surplus to requirements when we emerge from lockdown, then you should still apply for the wage subsidy and build discussion over payment of that subsidy into your consultation over redundancy. For example, you could propose to pay the employee’s contractual notice period (at 100%, using the subsidy to assist) and then pay the balance of the subsidy over the remaining period to which the employee is entitled. The effective date of termination is then when the subsidy runs out. That way, you have met your obligations under the employment agreement and your obligations under the declaration.

What if I have already made my employee redundant?

If you have already made your employee redundant, there is nothing stopping you re-employing that employee under their previous terms and then applying for the subsidy. Redundancies made last week in haste can be reversed without affecting the wage subsidy.

In our current state of emergency, employers need to understand that whilst their primary obligation is to keep their business going, they also have an obligation towards their employees to act as a conduit between them and the Government benefits they are entitled to. In my view, cutting them off from those benefits is not what a fair and reasonable employer would do and presents a reputational risk for the business and possibly a legal risk if the redundancy is later challenged through the personal grievance process.

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