Coronavirus: $10bn startup Oyo's use of government furlough scheme in spotlight

Oscar Williams-GrutSenior City Correspondent, Yahoo Finance UK
Yahoo Finance UK
A logo sign outside of a Oyo Rooms Hotel in East Hanover, New Jersey, on March 23, 2020. (Kristoffer Tripplaar/Sipa USA)
A logo sign outside of a Oyo Rooms Hotel in East Hanover, New Jersey, on March 23, 2020. (Kristoffer Tripplaar/Sipa USA)

Current and former staff at a hotel startup valued at $10bn (£8bn) have been left angry and frustrated by the way the company has used the UK government’s job retention scheme.

Oyo is a tech startup that lets people book budget hotel rooms online. The company has raised over $3bn to date, much of it from the world’s biggest venture capital fund worth $100bn. Oyo itself was valued at $10bn in a funding round last October.

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Oyo is in the process of making up to 200 UK staff redundant while the majority of its workforce are furloughed — a decision some think goes against the spirit of the job retention scheme and leaves them out of the loop.

Meanwhile, former employees that were laid off just before the COVID-19 shutdown are angry that Oyo refused to rehire them and put them on furlough, despite government rules allowing it. Instead, they are job hunting in the toughest economy since World War II.

Employment law experts say Oyo is following the letter of the law, if not necessarily the spirit.

The case highlights the messy reality of the government’s job retention scheme, which was hastily put together in response to the coronavirus crisis. It also shines a spotlight on a scene that will be playing out in many other companies across Britain as the economic outlook worsens.

“Quite a lot of businesses are endeavouring to instigate consultation processes whilst they’ve got staff furloughed,” Kate Palmer, associate director of advice at HR advisory Peninsula, told Yahoo Finance UK.

“It seems to go against the whole thrust and intention of the scheme — job retention is the clue. The reality is, it’s happening and businesses are doing that.”

Up for redundancy while on the job retention scheme

Founded in India in 2013, Oyo launched in the UK in 2018 and had recruited over 500 staff here by the end of last year. The company was backed by high-profile tech investment company SoftBank, which also invested in the likes of Uber (UBER), WeWork, and Slack (WORK).

Pressure to turn a profit led Oyo to lay off over 100 people in the UK in early 2020 as part of a global restructuring.

Then the COVID-19 pandemic hit. Oyo furloughed the majority of UK staff as demand for hotel rooms plummeted.

Read more: SoftBank-backed $10bn hotel startup Oyo axes dozens of UK staff

Employees let go in February and March petitioned Oyo to rehire them and put them on furlough, arguing it would give them a vital income at a time when jobs were scarce and cost Oyo little to nothing. The state pays 80% of furloughed staffs’ salaries up to £2,500 per month. Employers are free to top up wages only if they chose to.

“Do the right thing — furlough the people who have worked for you, it’s not going to be any skin off your nose,” Gareth Carlile, who was let go in March, told Yahoo Finance UK.

Ritesh Agarwal, founder and CEO of OYO Rooms, is interviewed on the floor of the New York Stock Exchange, Tuesday, Feb. 18, 2020. (AP Photo/Richard Drew)
Ritesh Agarwal, founder and CEO of OYO Rooms, is interviewed on the floor of the New York Stock Exchange, Tuesday, Feb. 18, 2020. (AP Photo/Richard Drew)

Oyo ultimately said no. The company argued they would just have to re-fire people at the end of the job retention scheme, requiring another costly redundancy process.

The refusal was a “bitter pill to swallow when we gave so much to a new company starting out in the UK”, wrote Matt Petchell in response to a post on LinkedIn from Oyo’s founder Ritesh Agarwal about worldwide furloughing.

“Oyo could take us back on and help support our lives yet there has been no willingness to make this happen from anyone in the Oyo UK team,” Petchell wrote. His comment received 19 likes, the most of the 74 comments under Agarwal’s post.

Read more: $10bn hotel startup Oyo furloughs most UK staff amid COVID-19 slump

“The hard work that we’d put into the company wasn’t reciprocated,” Petchell, a former UK project manager, told Yahoo Finance UK.

Petchell had been with the company since it launched in the UK but was let go in March. He is now delivering Amazon packages while looking for more stable work.

Douglas Pudney, who was also made redundant in March, said Oyo acted with “no understanding, no compassion, no empathy.”

“In this modern day, in times of crisis, you need to act with compassion,” he told Yahoo Finance UK. “Everybody needs to have compassion, as a business or as a person.”

Daniel Fowkes told Yahoo Finance UK: “They messed with people’s lives, getting them to come on board, promising them the world, and they’ve not been able to do it.”

Fowkes joined Oyo in November 2019 but was let go only a few months later when his probation period ended — just a week before the job retention scheme was announced.

“Oyo have put me in a terrible position and I regret taking the jump to join them,” he said. “I wouldn’t be in this position if I was with another company.”

Oyo Pier Hotel in North Wales. Photo: Oyo
Oyo Pier Hotel in North Wales. Photo: Oyo

A spokesperson for Oyo said it was a “misconception” that re-hiring and furloughing staff wouldn’t cost the company anything, pointing to cashflow impacts and holiday pay. The spokesperson said there were also legal concerns about violating the rules of the scheme.

“We are unsure — as are many other employers and legal advisors — if temporarily rehiring people who were made redundant for reasons unrelated to COVID-19 only for the furlough period will later to be found in breach of the Job Retention Scheme, and considered misusing taxpayers money,” they said.

Tom McLoughlin, a senior associate at employment law firm BDBF, said he had some “sympathy” for Oyo’s position.

“There are certain unknowns around the furloughing scheme and certain costs which an employer might then be left with, including the cost of holiday,” he said. “You continue to accrue entitlement to annual leave during furlough.”

That argument holds little weight with former staff. All said they would happily sign away holiday rights or agree to pay back entitlements.

Fowkes said he was also aware of staff at other companies rehired on temporary fixed-term contracts that would not carry redundancy or holiday rights.

“They don’t really want to help people who did their best for the company,” he said.

The spokesperson Oyo spokesperson disputed this and said the company had gone “over and above the statutory minimum requirements to assist those leaving us.” They pointed to job hunting help offered to those being made redundant, among other benefits.

“We have both directly and publicly conveyed our sincere gratitude to all of these past employees for their dedication and professionalism and for the role they played in establishing our business in the UK,” the spokesperson said.

A second round of redundancies

Last week Oyo began a 30-day consultation period with remaining employees on a second round of lay offs. The company plans to make up to 200 of its roughly 300 remaining UK staff redundant, blaming a collapse in hotel booking across the UK.

Many may be surprised that redundancies can take place while most staff are furloughed. Announcing the job retention scheme in March, Chancellor Rishi Sunak said people could be “furloughed rather than laid off to protect their jobs.”

Read more: Founder of $10bn hotel startup Oyo gives up salary over COVID-19

Oyo is not breaking any rules.

“There is no guidance at all to say that you can’t,” Penisula’s Palmer told Yahoo Finance UK.

Statements suggesting the scheme would avoid job losses were later relaxed when official guidelines were released.

A man walks past a logo of Oyo Rooms on March 09, 2020 in Mumbai, India. (Himanshu Bhatt/NurPhoto via Getty Images)
A man walks past a logo of Oyo Rooms on March 09, 2020 in Mumbai, India. (Himanshu Bhatt/NurPhoto via Getty Images)

Still, two current Oyo employees told Yahoo Finance UK there was confusion about how the two processes would overlap and said it felt like redundancies were being rushed through. (The staff didn’t want to be named because they weren’t authorised by Oyo to speak the media.)

One point of confusion is the fact government rules forbid people from working while on the job retention scheme. That raises questions about whether staff can check for emails for news on the redundancy process or act as employee reps during negotiations.

An Oyo spokesperson said: “Despite a large proportion of our workforce being furloughed, we were able to reach 100% of the team this week through a variety of group communications, emails and care calls to ensure everyone has understood the situation and is okay.”

One furloughed regional manager told Yahoo Finance UK: “I got a call on the 30 April saying ring all your guys, ring every single one of them, they need to be on that call on 1 May.”

The manager claimed to spend much of the evening making what they regarded as work calls as a result.

A spokesperson for Oyo said: “We have specifically stipulated that managers who have been furloughed should not be engaged to communicate with their team members about our redundancy processes.”

The spokesperson provided part of an email sent to staff on Monday 4 May from Oyo’s head of HR Dan Godfrey stating as such. Godfrey acknowledged in the email there had been “a lot of confusion and concern around the lack of clarity.”

Read more: $10bn hotel startup Oyo to lay off most UK staff

Ultimately, the unprecedented nature of this crisis means both staff and company are flying by wire.

“There’s no section of the Companies Act that says what happens if we get a COVID-19 outbreak and the whole world stops,” Deborah McGargle, chief legal officer at SeedLegals, a company that helps startups draw up legal agreements, told Yahoo Finance UK. “Everyone’s having to use best interpretation and common sense.”

The Oyo spokesperson said it was relying on guidance from the Chartered Institute of Personnel and Development (CIPD) on running redundancies during the furlough scheme.

“We have always and continue to use the Job Retention Scheme in line with the guidelines set out by the Government,” the spokesperson said.

Furloughed staff ‘may not get jobs back’

While some of the issues at Oyo are unique, many won’t be.

The travel sector has been among the hardest hit by the pandemic and everyone from major airlines to Airbnb have announced large scale redundancies in recent weeks.

More broadly, businesses across the country are already laying people off, while many others are drawing up redundancy plans.

Danny Blanchflower, a former policy advisor at the Bank of England, told Yahoo Finance UK last month that many of the 6.8 million people who have been furloughed across the UK “may not get their jobs back” when the scheme ends in June. Bank of America said the programme would “just delay, not prevent, unemployment rises.”

Read more: Furloughed workers 'may not get their jobs back'

“I think there’ll be a significant number of those furloughed employees who are actually made redundant,” McGargle said.

“I know it’s awful for the people who’ve been made redundant in the first instance or thought there was a chance of going back to work in the second instance and now find they don’t have a job to go back to, but in actual fact, this for me would be the exact conduct I would expect to see from directors fulfilling their proper fiduciary duties.”

That is cold comfort for people like Fowkes.

He is unable to claim job seekers benefits due to a period out of work prior to Oyo and is now in his second month of job hunting. He is “struggling” due to the lockdown.

Bills are coming due for his 3-year-old son’s next term at nursery, where he waited for a year on the waiting list.

“There’s a huge knock on,” Fowkes said. “The company’s not centred towards its employees at all. It’s about their bottom line.”

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