*UPDATE* 30 March 2020 Employment law implications following the outbreak of COVID-19 (Coronavirus)

Posted By: on 30th March 2020 | Category: Employment Law Solicitors

Over the past few days there have been further updates on what is being called ‘Furlough Leave’. Here is a note on how we understand the Coronavirus Job Retention Scheme [CJRS] will work.

Coronavirus Job Retention Scheme – Furlough Leave

Under the scheme, all UK employers, regardless of size or sector, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll (“furloughed”), of up to £2,500 a calendar month for each employee, plus the associated employer national insurance contributions on that wage. It appears that any fees, commission or bonus are not able to be reimbursed.

The scheme itself does not directly change the employment relationship between employer and employee. Rather, it allows the employer to agree with employees that they will be put on temporary leave of absence (furlough leave), and then allows the employer to recover a proportion of pay from HMRC in respect of employees on that leave. Given that the reimbursement that employers can seek per employee is limited (to the lower of 80% of wage costs or £2,500 per calendar month, plus employer national insurance contributions and employer auto-enrolment pension contributions) it is anticipated that many employers will seek to amend the contracts of those put on furlough leave to match the level of reimbursement that can be obtained. A written agreement will be required for such purpose.
The scheme is backdated to 1 March 2020, open for at least three months, and will be extended if necessary. HMRC are urgently working to set up the new system of reimbursement, and the government expects the scheme to be up and running by the end of April 2020.

The scheme covers the following individuals, provided that they were on the employers’ PAYE payroll on 28 February 2020, regardless of their contract type:

  • Full-time employees.
  • Part-time employees.
  • Employees on agency contracts.
  • Employees on flexible or zero-hour contracts.

Employees who were made redundant since 28 February 2020 can qualify if they are re-engaged by their former employer.

Employees on unpaid leave cannot be furloughed, unless that unpaid leave started after 28 February 2020. We assume that this is intended to prevent employees who are on unpaid leave for reasons unrelated to the pandemic from being transferred onto furlough leave and receiving a windfall.
Where an employee has more than one job, their employments are treated separately for the purposes of furlough leave, and the reimbursement cap applies to each employer individually.

The scheme is backdated to 1 March 2020. It would therefore be possible, in theory, for an employer to propose to employees who are still employed, but have been given notice of redundancy or placed on unpaid leave after 28 February 2020, that they be put onto furlough leave instead.

Employees made redundant since 28 February 2020 can be re-engaged and put on furlough leave. This would therefore appear to include employees who were given notice of redundancy before 28 February 2020 for a reason unconnected with the pandemic. In contrast, the scheme does not appear to cover employees who were placed on unpaid leave on or before 28 February 2020.

Some employers have already placed employees temporarily onto reduced hours and pay due to the downturn in work as a result of the pandemic. The employer will not be able to seek reimbursement in respect of wages costs for employees who are still working on reduced hours. The scheme only applies where employees are put on furlough leave.

The difficulty with this point is that the scheme may financially disincentivise employers from keeping their business open. Keeping a business running with staff on reduced hours allows an employer to keep a revenue stream and retain customer loyalty. However, this is likely to be more expensive for the employer than putting all staff on furlough leave and have HMRC pay 80% of their wages.

Employers should discuss the proposal with staff and make changes to the employment contract by agreement. It is a condition of eligibility for reimbursement that furlough leave is confirmed to the employee in writing.

Employers will need to:

  • Decide which employees to designate as furloughed employees.
  • Notify furloughed employees of the intended change.
  • Consider whether it needs to consult with employee representatives or trade unions.
  • Agree the change with the furloughed employees. Most employment contracts will not permit an employer to reduce an employee’s pay, provide them with no work and change their employment status, without agreement.  However, faced with the alternatives, which are likely to be unpaid leave, lay-off or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave.
  • Confirm the employees’ new status in writing. This is an eligibility requirement for accessing the subsidy, and a record must be kept of this correspondence. Ideally, the employer should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal, expected to be operational by the end of April 2020.
  • Ensure that the employees do not carry out any further work for that employer while they are furloughed.

An employer could initially ask for volunteers. However, in some cases an employer may receive more volunteers than it wants to furlough. The procedure an employer follows to decide which employees to furlough may depend on its current financial situation. If the employer needs to very urgently furlough employees or make them redundant in order to be able to continue to trade, a limited selection procedure carried out on an urgent basis is likely to be acceptable. However, where an employer does not have any immediate financial concerns, it is likely to be more reasonable for it to follow a more comprehensive procedure.

Employers could draw up a matrix of objective criteria in a similar way to redundancy scoring.

Employers should ensure that their decisions on who to select for furlough leave are not based on discriminatory criteria, except where such discrimination is likely to be justified. For example, it will be directly discriminatory for employers to use age as a criteria and select employees over 70. However, this could be justified as a proportionate means of achieving the legitimate aim of protecting the health and safety of vulnerable employees as identified in government guidance.

The Guidance: Claim for wage costs through the Corona virus Job Retention Scheme states that employees must be furloughed for a minimum of three weeks. This is in keeping with the current requirements for as many people to avoid leaving their homes as much as possible.

However, since employers are likely to receive many requests or volunteers to be placed on furlough leave, it is likely to assist employee relations for employers to be able to move employees on and off furlough leave, subject to that minimum three-week period, so that no employee feels that they have been unfairly denied the opportunity to take furlough leave.

Employers are entitled to continue paying full pay during furlough leave, but they are not obliged to do so. If they do top up, they can only claim back employer national insurance contributions and minimum auto-enrolment payments up to the cap.

Withholding 20% of an employee’s salary will, however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. It is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off or redundancy.

To claim, the employer will need to submit:

  • The employer’s PAYE reference number.
  • The number of employees being furloughed.
  • The claim period (start and end date).
  • The amount claimed.
  • The employer’s bank account number and sort code (UK bank account)
  • A contact phone number.

Employers can only submit one claim at least every three weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated to 1 March 2020 if applicable.

Reimbursement will be paid via BACS payment to the nominated bank account.

The claim can only be made at the point at which the employer runs payroll or in advance of an imminent payroll because actual payroll amounts need to be submitted.

Furlough leave is an entirely new concept to employment law in the UK. However, it seems likely that the 5.6 weeks’ leave under the Working Time Regulations 1998 would continue to accrue during furlough leave.
An employer could attempt to negotiate a change in contractual terms such that any annual leave over and above statutory leave does not accrue during furlough leave, but this may make it less attractive to workers and it is not clear whether the employer is entitled to add extra conditions to furlough leave, beyond a reduction in pay.

There is nothing in the current guidance that suggests the employer will only be able to access the reimbursement if it makes it a condition of furlough leave that the employee does not work elsewhere. It is, however, clear that the employee cannot do work for the employer seeking the reimbursement during furlough. Also, the employee’s contract of employment will continue during furlough leave so any enforceable restrictions on working elsewhere during employment will continue to apply. However, in the circumstances, employers may consider relaxing any such restrictions to allow employees to take up a role with a non-competing business with their prior consent. The employee can undertake volunteering work during such period.

It is difficult to determine whether an employment tribunal would find such a dismissal to be unfair at this stage. In accordance with the test for reasonableness under section 98(4) of the Employment Rights Act 1996 (ERA 1996), it will depend on the particular circumstances of the case, including the size and resources of the employer. For example, whether the employer makes the decision to make the employee redundant rather than furlough them before or after the scheme has commenced, and the financial position of the employer, are likely to be relevant circumstances. There will be cases where an employer cannot afford to furlough employees at this stage and pay the 80% of salary until HMRC has set up the scheme and reimburses it. While those employers could ask for the employees to agree to defer payment until it is reimbursed by HMRC, some employees will be unwilling to agree to this, or not be in a financial position to do so. In those circumstances, it may be fair for an employer to dismiss for redundancy.

No doubt further guidance will be provided in respect of the CJRS and in any event legislation is awaited.

For advice contact Nigel Targett, Solicitor and Partner at Coole Bevis LLP on 01273 722532 or by email at nigel.targett@coolebevisllp.com.

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