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Commercial & Employment

Employment Law Update: “Furlough” and The Coronavirus Job Retention Scheme

Posted on 30th March 2020

Rowan Morton: Employment, Property, Regulatory BarristerBy Rowan Morton

New guidance is emerging on a regular basis and the analysis below is as of 30 March 2020. We are still awaiting Regulations on the JRS expected within the next two weeks.

The Headline Points

The most important thing for employers and employees to understand is that the JRS co-exists with current employment law, and as the title suggests, it is designed to help businesses retain their staff, where an employee would otherwise be made redundant (“laid off”) but for the scheme.

An employee must have been on PAYE on 28 February 2020 to qualify for the scheme. Even if an employee was made redundant after 1 March, providing they were on payroll on 28 February they can be brought back and put on furlough. The scheme cannot be used for staff on sick leave or maternity leave, although there is nothing to prevent an employee on sick leave or mat leave returning to work during the period of the scheme (currently three months) and consenting to furlough immediately.

The current scheme will be for a period of three months: 1 March to 31 May 2020. It is likely to be extended if the current measures continue.

It is inevitable that some companies will try to take advantage of the scheme and there are likely to be extensive powers of audit once the dust has settled.

The Practicalities

In practical terms, companies have to pay employees as usual, and then claim the grant back via an online portal (not yet live, but anticipated by mid-late April). The banks are supposed to be offering companies short term loans to maintain cash flow, however some have been insisting on personal guarantees, and hopefully the Regulations will address this issue, but it may not be soon enough.

The cap is 80% of salary, NICS and minimum auto enrolment pension contribution. Those factors in effect raise the cap from £2,500 to £2,804 per employee per month and is subject to tax in the usual way a salary would be.

The minimum time an employee can be furloughed for is three weeks, and they can come off furlough and be reinstated on it, subject to that minimum and provided the scheme is still running. An employee is not permitted to do any work during a furlough at all. Even if this is training based.

Company directors can claim the grant provided they are on PAYE, but will not be able to claim in respect of any dividends, it will be their PAYE element only. They are entitled to continue carrying out statutory duties which on furlough such as the company accounts and payroll.

If an employee has been employed for over 12 months, and the monthly salary is variable an employer can claim the higher of either the same month’s salary from the previous year or the average monthly earnings from the 2019-2020 tax year. Otherwise it is based on the average monthly salary in the months they have worked.

The Potential Pitfalls for Employers

What are an employer’s potential liabilities if an employee does not consent to furlough?

The key advice is to consult with employees about furlough and obtain their written consent. If the alternative is redundancy it is anticipated there will be few who will not consent. The difficulty is envisaged to be amongst the high earners, who will be capped at £2,500 per month which represents a large shortfall.

If an employee does not consent, and there is no contractual right to end the contract (which there rarely will be) then usual employment law applies. It may be that the government provide further guidance to the contrary but for the time being, employees are entitled to receive their contractual benefits while furloughed, and can claim unfair dismissal or discrimination connected with furlough.

It also not clear if an employee who is forced on to furlough will be able to claim the shortfall back from the employer for breach of contract at a later date. Currently the guidance suggests that an employer does not have to top up the 80%, however if furlough is not agreed to there may well be a contractual liability to the shortfall, and that would be an ongoing claim that is mounting up unbeknown to the employer who may be faced with a huge claim a year down the line.

The alternative is to make employees redundant who do not consent to furlough on the 80% capped salary. Given that the scheme is strictly for those that would otherwise have been made redundant this would leave the employee with only the option to claim unfair dismissal or some other claim such as discrimination and those claims will be subject to a three-month time limit to issue a claim because it is a single act rather than a continuous breach.

If an employee is made redundant (or placed on furlough without consent and treats themselves as constructively dismissed) they will have to prove that that decision was not within the range of reasonable responses, or was not based on a true redundancy situation: in essence that the requirements of the business for employees to carry out a particular kind of work have reduced or are likely to reduce. It is high hurdle for an employee to overcome and employment tribunals will not scrutinise a company’s financial decisions lightly.

When it comes to discrimination there are a vast range of ways an employee can be discriminated against, and those are beyond the scope of this advice, and the key is to ensure that employees are not made redundant or put on furlough for any reason connected with a protected characteristic (such as but not limited to disability, or sex). Again, it cannot be over emphasised that obtaining consent on clear terms is the best way forward and that placing an employee on furlough against their consent is a very risky step to take in these uncertain times.

If you require advice, or representation, in a claim relating to Employment Law you can instruct Rowan Morton by contacting her clerks on 01483 539131 or emailing them at clerks@guildfordchambers.com

 

Disclaimer

This article has been provided free of charge for information purposes only. Although care is taken to ensure the information is accurate no responsibility is assumed by the author or any member of Guildford Chambers for reliance on the content or the accuracy of such content. The information, and/or commentary, does not constitute legal advice and if you have a legal dispute you should seek advice from a solicitor or barrister about your case. Accordingly, no member of Chambers shall be responsible for any action you take or refrain from taking in reliance of anything in this article or case summary.