Furlough under the Coronavirus Job Retention Scheme

Articles

With the Government’s announcement on 20 March 2020 of the Coronavirus Job Retention Scheme, many employers in the UK will have breathed a sigh of relief.

A radical state-intervention into the economy, the Scheme is designed to prevent a wave of coronavirus-driven redundancies – and the gutting of business and economic turmoil that would follow.

Although the precise details of the Scheme have not yet been fully set out, the Government will reimburse the employer for 80% of the wages for any furloughed employee, up to a total of £2,500/month. Employers may top-up the salary.

To access the Scheme, employers will need to designate relevant employees as “furloughed workers”. Furloughed workers cannot attend or perform work, but will remain on the payroll of the employer. It is advisable to record this designation in writing.

HMRC is currently developing an online system through which applications will be processed and the Government has indicated that the first payments will made with 3 weeks. Wages for which employers can be reimbursed will be backdated to 1 March 2020. The Scheme will operate for at least 3 months, after which point the Chancellor has stated that the Scheme will be extended “if necessary”.

Matters which remain to be clarified at the time of writing include:

  1. Whether the Scheme applies to employees made redundant before 20 March 2020 because of coronavirus if employers now reengage and place them on furlough. However, it would seem that the object of the Scheme extends to such persons.
  • What the 80% will relate to. The Government’s Guidance issued for employees, suggests that it relates to the “wage for all employment costs”. This language is absent in the Government’s guidance for business (which merely refers to “wage costs”). Following the former, it is possible that the funding will cover non-wage components, such as pension and employer NI contributions.
  • Whether the Scheme extends to workers as well as employees.

Employers intending to utilise the Scheme must remember that the provisions of employment law continue to apply. Important considerations when furloughing an employee include:

  1. Close attention must be paid to the requirements of the specific contract of employment for changing the status of the employee. Many contracts of employment will require that consent be obtained from the employee or that a particular process of consultation be followed. Luckily, it seems unlikely that consent will be withheld.
  • Whilst employers are not required to fund the remainder of the furloughed worker’s salary, if they do not do so this will be in breach of contract and an unlawful deduction of wages (section 13 ERA 1996) unless the employee also provides prior consent to the change. In most cases, consent will need to be in writing.
  • If the alternative to using furlough is redundancy and the employer is proposing to make 20 or more employees redundant within 90 days, the statutory consultation requirements under section 188 TULR(C)A 1992 apply. However, employers can gain comfort from section 188(7) of TULR(C)A 1992, which relaxes the stringency of particular requirements where it is not reasonably practicable to comply with them. It may not be in the coronavirus context.
  • Employees do not have a right to furlough themselves. However, if an employer considers making an employee redundant, that employee requests that the Scheme be used instead (alongside any necessary wage reduction) and the employer refuses and dismisses, it is conceivable that this will result in an Unfair Dismissal claim. How far Tribunals will accept that such a dismissal is unfair in the (truly exceptional) circumstances of coronavirus, is, of course, untested. However, it is possible that failure to use the Scheme could give rise to a viable claim. Each case will be highly fact-sensitive. Employers should consider any requests carefully and take advice where necessary.

The Scheme is undoubtedly a timely and significant intervention. Although we await final details of its scope, it will hopefully make a huge difference to business and the lives of many employees alike.


Jen Coyne

24 March 2020

To all our clients - Coronavirus update