An employer's guide to the Coronavirus Job Retention scheme and furloughing staff

Author
Katherine Anderson
Barrister | 3PB Barristers
27th March 2020

How to continue trading under the pressures created by the Coronavirus pandemic is an urgent question for many businesses that have seen a sharp drop in income. At the same time, companies want to know how to look after their employees and workers and abide by the law. Many companies have been contacting Business West asking about how to juggle these two pressures. Details of the ‘Coronavirus Job Retention Scheme’ have now been published by the government and in response below is an explaination of the basics, so that companies can better understand the legal context for any steps they decide to take.

What is the government’s ‘Coronavirus Job Retention Scheme’? What is “furloughing”?

The scheme was announced by the government on 20th March 2020, with further details published in the evening of 26 March and on 4 April. The government’s published information about this scheme, currently, is to be found here.

According to that information, the ‘Coronavirus Job Retention Scheme’ is designed to support employers whose operations have been severely affected by coronavirus (COVID-19). It is a temporary scheme open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020, which will run for at least three months starting from 1 March 2020. Employers can use a portal to claim for 80% of “furloughed” employees’ usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period. The government expects the scheme to be up and running by the end of April.

“Furloughed” is a new term in this jurisdiction, although it’s a term that is already in use in other jurisdictions, such as the United States, in situations similar to a lay off. The newly published government information describes “furloughed” employees as “employees on a leave of absence”. 

The newly published information from the government sets out:

• Who can claim

• Employees you can claim for

• What you can claim

• What you’ll need to make a claim

The newly published information also sets out other details, for example, that you can only submit one claim at least every 3 weeks, which is the minimum length an employee can be “furloughed” for. Claims can be backdated until the 1 March if applicable.

The newly published information confirms that employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer “furlough” to, equality and discrimination laws will apply in the usual way. 

The newly published information also confirms that employees that have been “furloughed” have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.

Can I “furlough” or lay-off my staff or put them on short-time working, on a temporary basis, in order to get my business through the Covid-19 pandemic?

The government web pages, and those of Acas, the Advisory, Conciliation and Arbitration Service, are a starting point for employers and employees seeking advice in relation to Coronavirus (COVID-19). 

Acas provides advice for if the employer needs to close the workplace: https://www.acas.org.uk/coronavirus/if-the-employer-needs-to-close-the-w...

As Acas explains, a lay-off is when employees are not provided with work by their employer, and the situation is expected to be temporary. Short-time working is when employees are laid off for a number of contractual days each week, or for a number of hours during a working day.

Whether an employer can lay-off staff or put them on short-time working depends on the specific terms of the employment contract. As Acas goes on to explain, employers have a general right at common law to tell employees not to turn up for work (although some contracts of employment may provide otherwise) but they do not have a general right to decide, unilaterally, not to pay their employees, or to reduce their employees’ hours and pay them less, because work is not available. Employees can be laid off without pay, or put on short-time working, where there is a specific term in their employment contract allowing the employer to do so. That term may be an express term in the employment contract, or there may be an agreement that covers the issue which is incorporated into the individual employee’s contract of employment, or the term may be ‘implied’ if the employer can show, by clear evidence, that the right has been established over a long period by custom and practice. Whether or not an employer has a contractual right to lay-off or introduce short-time working is a question that would ultimately be decided by an employment tribunal (or court).

However, as Acas also explains, parties may agree to alter the employment contract terms so that the lay-off or short-time working is by mutual agreement. 

The government’s ‘Coronavirus Job Retention Scheme’ now provides an option for employers and employees to agree changes to the employment contract so that employees may be placed on “furlough” and, in certain circumstances provided for by the scheme, the employer may recover 80% their usual monthly wage costs, up to the value of £2,500, through the government scheme. The newly published information from the government confirms, however, that if an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme.

The government information states that, to be eligible for the grant, employers must confirm in writing to their employee confirming that they have been furloughed, and a record of this communication must be kept for five years.

General information and guidance from Acas about changing an employment contract can be found here: https://www.acas.org.uk/changing-an-employment-contract

What if there isn’t a contractual right to “furlough” or lay-off employees or introduce short-time working?

If an employer has no contractual right to “furlough” employees, lay-off employees or introduce short-time working, a failure to pay wages during a period of “furlough” or lay-off or short-time working would amount to a breach of contract. As Acas explains, in those circumstances, the employee has four main alternatives. They may choose to accept the breach of contract and treat the employment contract as continuing, while claiming a statutory guarantee payment (on which, more below). They may sue for damages for breach of contract in the civil court or, in certain circumstances, in an employment tribunal. They may claim before an employment tribunal that there has been an unlawful deduction of wages under the Employment Rights Act. Or, they may claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to a potential claim of unfair dismissal and/or, if the employee is eligible, redundancy pay.

If the “furlough” or lay-off or period of short-time working goes on for long enough, can employees apply for redundancy and claim redundancy pay?

Again, the terms of the employment contract will be relevant.

However the statutory scheme under the Employment Rights Act permits an employee to apply for redundancy and claim redundancy pay where they have been laid off or kept on short-time working, in the circumstances prescribed by that statutory scheme. That scheme permits an employee to apply for redundancy and claim redundancy pay if they have been laid off or kept on short-time working for four or more consecutive weeks (as defined), or for a total of six or more weeks in a period of 13 weeks, where no more than three of the weeks have been consecutive. If all the prescribed circumstances apply, the employee will be eligible for a redundancy payment as if they had been dismissed for redundancy. The same qualifying conditions apply in these circumstances - for example, the employee must have at least two years’ qualifying service. There is a prescribed process for employees to make claims and employers to contest those claims. An employer may have a defence available if, at the date of service of the employee’s notice of intention to claim (“NIC”), it was reasonably expected that the employee would, not later than four weeks after that date, enter into a period of employment with the same employer of at least 13 continuous weeks during which they would not be laid off or kept on short-time for any week – the relevant criterion here is what was reasonably to be expected at the date of service of the employee’s NIC – not whether business has improved by the date of any employment tribunal hearing. The law is unclear as to whether an employer can defeat a claim under the lay-off and short-time working scheme by making an offer of suitable alternative work.

The newly published information from the government regarding the ‘Coronavirus Job Retention Scheme’ states that employees that have been furloughed have the same rights as they did previously which includes rights against unfair dismissal and to redundancy payments. It states that when the government ends the scheme, employers must make a decision, depending on their circumstances, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment (redundancy).

The statutory provisions of the Employment Rights Act are complex and the provisions of the ‘Coronavirus Job Retention Scheme’ add an additional layer of complexity. It is strongly advised that employers who are considering placing employees on “furlough”, lay-offs or short-time working seek advice from a specialist employment lawyer or call the Acas Helpline.

I’ve heard of “statutory guarantee payments” – what are they?

The Employment Rights Act also provides for a statutory scheme for guarantee payments aimed at employees (as defined) who are laid off. The statutory scheme offers some, limited wage protection: the current maximum is £29 a day (from 6 April 2019) with entitlement limited to five days in any period of three months. To qualify, an employee must have been continuously employed by the employer for at least one month. The statutory scheme applies where employees are piece workers who are not paid if there is no work, or where the employer has a contractual right to lay off without pay: the statutory provisions relating to guarantee payments do not in themselves give employers any right to lay off employees. There are certain excluded categories of employees. An employee may bring a claim in an employment tribunal for the whole or part of a guarantee payment they believe their employer has failed to pay.

The scheme applies where the employer fails to provide work on a day on which the employee would normally be required to work under their contract, and the failure must be caused either by a diminution in the requirements of the employer’s business for work that the employee is employed to do, or by some external occurrence that affects normal working – which could well be interpreted to cover situations arising out of the Covid-19 pandemic. Employees cannot claim in relation to days on which they were not normally required to work, for example, in relation to any day on which they would have been on holiday in any event, or off sick. There are other circumstances in which an employee will not be able to make a successful claim, for example if the employee has unreasonably refused an offer of suitable alternative work or has not complied with reasonable requirements to ensure that their services are available. Guarantee payments are payable only in respect of ‘workless days’ i.e. days (as defined) on which an employee is provided with no work at all – so they are not available to employees in situations of short-time working.

Claims for statutory guarantee payments may overlap with claims for statutory redundancy payments based on lay-off: if a lay-off lasts long enough, the employer may be liable to pay guarantee payments and a redundancy payment in respect of the lay-off. 

Employees who are dismissed for asserting their statutory rights have protection under the Employment Rights Act.

Again, the statutory provisions are complex, with the provisions of the ‘Coronavirus Job Retention Scheme’ adding an additional layer of complexity. Again it is strongly advised that employers who may have obligations to pay statutory guarantee payments to their work force seek advice from a specialist employment lawyer or call the Acas Helpline.

Will redundancies be considered unfair in circumstances where employers could have applied for the ‘Coronavirus Job Retention Scheme’?

The position under the Employment Rights Act is that in order for a dismissal for reason of redundancy to be considered fair, the reason for the dismissal must be redundancy as defined by the Act, and the question whether the dismissal is fair or unfair depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating that reason as a sufficient reason for dismissing the employee. An employment tribunal must determine the question ‘in accordance with equity and the substantial merits of the case’.

The availability of the ‘Coronavirus Job Retention Scheme’ might well be considered a relevant circumstance, but all of the relevant circumstances should be taken into account, which could include, for example, the urgency of the business need to make redundancies, the views of the workforce expressed in consultation, and, of course, the extent to which the availability of the scheme would avoid the need to make redundancies. 

A dismissal for a business reason arising out of the Coronavirus pandemic will not necessarily be for reason of redundancy as defined by the Employment Rights Act. There are other potentially fair reasons for dismissal which are not redundancy. Information and advice about fair and unfair dismissals is provided by Acas here.

Again, it is strongly advised that employers who are considering making redundancies/dismissing employees seek advice from a specialist employment lawyer or call the Acas Helpline.

Information and advice about managing redundancies in your organisation is provided by Acas here.

What does it mean, “When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way”?

The starting point is that the Equality Act 2010 sets out nine “protected characteristics”: age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation, and there are four main types of discrimination: direct, indirect, harassment and victimisation. The area of disability discrimination is more complex: there are two additional types of discrimination which apply solely to this protected characteristic: failure to make ‘reasonable adjustments’, and discrimination ‘arising from’ disability.

An employer could breach the Equality Act if, for example, they applied a criterion for deciding who to offer furlough to, which was indirectly discriminatory.

Acas provides a substantial amount of guidance on equality and discrimination law, for example its guidance document, “Equality and discrimination: understand the basics”.

There is also a substantial amount of advice and guidance provided by the Equality and Human Rights Commission.

Again, it is advised that employers who are making decisions in relation to placing employees on “furlough” seek advice from a specialist employment lawyer or call the Acas Helpline.

Government and Acas advice and information referred to in this article may be found through the following links:

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus...

https://www.gov.uk/coronavirus

https://www.acas.org.uk/coronavirus

https://www.acas.org.uk/coronavirus/if-the-employer-needs-to-close-the-w...

https://www.gov.uk/government/publications/guidance-to-employers-and-bus...

https://archive.acas.org.uk/index.aspx?articleid=1639

https://archive.acas.org.uk/media/314/Advice-leaflet---Lay-offs-and-shor...

https://www.gov.uk/lay-offs-short-timeworking

https://archive.acas.org.uk/dismissals

https://www.acas.org.uk/redundancy

Author Bio

Katherine Anderson is a barrister specialising in employment law at 3PB Barristers, based in Bristol.

Whilst every effort has been made to ensure the accuracy of this article as of the date of writing (27 March 2020) it should not be relied upon as legal advice in respect of any particular case and no liability is accepted in respect of the same.

3PB Barristers’ employment law group offers expert advisory and advocacy services to private and public sector employers and individuals, as well as service providers and businesses across all areas of employment law.

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