Employee Furlough: Employment Law Challenges

The Government’s ground-breaking Coronavirus Job Retention Scheme (JRS) was announced over 2 weeks ago and many employers have chosen to take advantage of the Scheme due to the unprecedented impact that COVID-19 has had on business and the uncertainty around the timeframe of COVID-19.

In today’s article, Niki Avraam answers your most frequently and recently asked questions about the JRS and the impact of furlough leave on other employment rights; this follows the Government’s updated guidance on JRS on 4 April 2020.

Which employers are eligible to access the scheme?

– All UK employers which operate PAYE can access the scheme. Employers will need to have created and started a PAYE payroll scheme on 28 February 2020.

– The scheme will apply irrespective of the size or sector of the organisation, and so will include businesses, charities, recruitment agencies (which pay agency workers through PAYE) and public authorities.

– With agency employees, the Furlough Scheme is only available for agency employees who are not working.

Who can be furloughed?

As the Furlough Scheme is only open to UK employers operating payroll on 28 February 2020, if the employee was hired after 28 February 2020, he or she is not eligible. Anybody who was on the payroll on 28 February and has since been made redundant, can be rehired and put on the Scheme.

There is no requirement for the business to be considered “essential” in order to access the scheme. Nor is it necessary for employers to show that they are suffering any sort of financial hardship.

Can an Employee work during Furlough?

No, the employee must not be working at all. If they work for even an hour (presumably during their entire three week furlough period), they are not eligible. However, they are able to undertake training and do volunteer work, provided they do not provide services to or make any money for their employer.

What Wages are Covered?

Employers can reclaim up to 80% of wage costs up to a cap of ￡2,500 per month, plus (not including) the associated employer NICs and minimum auto enrolment pension contribution on that wage. Fees, commissions and bonuses are not included. If paying less than the pay package before being sent home, the employee’s consent must be obtained to avoid employment law claims down the line.

Can I top up employee furlough pay?

Employers can choose to top up to 100% of pay and benefits, but do not have to.

For employees whose pay varies, the employer can claim for the higher of (i) the same month’s earning from the previous year (e.g earnings from March 2019); or (ii) average monthly earnings in the 2019-20 tax year (there are other rules for employees who started more recently).

How long will the scheme operate for?

The JRS is a temporary scheme which will run for at least three months from 1 March 2020 until the end of May 2020. The Chancellor has said he will extend the scheme for longer if necessary.

What is the process for Furloughing Employees?

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. We can provide further guidance on steps that employers must take to put employees on furlough leave.

Do normal employment law rules apply?

Yes. When agreeing changes in hours (and acceptance of 80% pay), normal employment law applies. Employers cannot generally unilaterally furlough employees although some employment contracts do have clauses in which allow employers to require employees not to work, either on a paid or unpaid basis.

Care is therefore needed in dealing with furlough employment law issues. Getting it wrong could result in a constructive unfair dismissal or discrimination claim.

Can people on maternity leave (or similar) be furloughed?

Employees on maternity (or similar) leave can continue to draw Statutory Maternity Pay (or similar) payments. The guidance does not prohibit women on maternity leave agreeing to return to work early and then being furloughed, or electing to change to shared parental leave and then being furloughed.

What are the alternatives to Furlough Leave?

If an employee refuses to be furloughed, the alternative options are likely to be redundancy or the termination of the employee’s employment, depending on the circumstances. In this situation the normal rules on redundancy will apply.

Will it be an unfair dismissal if an employer makes someone redundant rather than placing them on furlough leave?

It is difficult to determine whether an employment tribunal would find such a dismissal to be unfair at this stage and it is likely to 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 had commenced, and the financial position of the employer, are likely to be relevant circumstances.

We are committed to supporting you through these difficult times. Please do call Niki Avraam on 020 3735 6708 or email [email protected] to discuss questions on any UK employment law issues arising from the coronavirus pandemic, whether to furlough employees, implications of furlough or the impact of the pandemic on your business.