FURLOUGHING STAFF - MATTERS ARISING FROM THE TREASURY DIRECTION ISSUED TO HMRC ON 15TH APRIL 2020

As well as updated guidance on the Coronovirus Job Retention Scheme ("CJRS"), yesterday (15th April 2020) also saw the publication of a direction issued by HM Treasury to HMRC about how to operate the CJRS. There are some important points in that direction and I'd like to touch on a few of them now.

Delayed furlough payments - Paragraph 2.2 refers to "...reimbursement of expenditure...incurred or to be incurred by the employer in respect of the employee to which the claim relates" (my emphasis in italics added). This would appear to cover the situation where the employer had not already made the payments to the employee of furlough pay.

New key date - We saw in the latest guidance yesterday, and it is made clear again in the direction, that the date for the employer to have had a PAYE scheme registered with HMRC is 19th March 2020 - a change from the prvious key date of 28th February 2020. This will bring many more people into the CJRS.

Directors - it was previously thought that a furloughed director would be allowed to carry out their full range of statutory duties (there are in fact seven of these), but the direction provides in paragraph 6.6 that the only work permitted is that "relating to the filing of company accounts or provision of other information realting to the administration of the director's company." This is much narrower than had been expected and in reality means that the director can do precious little whilst furloughed.

Wrttien agreement - whilst good employment law practice dictates that the employer and employee would agree in writing the terms of furlough, I do know from what I have been told by various sources that many employers have tried to furlough staff without anything agreed in writing, in some cases saying that a letter would follow. The direction is clear - paragraph 6.7 provides that the employer and employee must have agreed in writing (which may be by electronic form such as an email) that the employee will cease work. There will be quite a number of employers who have not complied with that requirement which means that they may well find that HMRC refuse to pay the subsidy.

TUPE transfers by way of a service provision change - the guidance said that a new employer who had inherited staff under the Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE"), could claim under the CJRS a subsidy in respect of those staff furloughed by the transferor employer. Whilst there are two types of transfer of employment under TUPE, the direction appears to deal only with one type, namely the transfer of a business or undertaking (paragraphs 9 and 10). There is no mention of the other type, a service provision change ("SPC").

A SPC occurs where a business contracts out services it wants to another provider, or takes them back in-house again or there is a change of contractor where the services are already contracted out. An example of the latter would be, say, security guarding services. Suppose that Client A's contract for security services with the Company X is coming to an end and Company Y has won the new contract. When Company Y takes over supplying the services to Client A, it will inherit under TUPE all of the security staff employed by Company X who were working wholly or mainly on that contract.

The direction does not mention the SPC scenario. Does that mean that the new employer cannot claim under the CJRS for staff who were furloughed by the previous employer and who transferred to it by way of a SPC? I would suspect not, becasue this contradicts the guidance.

No doubt we shall see more questions raised as the implementation of the CJRS unfolds.

Alan Lewis,

Constantine Law Ltd 16th April 2020