Treasury Direction - What's new (or clearer....?)

Those that like interpreting documents will be enjoying the new version of the Treasury Direction. There is, still, a certain type of litigator who takes a delight in the 4.55 pm fax (or now an email with a pdf) on a Friday. Although dated 20th May, the latest iteration of the Treasury Direction didn't reach the public domain until the 22nd, giving excellent Bank Holiday reading. Unlike the 4.55 fax, I assume that the choice of Fridays or weekends for announcements about or tweaks to the CJRS is motivated not by a cynical desire to stun an opponent by a misplaced machismo but simply by the enormous demands the current crisis will have placed on the drafters of legislation. Furloughing has very quickly becomes a feature of employment law, and it is easy to forget that it is entirely new concept – but it supplements rather than replaces existing laws. In the immediate teeth of a national crisis it has been easy to forget that all the “normal” employment laws haven’t gone away, even if for the time being they are lurking in the shadows…

The use of a Treasury Direction is an unusual way of legislating: I’d never heard of a Treasury Direction until the current crisis. And of course before the Direction emerged we already had the HMRC Guidance: hence the panic when on the 15th April the actual Direction came out and paragraph 6.7 was read. That seemed to impose a requirement to have a written agreement between employee and employer that the former did no work. Up to that point most employers, on the strength of HMRC Guidance, had assumed an agreement to be furloughed was sufficient: was that the same as an agreement to do no Relying on the HMRC Guidance the answer would be yes: but relying on the Direction…? Unusually HMRC made it clear that, despite the Direction, they would stick to their Guidance when it came to payment. And now the 20th May Direction corrects (?) the confusion…

Back in April, para 6.7 said:

An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.

Are the worries of restrictive interpretation of what is needed to receive furloughing payments (for employers) over? The latest version of 6.7 states:

6.7  An employee has been instructed by the employer to cease all work in relation to their employment only if-

(a) the employer and employee have agreed that the employee will cease all work in relation to their employment (such agreement may be made by means of a collective agreement between the employer and a trade union),

(b) the agreement (including a collective agreement)-

(i) specifies the main terms and conditions upon which the employee will cease all work in relation to their employment,

(ii) is incorporated (expressly or impliedly) in the employee’s contract, and

(iii) is made in writing or confirmed in writing by the employer (such agreement or confirmation may be in an electronic form such as an email), and

(c) the agreement (including a collective agreement) or confirmation is retained by the employer until at least 30 June 2025.

So that’s all right then isn’t it? Possibly: there is a reason for HMRC requiring employers to keep furloughing records until 2025. What has been paid out will be subject to scrutiny, so presumably even if a business has successfully furloughed its staff it would still be open to HMRC to poke around in a year or two’s time and ask for the subsidy back. In any event though an agreement that has been confirmed in writing suggest to me that a document produced after the agreement may suffice to satisfy the HMRC as regards complying with the formalities…

The HMRC will not be the only entity putting furloughing under the microscope post lock down. Whether in its original incarnation, or with all its new sub clauses, para 6,7 still leaves open questions, most importantly did the employee agree to be furloughed in the first place.

Here, once again, it’s back to the old law: nothing in the Direction or, even, the Coronavirus Act 2020 changes what constitutes “agreement” when it comes to changing the terms of employment.

And again, back in March the immediate drama of the pandemic may have supressed any question of employee dissent, especially if furlough was the only option proposed. So how would employment law analyses such a scenario? Past cases from the periphery of one of the North East’s now sadly defunct industries – equal pay – may provide an answer. In Abrahall v Nottingham City Council [2018] IRLR 63 the City Council sought to mitigate the effects of implementing a single status agreement by imposing a pay freeze. There was formal object to the freeze by the union, but a ballot for industrial action failed to achieve the necessary majority. Having imposed the freeze the city Council, still strapped for cash, then decided to extend it: the issue for the Court of Appeal was had the work force accepted changes to contractual terms though acquiescence? The Court of appeal highlighted the fact that where the changes had been wholly disadvantageous to the employees it will be harder for an employer to establish acceptance by acquiescence than in a case where the changes are a mixture of benefits and detriments.

How would this play in the average furloughing scenario? A reduction in pay is, of course, wholly detrimental. But is not working at all, but still getting some pay a balancing benefit?

I suspect that as the lock down eases we may see certain employers challenging their salary reductions on the basis that silence to a change was not acquiescence…

Having looked at agreement to be furloughed, perhaps the next question is on what basis do you calculate the wages? Putting the point in a rough and ready way: 80% of a low basic wages isn’t going to be very much, never mind the cap of ￡2500. Many jobs rely on overtime and additional payments to make the income sufficient to live on: has the new Direction anything of note here? 

If wages of salary are fixed then there is no problem in calculating the right amount to pay to the furloughed employee: 80% of pay up to ￡2,500: some employers will, of course, make up the difference. But where the wages vary what is the position? Para 7.4 tells us that the employee will get his or her “regular” wages which are:-

….so much of the amount of the salary or wages as-

(a) cannot vary according to a relevant matter except where the variation in the

amount arises from a non-discretionary payment (see paragraph 7.19), and

(b) arises from a legally enforceable agreement, understanding, scheme, transaction or series of transactions.

Paragraph 7.19 is new.  This states:-

7.19 A variation in an amount of wages or salary arises from a non-discretionary payment only if

(a) the payment-

(i) is in respect of overtime, fees, commissions or a piece rate,

(ii) is made in recognition of the employee undertaking additional or exceptional responsibilities,

(iii) is made in recognition of the circumstances in which the employee undertakes the employee’s duties or time when they are undertaken, or

(iv) is made in recognition of other matters similar to those described in paragraph 7.19(a)(i) to (iii), and

(b) a legally enforceable agreement, understanding, scheme, transaction or series of transactions prescribe the method of calculating the amount of wages or salary payable in respect of the payment (whether or not that method involves the exercise of discretion by the employer or a person connected with the employer).

The drafting is far from simple. However, it seems to me that this is a long winded way of saying it doesn’t matter what you call the payments, it is the actual reality of the situation, not the label, which counts. In this regard there are terms, such as “discretionary” which are often applied inappropriately. In reality, if an employee always receives payment for overtime or other services those payments are not discretionary,  whether looked at from the perspective of Paragraph 7 of the Direction (especially as it is now amended) or employment law generally.

The Coronavirus pandemic has wrought havoc and misery on an international scale. Searching for any positives is difficult.  It has put us all under scrutiny when it comes to our attitude to workers who in the past have been dismissed with the epithet “unskilled”. It has made working from home the new normal for many. It would be nice to think that it has changed human nature for the better: time will tell. But in the meantime, as the lock down eases in the UK, I suspect that as the existential threat fades more and more employees and employers will begin to look at their furloughing agreements and start to wonder if they will stand up to scrutiny, whether from the HMRC or in a court or tribunal…