Furlough Leave, Coronavirus Job Retention Scheme and what it means for you

Note: this is a fast-moving area of law and subject to change. The information below is correct as at [27] March 2020.

On 20 March 2020, Chancellor of the Exchequer, Rishi Sunak announced the Coronavirus Job Retention Scheme.

Under the Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying their employees’ salary (HMRC will reimburse 80% of their salaries, up to £2,500 per month) for those that would otherwise have been laid off during this crisis. The Scheme will be backdated to 1 March 2020 and is currently available until 31 May 2020, but HMRC will continue to review the position.

Whilst many employers are awaiting more information, to access the Scheme, an employer must place those affected employees on furlough, furlough is mandatory time off work for employees due to the needs of the employer which could be connected with economic conditions.

Eligible employees are those on the payroll on 28 February 2020. Any employee who was made redundant after that date but who was employed then can be re-employed and furloughed. For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020. If an employee has been employed for 12 months before claiming under the Scheme and their pay varies, the employee can claim the higher of either the same month’s earning from the previous year or average monthly earnings for the year.

Putting an employee on furlough

Generally, there is no implied term for the employer to provide work for an employee provided that the employer pays his/her salary. Although note that it is not compulsory for the employer to top-up the 80% to 100%.

Therefore, if an employer places an employee on furlough with full pay, with or without the employee’s express agreement, this is unlikely to result in a breach of employment law or the employee’s contract of employment, provided that an employer manages the arrangement effectively and tactfully. Breaches of trust and confidence could arise if an employer fails to do so.

Unless an employee expressly agrees in writing to accept 80% of their salary whilst on furlough or there is an express furlough clause in an employee’s contract, placing an employee on furlough without their full pay will likely constitute, amongst other things, an unlawful deduction of wages.

Given the current uncertainty it is expected employers will want to be able to withdraw and extend furlough at their discretion.

Selecting employees for furlough

Again, whilst the position is unclear, to avoid any potential disputes with employees, employers should act reasonable (the employer’s size and administrative resources are relevant to the question of reasonableness). Employers should ensure that they have followed a fair procedure concerning individuals, including consulting with them properly. Given the present lockdown situation in the UK, one to one meetings and in-person consultations are highly unlikely. Where 20 or more employees are being furloughed it may be appropriate/reasonable to elect employee representatives. Employers will need to consider which employees are critical to the business functioning in the coming months.

Zero hour contracts

Based on announcements to date, the Scheme will apply to zero hours employee.

If a zero-hour employee has been employed for a full twelve months before any claim under the Scheme the employer may claim for the higher of the same month’s earning from the previous year or average monthly earnings for the year. If the employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work or if the employee only started in February 2020, pro-rata their earnings so far.

Of course, usually with a zero-hours contract, the employer only has to pay for the hours worked and as above the employer is not obliged to offer any work. This assumes the employer would be entitled to retain employee on their zero-hours contract and not pay/offer them any work during this current crisis without any breach of employment law or the employment contract.

It would also follow that an employer could treat some zero-hour employees more favourable than others by offering only some work. A reasonable employer may consider it necessary to furlough zero-hour employees to avoid any potential disputes and retain others to meet the employer’s needs if they are a company required to remain open such as the UK petroleum retail sector. This will also potentially upset some employees in that some are not working but still getting paid and others are still having to work. We strongly advise to expressly agree with any arrangement with any zero-hours employee.