Please note: the information contained within this article is correct as of 16/04/20. As the COVID-19 situation develops, guidance is subject to change and, while we will do our best to give you up to date information, it is always advisable to speak with a solicitor for specific advice.
Furlough Leave is a word used to describe temporary “leave” or a “sabbatical” due to the special needs of an employer which may be due to economic conditions.
We are currently being asked to advise and assist many employers and employees as Furlough Leave is becoming used as a measure to help businesses ride out the economic crisis created by Covid-19.
The Coronavirus Job Retention scheme recently introduced by the Government provides grants to cover 80% of the salary of PAYE employees who would otherwise have been laid off during this current Covid-19 crisis. A key feature of the scheme is that employees must be on “Furlough Leave” rather than dismissed by the employer. To be classed as on Furlough leave, the employer must have agreed in writing with the employee that they are not to carry out any work for the employer.
To claim under the scheme employers will therefore need to firstly select affected employees as ‘furloughed workers’, and agree this change with the employee. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to consent and/or negotiation. The period of furlough must last 21 days in order for the pay to be reclaimed from HMRC.
What steps must an employer take to put employees on Furlough Leave?
Decide which employees to designate as furlough employees– there must be a fair and lawful selection to avoid the risk of grievances and/or employment claims;
Notify those employees of the intended change – the wording of such letter/email should be carefully drafted so as to adhere to existing employment laws and achieve the required objective;
Consider whether it needs to consult with employees whether individually or in some cases employee representatives or trade unions(i.e. if there are 20 or more employees) – collective consultation may be required where the alternative to furlough is redundancy and 20 or more employees could be affected. There are strict rules to be complied with to avoid claims. Taking advice in these circumstances is vital to ensure you understand the process to follow as well as explore whether a “special circumstances” defence can apply.
Agree the change with the furloughed employees in writing. The HMRC Direction makes it clear that an employer and employee must have agreed in writing that the employee is to cease all work. This can include the necessary contractual changes which are to be agreed and should ideally, set out how long the employer expects furlough leave to continue. Employers may wish to put employees on furlough leave for an initial period, subject to review.
Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal via HMRC; and
Ensure that the employees do not carry out any work whilst they are furloughed. An employee will not be considered by HMRC to be furloughed if they work for the employer or anyone connected with the employer, or otherwise works indirectly for the employer. HMRC have made it clear they will audit claims under the scheme so employers should expect that HMRC will seek to recover sums paid out if they later find an employee has done any work for the employer.
Can an employee request an employer to put them on to Furlough Leave?
An employee can request this but an employer does not have to agree. It is an employer’s decision which employees to place on furlough leave if any. It is also the employer’s decision whether to place employees on furlough leave or make them redundant.
Potentially redundant employees do not have a right to require their employer to place them on furlough leave as an alternative to redundancy however, it is hoped that many employees will see the new scheme as preferable to business closure and making redundancies.
When deciding to make redundancies rather than use furlough leave, employers should make sure they have fully considered their business reasons for doing so in order to defend any claims of unfair dismissal. Employers should seek advice in these circumstances to explore all the options.
Does an employer have to top up the remaining 20%?
Employers are not obliged under the scheme to top up the employee’s salary to 100%. However, under the employment contract, the employee is entitled to receive 100% of their pay.
Withholding 20% of an employee’s salary will amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. Therefore, employers who want to reduce how much pay the employee receives for the period of furlough must agree this in writing with the employee.
A commonly held view at the moment is that it is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off, or redundancy.
If you require advice and/or assistance about Furlough Leave; the Coronavirus Job Retention Scheme and/or are an employer that need helps with notifying and communicating with employees about the above or if you encounter difficulties with employees in this situation, please contact us on 0845 287 0939 or submit your enquiry online.
Farleys Solicitors LLP specialise in employment law & HR for businesses and employees. If you or your business requires HR & employment law advice and support in relation to the current Covid-19 / Coronavirus situation and/or in relation to any other specific area for example; contracts of employment, staff handbooks, absence from work, home-working, apprentices, recruitment, restructures, redundancies, lay-off; short-time working; disciplinaries, grievances, employee exits, settlement agreements; and Employment Tribunal claim or defence and representation.