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Government Announcement about “Furloughed Workers” – What does it actually mean?

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The information that the government have provided is limited to say the least. You can find the official advice here for employers:-

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

There is also advice for employees:-

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-guidance-for-employees

We understand that in these unprecedented times employers will have lots of questions about this measure. Given that we do not have any detailed guidance as yet, this is our current view of how the new coronavirus retention scheme will work in practice. Clearly this is subject to change once we get the government’s guidance.

What have the government said so far?

How to access the scheme”

You will need to:

  • designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)

HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”

So let’s try and break it down so far as we can for now….

designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”

What is a Furloughed Worker?

This is not terminology used in Employment Law. It would appear to cover employees who are laid off from work. What is not clear is if it covers employees who have been made redundant between 1st March 2020 and now as the scheme is backdated to 1st March 2020 (see below).

Does it just cover employees or workers as well?

This is not clear. The government wording refers to “employees” but then call them “Furlough Workers”. There is no definition given of “employee” for this retention scheme. This needs to be clarified by the government.

Which employers does it apply to?

It would appear to apply to all employers whether that is companies, sole traders, charities, partnerships etc.

What does it mean when it states “depending on the employment contract”?

If employees do not have lay off clauses in their contracts of employment then employers cannot utilise this provision unless it is mutually agreed by the employer and employee. Lay off clauses and short-time working clauses are in most cases a thing of the past. As such, most employees will not have a lay off clause in their contract.

Negotiation with the employee?

If there is no such clause in the employment contract then employees need to agree to it. That means simply asking the employee to agree to be laid off (not dismissed – lay off is a temporary measure) and if they agree they get up to 80% of their wages paid subject to the cap – see below. Verbal agreements are just as valid in law as written agreements. However, we would suggest it is better for employers to get the agreement confirmed in writing so the employer has documentary evidence when they make a claim to the government.

What employee will not agree to it?

Very few probably. The choice is stark in these difficult and unprecedented times. An employee can be dismissed by reason of redundancy with no other job to go to and end up on state benefits. Alternatively they can stay at home and receive 80% of their wages subject to the cap. When life gets back to normal they will hopefully have a job to go back to.

For those employees who do not agree to become a “furloughed worker” then an employer will follow normal redundancy employment rules where applicable.

“submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)”

How will claims be made in practice?

We don’t know the logistics yet. HMRC is setting up an on-line portal so that claims can be made. It is under current construction so not yet available. It is not clear yet what information will be needed to make a claim.

“HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.”

What does this salary cap mean?

It is up to £2,500 per employee. Is that net pay or gross pay? We don’t know yet but clearly this is a critical question. Does the workers wage include benefits like pension, car allowance, medical cover etc? We don’t know this yet either.

We will provide an update as soon as we receive further details from the government.

What about the shortfall in wages?

Evidently if an employee is on a high salary then their shortfall in wages could well be more than 20%. Employers can top up the workers wages over and above the salary cap however according to the government’s advice to employees on the Gov.uk website it states, “your employer could choose to fund the differences between this payment and your salary, but does not have to”

It would therefore appear that employers are not obliged to top up if the employee has become or becomes a “Furlough Worker” either by agreeing to this or because their contract allows this.

Is it open to abuse?

Yes. However, we expect employers will need to produce evidence to substantiate a claim. E.g. A letter confirming lay off and wage slips.

What about short time working?

We have no information on this. We currently do not know whether an employee who for example normally works 5 days per week but is now on 1 day per week (or will be put on 1 day per week) because of the coronavirus pandemic is entitled to this government pledge for the days they are not working. This needs to be clarified and very quickly by the government. However, it is perhaps unlikely because it is understood (but needs to be clarified) if an employee becomes a furlough worker they should not undertake work.

Subject to existing employment law?

This means the employment contract prevails. In short, employers need to treat their staff fairly and reasonably and not discriminate in line with existing employment law.

Employers should be wary of this because employment tribunal claims could arise. In particular, employers need to be careful in their decision making with this new measure and not discriminate or breach the implied duty of mutual trust and confidence.

Is it fair that employee A gets to stay at home and get 80% of their wages (subject to the cap) and employee B still has to go to work and do their own work and probably cover employee A’s work?

These are unprecedented times but yes this could be a problem even though it is a temporary not a permanent measure. Employers need to think about getting the balance right in practice to ensure good working relations and equality. That comes down to good and effective management in difficult times.

Do employers have to pay back this money back?

No. It is not a loan. It is a direct payment to employers to pay their staff and keep them in employment (even though temporarily they are not working) and keep continuity of service and have a job to go back to after the coronavirus pandemic has been managed.

Back dated to 1st March 2020?

At the press conference on Friday, Rishi Sunak, Chancellor of the Exchequer, said these provisions will be backdated to 1st March 2020 and will run for three months but it would be extended if necessary. This is not however currently stated on the government website.

So does this mean that if an employer has dismissed someone between now and 1st March 2020 due to redundancy as a consequence of a downturn in work because of the coronavirus pandemic they can re-instate them and claim 80% of their wages (subject to a cap) back from the government? It is not clear if it applies only to employees who have been laid off since 1st March 2020 or also to those who have been made redundant since that date. It needs to be clarified by the government.

If it does cover redundant employees, would an employer need to agree to pay the other 20% on re-instatement? Not if re-instatement was agreed on those terms with the employee. Would they have to repay their redundancy payment to the employer? Potentially yes but in any event, the employer could negotiate this into the re-instatement terms.

Employers would need to be careful though about who is and who is not re-instated when making these business decisions because again, they need to be mindful of other areas of employment law like discrimination.

One Final Point

It is unprecedented what the government have done. We have the outline of the government plans but not the finer details. Clearly there are currently more questions than answers but rest assured as soon as we get the finer detail, we will provide our next update.

Astons Solicitors

22nd March 2020