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Specialist Employment Law Solicitors in Abingdon
For Oxford, Oxfordshire, Berkshire, London & the Thames Valley

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27 April 2020 Newsletter for Employers on COVID -19 and the workplace


Introduction

This newsletter is all about COVID -19 issues in the workplace. I am not going to go through the basics as there are links to government information on our website here. Instead, I am going to deal with some difficult areas in relation to businesses retaining staff on different terms and conditions, dismissing staff and staff carrying on working.

Because this newsletter is about difficult areas, it is not always going to be straightforward and we will be happy to advise on any particular concerns which you have. The situation is a constantly changing so keep alert for new government guidance.


Furloughing

The government first announced the furlough scheme or Coronavirus Job Retention Scheme (CJRS) on 20 March and details were scant. Of course, the following week was when many businesses wanted to implement it, and lawyers did their best to help them do so, shooting in the dark as to what the details were going to be. The first Guidance for employers (Guidance) was not published by HMRC until 26 March, by which time, many employers had already furloughed staff on the basis of the small amount of information available. HMRC has published multiple versions of Guidance since then and the guidance has evolved – we are now on the seventh version. Further guidance on particular issues has also been published and there is a link here.

On 15 April, the Treasury published a Direction to HMRC on how the CJRS should work (Direction). This was the first guidance which could be said to have some sort of legal force, although it is not actually law. It sets out what HMRC is allowed to do in administering the scheme. The HMRC Guidance has no legal force at all. Unfortunately, there are contradictions between the Guidance and the Direction, leading to much confusion.

In these unprecedented times, there are unprecedented problems in interpreting this new scheme. It is obviously very important that employers get key aspects of the CJRS right or they may not succeed in reclaiming payroll costs from HMRC. However, even now, there are uncertainties.

It is in this framework that about half of UK companies are furloughing staff, with an estimated 8.3 million workers affected.


Furlough agreements

The arrangements which employers make with their employees to furlough them are crucial in two respects:

  • To ensure the employer qualifies to reclaim PAYE costs from HMRC.

  • So that the employer avoids legal obligations to pay its employees over and above the furlough rate of pay.


  • Qualifying to recover PAYE costs from HMRC under the CJRS

    One aspect of qualifying for reimbursement has been relaxed. When the CJRS was first announced, its stated aim was to avoid redundancies. Now it covers employment costs arising from the health, social and economic emergency resulting from coronavirus.

    But, the Direction brought widespread dismay and confusion. The Guidance had referred to the employer simply having to confirm in writing to the employee that they have been furloughed. Then, out the blue, the Direction said that the employer and employee must have agreed in writing that the employee will cease all work (and the agreement may be in electronic form). Clearly, there is a big difference between simply writing to your employee that they are furloughed and getting their agreement in writing to it. Many large employers had decided it was impractical to get all their employees to agree to the furloughing and had simply decided to send them notification instead.

    HMRC has been approached to explain. They responded: ‘To be eligible for the grant, employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a written response.’

    So, it appears that HMRC is going to accept just a written notification of the furlough status, as long as this is consistent with employment law (on which see below). But because HMRC must act in line with the Direction, it is not clear how it can ignore the requirement in the Direction for an agreement in writing. This is still an area of great concern.


    Avoiding legal obligations to pay employees over and above the furlough rate of pay

    Simply telling an employee that they are furloughed does not give the employer the right to reduce the pay rate. Many employers may find themselves in an employment tribunal with employees claiming that the employer made an unauthorised deduction from their wages. The employment tribunal has to apply the law. It cannot waive the law just because of the coronavirus crisis.

    Under employment law, the only ways in which the employer can reduce the pay rate without the employee having a claim for the balance of pay are:

    1. A contractual right for the employer to stop paying wages/reduce the pay rate. These are rare unless it is a zero hours worker. Some more old-fashioned contracts give the employer the right to lay an employee off and the employer could take advantage of this if it is in the contract. Many contracts say that the employer can change the contract terms if it wants to. I would be very concerned about relying on that sort of clause to try to change something so fundamental as the rate of pay. Most employers do not have the contractual right to stop paying wages/reduce the pay rate.

    2. Reach an agreement with the employee to vary their contract of employment. This may not be easy.

  • It means getting employee consent, which should be evidenced in writing.

  • It also means that the employee must give something in return for giving up part of their pay. This ‘something’ is known legally as ‘consideration’. The ‘something’ could be that the employer agrees not to make the employee redundant at the current time, or it could be a one off payment of say £100. Perhaps it will be implied that the employee signed the furlough agreement in return for keeping their job. However, it would be better to state this expressly in the furlough agreement. But, avoid a non-time limited promise not to make the employee redundant, or the employer would be in breach of contract if it made the employee redundant at the end of the furlough agreement. The only way to avoid the need for ‘consideration’ is if the agreement is signed as a deed. This means that the employee must get their signature witnessed by someone outside their family – in the current situation, getting a witness is extremely problematic.

  • The agreement should be obtained before the wages are cut. This was impossible for employers who adopted the offer of the government to pay furlough wages from 1 March, given that the scheme was not announced until 20 March. Some employers also struggled to get the agreement in place before the date they intended the furlough to start. The best that employers could do was to backdate the furlough agreement. However, employees may bring challenges to this.

    There are likely to be many employers out there who have entered into agreements to furlough their employees which are legally flawed and which will give the employee the right to claim the deduction in pay back from the employer. This may not only be because of the reasons above. I have seen agreements where the employer does not actually give any way of calculating how much the deduction in pay will be. An agreement to stop work is not enough – it must also include an agreement to reduce pay, and state what the reduction will be.

    The agreement should also be clear about when the furlough period is going to end. To say it will end when the coronavirus crisis is over is far too vague. The business needs to be able to control when the furlough period ends so that it can require employees to return to work when it needs them, potentially staggering the return.

    If you are concerned about the furlough agreement which you have in place, we are happy to advise on options.

    Any employers who are going to issue new furlough agreements should draw up new forms of agreement to reflect the latest Guidance and the Direction.


  • Picking and choosing who will furlough/return to work from furlough

    In choosing who to furlough or who will return to work from furlough, employers need to look out for possible discrimination claims. Decisions should be made by transparent criteria. Requiring a few employees to work many hours while others are furloughed could be indirect sex discrimination against affected women. Furloughing expensive workers could be age discrimination as older employees tend to be paid more. It may be a reasonable adjustment to keep an employee who has a disability on furlough, depending on the circumstances.


    Sickness, self-isolating and shielding

    Self-isolating and shielding are new concepts which have now been explained as meaning, basically:

  • Self-isolating: Avoiding contact with other people for a limited amount of time while you have flu symptoms yourself or because someone with whom you have been in contact has flu symptoms.

  • Shielding: Being at high risk of suffering very badly from coronavirus because of a particular medical condition and so avoiding contact with other people for a minimum of 3 months. Just being elderly or having any non specified medical condition does not count.

    At the start of the outbreak, the government stated that those who were self isolating could claim SSP even if they were not ill. The government has now changed the law to say that those who are shielding also qualify for SSP. This does not mean that employers are obliged to pay contractual sick pay for those self-isolating and shielding.

    More confusing is whether those who are self isolating and shielding can be furloughed, given that they are entitled to SSP. The Guidance says that employers are entitled to furlough employees who are shielding or on long term sick leave, and it is up to the employer whether or not they do so. It says that the employer can claim back SSP and also CJRS payments in respect of the same employee, but not for the same period of time.

    However, the Direction says that, when SSP is payable to an employee, they cannot be furloughed until the original SSP has ended. The entitlement to SSP could continue for up to 28 weeks. This could mean that the employee cannot be furloughed until either they have used up their SSP or recovered from the illness. This would contradict what it says in the Guidance. Maybe HMRC will follow their Guidance, regardless of the Direction, but we just do not know.


  • Holiday and furlough

    The government changed the law to say that employees who could not take holiday due to coronavirus could carry the holiday over to the next holiday year. This raised concerns that employees cannot take holiday while on furlough.

    ACAS initially advised that employees on furlough could not take holiday, but then changed that advice to say that furloughed workers can request and take their holiday in the usual way. ACAS did not say anything about the employer instructing the employee to take holiday.

    There was nothing in the Guidance about holiday for a long time, but finally, the Guidance for employees stated that ‘You can take holiday whilst on furlough.’ Again, there was nothing about employers instructing employees to take holiday.

    However, if an employee asking to take holiday while on furlough will not break the furlough period, logically, an employer instructing the employee to take holiday should not do so either.

    There is a legal argument that employers cannot make workers take holiday during furlough because of the purpose of annual leave which is to allow rest and leisure - employees cannot have rest and leisure during a pandemic crisis. (I am not sure that this is true.) However, this argument would not apply to holiday over and above the WTR minimum holiday (28 days).

    Assuming employers can instruct employees who are on furlough to take holiday:

    Employers have the right under the Working Time Regulations to require employees to take holiday by giving the requisite period of notice. Many employment contracts also give the employer the right to require the employee to take holiday.

    It has been suggested that it would abusive and unlawful for employers to require employees to take all their annual leave during the furlough period, even though this would obviously be attractive to businesses. Many employers are, therefore, limiting the furlough which they instruct employees to take to the holiday which is pro rata to the furlough period. If the employee receives more holiday entitlement than the Working Time Regulation minimum, I can see no reason why the employer should not require the employee to take all this holiday during the furlough period, in addition to the pro rata part of the Working Time Regulation minimum holiday.


    How much should the employer pay the employee during holiday in a furlough period?

    This is a very problematic question. The Guidance states that ‘Employers will be obliged to pay the additional amounts over the grant.’ IE the employer must make up the furlough pay to full pay, for holiday. The government guidance on working out 80% of wages also says ‘If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.’

    This suggests that, if the employer does not top up the holiday pay, the day will not actually be holiday and another day’s holiday will be due to the employee. There is no basis in existing law for this suggestion. Under existing law, if the employer does not pay the correct holiday pay, the employee can claim the financial difference. The employee cannot claim entitlement to an additional day’s holiday.

    The amount of holiday pay which should be paid is a question of existing law. For Working Time Regulation minimum holiday, the WTR explain how much holiday pay should be paid. For those whose pay varies, it is based on an average pay over the previous 52 weeks. For those whose pay does not vary, it is simply their normal pay if they work throughout their normal working hours. If the furlough agreement has made a contractual change to the pay rate, it is arguable that the normal pay is now the new rate of pay under the furlough agreement.

    For any holiday entitlement over and above the WTR minimum, the contract of employment will determine how much the rate of holiday pay is. Depending on the contract terms, and the terms of the furlough agreement, it may well be that the employee is only entitled to the reduced furlough rate.


    Reducing employees’ hours and/or pay

    Some employers have chosen to reduce employees’ hours and pay or just their pay, rather than furlough employees. See my comments above here about the importance of getting the contractual agreement with the employee right so that the employees do not have a claim for huge amounts of back pay.


    What does wellness in the workplace look like in a COVID-19 reality?

    Elementa Consulting is running a webinar on this topic on 30 April. For more information and to register click here.


    Redundancies

    It does not appear that there is anything to stop employers who have furloughed staff from making them redundant when the furlough scheme ends.

    It may be more problematic to make staff redundant during the furlough scheme if they have two years’ service and, therefore, can bring an unfair dismissal claim. An employment tribunal may decide that no reasonable employer would have made an employee redundant when the furlough grant was available. (However, if the employee refuses to agree to a pay reduction, that would be a different matter. It may then be possible to dismiss fairly for “some other substantial reason”.) Nevertheless, I consider that it may well be fair to make an employee redundant while the furlough scheme is running, particularly if the employer sees that they are not going to continue to employ the employee once the scheme has ended.

    Any redundancies must be carried out in a way which an employment tribunal would view as fair under established principles. In particular, the business cannot simply pick and choose from similar employees for redundancy. It must go through a fair and transparent selection process, involving relevant consultation. For employees with less than two years’ service who cannot claim unfair dismissal, the employer has more freedom.

    Given the problems and uncertainties over the furlough scheme, there will be a good argument for getting employees who are made redundant to sign settlement agreements in order to settle any claims for pay which the business may have accidentally given them. Of course, this would involve offering an ex gratia redundancy payment on top of the statutory payments to persuade them to sign up. Businesses may be reluctant to spend even more cash on this in the current circumstances.

    Larger employers must be aware of collective consultation requirements. These come into play when the employer is proposing to dismiss more than 19 employees at one location. It does not matter what length of service the employee has or whether they are full time or part time. 19 is the magic number. The business will then have to organise an election of employee representatives (unless there is a recognised union or employee consultative body in place), go through a prescribed consultation with the representatives and delay the redundancies for a specified period. Although there are rules allowing these requirements to be relaxed in emergency situations, for most employers, the emergency will now be over, given the existence of the furlough scheme, and employers will be expected to comply with the rules.

    It appears that employers can start consulting employees about redundancy during the furlough period, so they are in a position to make necessary redundancies when it ends.


    What notice pay is due to an employee on furlough?

    If the business dismisses someone who is furloughed, will the notice pay be based on their normal pay or their reduced furlough pay? That is a complicated question and the answer depends on what the terms of the furlough agreement are, what the contractual notice period is and whether the employee’s pay changes with the amount of work they do. Employment tribunals may well be eager to give employees their full pay in these circumstances.

    Employers may feel they have nothing to lose from paying at the furlough pay rate and seeing if the employee complains. However, if the employer wants to rely on post termination restraints, it must take care to pay the correct contractual notice.

    It may not be possible to pay in lieu of notice and claim back the notice payment under the CJRS.


    This newsletter does not represent legal advice and you should take legal advice before taking action.


    ELP Newsletter Covid-19 in the workplace. Jill2019

    About the author

    This newsletter is written by Jill Kelly who is the founder Director at Employment Law Plus and a solicitor. Jill was a partner in two leading regional law firms before setting up Employment Law Plus in 2006. This was just after she was appointed as a part-time Employment Judge, sitting in Birmingham Employment Tribunal. Jill is recognised as an expert in employment law in both Chambers Directory of the Legal Profession and the Legal 500. She has over 20 years experience in advising employers and employees on employment law.


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