Furlough Developments: Legal Framework Published for UK Coronavirus Job Retention Scheme

April 20, 2020

The UK government issued a Direction to HMRC on 15 April and published updated guidance on the Coronavirus Job Retention Scheme on 17 April. Most notable was the amended date that employees must have been on their employer’s payroll to qualify for the scheme, which has been brought forward from 28 February 2020 to 19 March 2020, allowing a larger number of employees to benefit. The Chancellor has also extended the scheme until the end of June 2020 (previously due to terminate on 31 May).

This LawFlash supplements our detailed prior analysis of the scheme: Furlough Developments: Updated Guidance on UK Coronavirus Job Retention Scheme and COVID-19 Developments for UK Employers: Coronavirus Job Retention Scheme, Annual Leave Carryover.

Recent Developments

On 15 April 2020, the UK Chancellor made a Treasury Direction to Her Majesty’s Revenue and Customs (HMRC), under Sections 71 and 76 of the Coronavirus Act 2020, which constitutes the legal framework underpinning the Coronavirus Job Retention Scheme. It contains authority and instructions for making payments under the scheme and signals that the guidance is in near-final form. It is notable that the Treasury Direction fails to advise on the issue of annual leave, despite continuing uncertainty on this issue.

On 17 April, the UK Chancellor extended the scheme until the end of June to reflect continuing social distancing measures. Employers will now be able to claim under the scheme for an additional month, continuing to protect jobs for this extended period. The new end date is not set in stone and the government will continue to review the scheme in line with wider measures to reduce the spread of coronavirus.

Process for Furloughing Employees

The process for placing employees on furlough leave remains substantively similar to that previously articulated by the government, with the following noteworthy amendments:

  • Qualification date. The amended qualification date now permits employees who were hired between 28 February 2020 and 19 March 2020 inclusively, to benefit under the scheme, provided the employer had submitted real-time information payroll data by that date. As the amended date was only recently announced, and will require substantive evidence, it is unlikely that employers will be able to make fraudulent claims using the new qualification date.
  • Employee consent. The original guidance required employers to notify employees of their furloughed status in order to qualify for the benefit. The Treasury Direction introduces a more stringent requirement that the employer and employee must have agreed in writing (including by electronic means) that the employee will be placed on furlough leave. Many employers have already notified furloughed employees of their status, in good faith based on the original versions of the government’s guidance.It remains to be seen whether claims in respect of such employees will be rejected by HMRC because clear written agreement cannot be demonstrated, but if so, such employers may be prompted to take collective action to address this inconsistency. We hope that further clarity on this important issue will be given by the government. In the meantime, it is important that any employer who seeks to place an employee on furlough leave going forward obtains the employee’s written agreement to being placed on furlough leave, including that they will cease work during the furlough period, and will be subject to a corresponding reduction in pay (where applicable).

The government has also produced a step-by-step guide for employers that sets out the practical process for making claims under the scheme. Worked examples are also provided to assist employers with furlough payment calculations. The guide confirms that the scheme is due to open for claims on 20 April; employers should receive payment within six working days after making an application.

Employee Eligibility

As expected, employers can claim in respect of all qualifying employees, regardless of whether they would otherwise have been made redundant. The Treasury Direction specifies simply that an employee is a furloughed employee provided “the instruction is given by reason of circumstances as a result of coronavirus or coronavirus disease”.

Additional guidance is provided for the following types of employees:

  • Company directors. The duties that directors are permitted to undertake while on furlough leave have been narrowly defined as duties “relating to the filing of company accounts or provision of other information relating to the administration of the director’s company”.
  • Employees on SSP. If an employee is on sick leave and is selected to be placed on furlough leave, they should remain on SSP until the sickness period comes to an end, at which point furlough starts. If after that the employee becomes sick again, they can stay on furlough leave and do not need to revert to SSP.

Furlough Payment

The Treasury Direction includes welcomed detail and definitions to assist employers with furlough payment calculations, which may prove complicated when dealing with a large and varied workforce. The furlough payment must be calculated with reference to an employee’s regular salary or wages, which is helpfully defined as unconditional wages that arise from the employment contract. Employers must therefore disregard performance related bonuses or discretionary payments (including tips), conditional payments and benefits of any other kind.The wages cannot be conditional on any matterand consequently excludes payments which the parties have agreed are conditional on the scheme paying out.

The Treasury Direction adds that employers can claim for the gross amount of earnings paid orwhich it "reasonably expects to be paid" to the employee.This may include earnings which are deferred until the scheme pays out (provided they are not conditional on the scheme paying out).

We recommend that employers claiming under the scheme review the Treasury Direction in detail.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribenow to receive our COVID-19 alerts.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Matthew Howse
Louise Skinner