The UK government published updated guidance on the Coronavirus Job Retention Scheme on 4 and 9 April, providing clarity on such issues as which employees can be furloughed, what activities are permissible during furlough leave, and how to calculate furlough payments. However, the government has yet to clarify formally how annual leave will operate with respect to furloughed employees.
The Coronavirus Job Retention Scheme, announced by the UK government on 26 March, is designed to enable employers to furlough any employee on a temporary basis, during which time the employer will receive a government grant covering 80% of the employee’s wages, up to a cap of £2,500 per month. The scheme is intended to keep employees in employment (albeit furloughed) where they might otherwise have been made permanently redundant. Please see our earlier LawFlash for additional detailed guidance on how the scheme will work in practice.
Whilst we were told previously that all UK employers would be eligible for the scheme, the updated guidance has provided clarification with respect to certain types of employers.
The updated guidance provides a great deal of additional information regarding which employees can be placed on furlough leave, adding to the basic premise that all eligible employees must have been on payroll as of 28 February 2020.
The updated guidance has introduced an additional element to the furlough payment: As well as basic salary, an employer can claim for any regular payments it is obliged to pay to its employees. This includes fees, past overtime, and compulsory commission payments. However, payments such as discretionary bonuses, tips, discretionary commission payments, and benefits in kind are excluded from the scheme.
Significantly, it is now clear that employees can work for another employer whilst on furlough leave. Employees will have the ability to earn 80% of their furloughed employment salary and an additional 100% of any additional wages they make under a new employment. However, employees must undertake any required training during the furlough period and be able to return to work for their original employer once the furlough period has terminated. This necessarily limits the scope of additional employment available to furloughed employees during the furlough period.
The guidance also provides the following clarifications:
The updated guidance itself failed to provide much needed clarity on issues surrounding annual leave for furloughed employees. Guidance published by the Advisory, Conciliation and Arbitration Service (ACAS) briefly notes that furloughed employees can still request and take their holidays in the usual way, and this includes taking bank holidays.
HMRC has also tweeted to say that employees who are currently on furlough leave can still take their annual leave or bank holiday leave despite being furloughed, and significantly, that such employees should be paid their full rate of pay, not just their “furlough rate of pay.” HMRC will reimburse the employer at the usual furlough rate but the employer will be responsible for topping up the holiday pay to 100%.
It is hoped that HMRC will provide confirmation on this issue in the next update to its furlough guidance to provide greater certainty for employers. As things stand now, based on HMRC’s Twitter communication, any salaried employee who is on furlough leave with temporarily reduced pay over the furlough period will be entitled to pay at their pre-furlough rates of pay for the April and May bank holidays (if taken).
It also follows from this communication that taking holidays will not break a furlough period, which will be of comfort to employers once confirmed.
The new guidance confirms that employers are required to notify furloughed employees of their furlough status in writing, and states that a record must be kept for five years. It is important that employers keep this record in the event that HMRC investigates claims made under the scheme in the future. Claims should be started from the date the employee finishes work and starts furlough, as opposed to the date the decision to furlough an employee is made.
Leave and Rights During Furlough
The original guidance permitted furloughed employees to take part in volunteer work; the updated guidance takes this a step further and states that employers can actively assist and support furloughed employees to find new volunteering opportunities in line with public health guidance.
Employers are reminded that furloughed employees are still entitled to their statutory employment rights, including but not limited to statutory sick pay (SSP), redundancy, and maternity and other parental leave rights. Employees returning from statutory leave after 28 February 2020 are entitled to receive 80% of their salary as opposed to the pay they were receiving whilst on leave. However, furloughed employees may find that their future rights to statutory maternity pay, adoption pay, paternity pay, and shared parental pay are affected by the reduction in their salary. Employees who are on sick leave will also be eligible for the scheme. Employees are entitled to receive a furlough payment instead of SSP, provided that the furlough payment is equal to or higher than their SSP entitlement.
Questions remain on the extent to which collective consultation is required in order to seek and obtain the consent of each employee being placed on furlough. The guidance states that “if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.”
Employers will need to take a pragmatic approach as to the extent of consultation that takes place, balancing the need to take urgent steps to reduce costs against the strict obligations that apply under collective consultation legislation. A risk analysis should be undertaken in each case, and employers should bear in mind the “special circumstances” defence, which can be asserted where an employer has been unable to comply in full with collective consultation legislation, and which might be invoked in the unprecedented circumstances presented by the COVID-19 crisis.
Importantly, the updated guidance notes that employers may need to consider terminating the employment of furloughed employees by reason of redundancy. Redundancies may occur both during the furlough period and once the scheme has ended. The updated guidance also recognises that employers may need to make employees redundant if they refuse to consent to the scheme in the first place, provided that employers comply with redundancy rules and protection. This is a helpful acknowledgment from the government that, whilst the scheme may offer temporary support for struggling businesses, redundancy may still be inevitable both during furlough leave and once the scheme is terminated. This possibility can be taken into account by employers in their forecasting and contingency planning during the furlough period.
This does, however, give rise to a further question not currently clarified in the guidance with regard to employees who act as “employee representatives” for the purposes of a collective consultation exercise for redundancy purposes. Such representatives are appointed for the purposes of consulting with their constituent employees on issues relating to the proposed redundancies for a period of either 30 or 45 days (depending on the number of proposed redundancies), and will be required to disseminate information and report to the employer with views and concerns.
The guidance does not currently make clear whether such representative duties would be classed as “work” for the purposes of the scheme, which would make such employees ineligible for the government grant. In our view, it should be possible for employees to act as representatives without this being considered “work,” as it is separate from the duties the employee is employed to perform, and ultimately, by acting as a representative, the employee is serving the interests of employees as opposed to the employer. However, this position is not clear, and urgent clarification is being sought from the government in this respect.
We will provide further updates on these important issues as and when further information is made available.
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 subscribe now 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: