On 4 April 2020 the UK Government provided an update to its previous guidance on the Furlough Scheme (‘the Guidance Note’). The Guidance Note provides some helpful clarification in some areas, alters the scope of the Scheme in other areas but leaves some problems entirely unaddressed. This update builds on our previous alert: The Detail of the UK Coronavirus Job Retention Scheme, and so we will focus on the areas that have changed, or have been supplemented from the initial guidance, before focussing on the outstanding areas of uncertainty.
Given that the times are unprecedented in modern Britain it is hardly surprising that the original note (which was 7 pages) is now 10 pages long with a commensurate increase in the detail provided. More guidance may be forthcoming but given that employers are already placing staff on furlough it is certainly to be hoped that there will be no significant shifts in focus of the scheme in any further guidance and such guidance as is issued is to clarify statements in previous notes.
New points include:
- An employer who wishes to claim under the Furlough scheme for a grant needs to be enrolled for PAYE online. The Guidance Note says that this may take 10 days to process if the employer has not already signed up. This could be crucial for employers looking to make a claim at the earliest point when the portal for the grant is up and running. It would not be surprising if lots of employers try to sign up for PAYE online and so this may cause more delays than normal.
- We now know that apprentices can be furloughed. The Guidance Note is clear that they may continue to train during furlough and will have to be paid at least the applicable statutory minimum national wage during any period of training.
- The Guidance Note also expands the class of individuals who can be put on furlough in a significant way. Company directors can be furloughed. This is a decision to be taken by the Board and formally adopted as a resolution of the Board, noted in the company records and communicated in writing to the relevant director. Importantly whilst on furlough it is permissible for the director concerned to carry out such duties to fulfil statutory obligations that they owe to that company. They should only do so to the extent that they do no more than “would reasonably be judged necessary for that purpose”. This does not cover work generating commercial revenue or providing services on behalf of their company. This is clearly a bit of a grey area. Would it allow, for example a Board Director to oversee and participate in the management of a redundancy exercise that the company decided was necessary to ensure continued solvency? For most of our clients we anticipate that there will be non-furloughed resources available to cover a furloughed director’s work but there will be some tricky examples. However the most striking thing is that the note recognises that in some cases a furloughed director may be undertaking duties, without taking themselves outside of the scope of the furlough scheme.
- Salaried members of an LLP can also be put on furlough if they are designated as employees for tax purposes. Although the Guidance Note does not say this explicitly we assume that it is not possible to change the status of salaried members after 28 February 2020 in order to designate them as employees. The Guidance Note identifies that furloughing salaried members of an LLP may require a variation of the LLP Deed. The reference salary, for the purposes of the furlough scheme, is the members profit allocation but the Guidance Note expressly excludes any portion of the salary which is related to individual performance or performance of the LLP itself. So this may make the furlough grant less valuable in the case of salaried members if the scheme covers 80% of the base salary only which might itself be only 80% of the sums regularly received by the salaried member in the first place.
- However the biggest extension is to include so called “Limb B workers” in the category of individuals who can be furloughed. This is a realistic acceptance of their status but it is helpful that the Guidance Note expressly recognises this. A Limb B worker is someone who is not an employee but who performs a role that involves them providing personal service to the “employer” and the individual is not providing these services via their own business. Provided such workers are paid through PAYE then they qualify under this scheme if their “employer” puts them on furlough. Otherwise they may be eligible for support under the scheme for self-employed individuals (see our update on Government support for self-employed individuals in the UK).
- The Guidance note provides some clarity around the type of activities that can be done whilst on furlough. It is clear that volunteering work is permitted provided it does not generate revenue or provide services for the employer. It is also clear that individuals can take on a paid job working for another employer, if their contract of employment with the original employer does not prohibit this. Presumably the same would apply to setting up your own business in this period to generate some personal income. Such staff of course could not be furloughed by the second employer because they would, in these circumstances, have started work after 28 February 2020.
- There is further clarity on which employees you can claim for as well. Unsurprisingly the Guidance Note confirms that foreign nationals can be put on furlough if the employer wishes to do so. Of course prudent employers will bear in mind that the laws on discrimination will apply to such decisions so in the (unlikely) event that an employer was furloughing foreign nationals because of their status that would be unlawful discrimination.
- Employees who stopped working for an employer after 28 February can be rehired and then put on furlough. This is a very surprising concept and it has to be debatable whether employers are going to take this step given that they will potentially lay themselves open to additional top up costs, and benefits and then have to go through the process of ending the contract again when the furlough grant scheme comes to an end. The note does not say so expressly but we assume individuals have to be hired at their original salary (unless the individual agrees to take a reduced salary). Very oddly this ability to rehire is not limited to staff made redundant. It covers staff who have “stopped working for you”. So resignations, retirement and performance dismissals are all within scope. This might offer a creative solution to the TUPE conundrum faced by employers (see below).
- The Guidance note reiterates that staff who are working but on a reduced hours basis cannot be covered by the furlough scheme and similarly staff who are receiving Statutory Sick Pay (whether because they are actually sick or self-isolating in line with medical advice) cannot be furloughed. However employees who are unable to work because their childcare responsibilities preclude this can be put on furlough. Again an employer will need to tread carefully if the furlough is being imposed on an unwilling employee, in case this is discriminatory.
- Employees on fixed term contracts may be furloughed. If their contract is due to expire the employer can chose to renew or extend the contract and such action does not take the employee outside the scope of the furlough scheme.
- The Guidance Note has a new section on “Agreeing to Furlough Employees”. This provides that the employer should look to agree any changes to the contracts of employment with staff. We do not think that this means that employers who impose unilateral change, or who drive through a contractual change by relying on a variation clause, for example are outside the scope of the furlough scheme. It is simply a recognition that changes should be agreed where possible. It does not mean that there are no alternatives open to the employer. The Note confirms that the decision to furlough must be confirmed in writing to the employee and the record of the communication needs to be kept for five years.
- There is some welcome clarity on what an employer can claim for under the grant scheme. The employer is entitled to include in the claim any “regular payments that you are obliged to pay your employees”. We think that this means most types of monetary payments to the employee can be included. Examples given in the note include wages, past overtime, fees and compulsory commission. Discretionary bonuses, tips and commission payments are not covered. This represents a change from the original guidance which excluded commission and fees altogether. There is no guidance on how regular a payment has to be to be included, or whether a fluctuating allowance can be paid at an average calculated against 2019/2020 tax year. We have been asked if the employer could agree a standard flat rate allowance so that staff shared equally in the allowance paid. This may be permitted but it does not seem to fit easily with the Guidance Note.
- The Guidance Note makes clear the grant paid in respect of an employee must be paid in full to the employee for their gross pay. We assume that where the grant has not come through before salary is due to the employee the employer will be entitled to recoup that against the salary payment. The employer must not deduct any money from the grant e.g. fees for processing the payment. We think that this provides an answer to the concern that an employer could reduce a salary after 28 February (the date for assessing the relevant salary level) and if it was reduced by more than 20 percent then if the employer could still claim 80 percent of the original salary then the employer could pocket the difference. This could never have been what was intended but this makes it clear that the employer cannot pocket any part of the grant.
- There are still some uncertainties created by the revised Guidance Note. The major concern is the extent to which the furlough scheme is only for employees who would otherwise have been redundant. It must be recognised that when the total guidance to employers is ten pages long there is a lot of detail that is not in the note, and equally it may be dangerous to scrutinise the drafting of the Note as if it was a piece of legislation. But we think, despite a comment to the contrary in the Note that furlough is not only for employees who would otherwise have been redundant, or that there needs to be a redundancy contemplated before an employee can be put on furlough.
- The argument in favour of saying that there has to be an underlying redundancy situation and you are only entitled to furlough staff who would otherwise be made redundant arises from some of the language used. The clearest evidence to support this comes from the statement made about whether or not employees who are shielding (but who are not sick or self-isolating) can be put on furlough. The Note provides “You can claim for furloughed employees who are shielding in line with public health guidance….if they are unable to work from home and you would otherwise have to make them redundant.” This is clear enough in relation to shielding but the question is whether this link exists generally. The statement is very odd generally as it implies that if someone could work from home you cannot furlough them. We don’t think is precisely what is meant for reasons we will explain below.
- Our view is that there remains no need to have contemplated or envisaged that if staff are not furloughed then they would have to be made redundant. There is no suggestion anywhere in the Guidance Note that when choosing people for furlough employers should be using the sort of selection criteria that have been in existence for 40 plus years as part of a fair dismissal process. Secondly there is evidence elsewhere in the note that is inconsistent with the idea that there has to be an underlying redundancy situation. The purpose of the scheme is now stated, in the Note, to be for employers whose operations have been severely affected by Coronavirus. The Note provides “It is designed to help employers whose operations have been severely affected by the coronavirus to retain their employees and protect the UK economy. However all employers are eligible to claim under the scheme and the government recognises different businesses will face different impacts from coronavirus”. This seems to recognise that adverse impact is the test rather than a need to make redundancies. If you can hire back employees who left you after 28 February 2020 (which may include having left for reasons other than redundancy) how is that consistent with there having to be an underlying need to make redundancies? You are able to furlough staff on the basis that they cannot work because of caring responsibilities. This has nothing to do with redundancy and presumably when the virus passes and business reopens then presumably for many people their prior caring arrangements will apply again. The Guidance Note acknowledges that when the Scheme ends it may have to consider termination of employment for redundancy. This is sadly true, but there is no suggestion that if the employer does not make the employee redundant at that point then this may cast doubt on the grant that may have been paid to the employer by then.
- We think the explanation for the odd statement around shielding is that it relates to a very narrow circumstances. The only reason for considering furloughing the individual is that they are shielding, i.e. there is plenty of work to go round and they could work from home. If there is not enough work to go round so furloughing is necessary then they are being furloughed because of a wider issue, and not because they are shielding.
- There is then a related issue. The Guidance Note does not say that employees can be furloughed ahead of a redundancy, or during redundancy consultation. So although the purpose of the scheme is to enable staff retention, employees facing redundancy or at risk of redundancy are not excluded from being furloughed.
- However there is a consequential problem. Can such staff participate in a redundancy consultation exercise without breaking the terms of furlough and so take themselves outside the Scheme? Can an employee representative attend collective consultation meetings to engage in collective consultation on behalf of their constituents. We have seen this as an issue with paid union representatives who may need to undertake duties on behalf of their members. We understand that at least one union is taking the view that carrying on such duties is not for the employer’s benefit and so is not a breach of the furlough scheme. The same logic would apply to redundancy consultation we think, as the beneficiary of the work being done by the employee during the consultation exercise is primarily the employee themselves. We certainly think this is the sensible view to take. We hope that HMRC will take the sensible view too.
- Can an employee take holiday on furlough? What about public holidays? Can an employer make an employee take holiday whilst on furlough and then use the grant to claim back that (in effect) holiday pay? The short answer is that there is nothing about this in the Note itself, and given that employment lawyers and commentators have been pushing for this to be clarified as a matter of urgency, especially with Easter coming up, then we think this omission is rather telling. Assuming that it is a deliberate failure to address the situation we consider that the Government accepts that holiday may be taken whilst on furlough but does not want to say so explicitly for fear of a wave of employers trying to require employees to take their holiday during furlough, which we imagine might arouse some controversy. Under English law it is clear that an employer can generally require some holiday to be taken at a time specified by the employer. If the Government does not preclude this possibility in the new Guidance Note it presumably does not view that as precluding the possibility of a grant being paid in respect of an employee on holiday. There may be all sorts of employee relations nuances to consider if the employer makes people take holiday, as there would be if the employer prevented people taking holiday they had already booked. But we think the silence in the Guidance Note points towards the answer that the normal rules apply.
- The viewpoint is strengthened further by an ACAS Advice Note to employers and employees on Coronavirus, which came out on 3rd April, which has a specific section on holidays during furlough. This makes clear that in the view of ACAS an employee on furlough can request and take holiday in the usual way, which also includes taking bank holidays. There is nothing in the ACAS note to suggest that by doing so they forfeit the ability for the employer to receive a grant in respect of that period. The ACAS Note also states that employers should still be encouraging workers and employees to take their paid holiday, and employers have the right to require staff to take holiday at time specified by the employer.
- A further issue relates to the rate of pay for any holiday leave taken during a period of furlough. There is little guidance but we think the position will be clearer in practice than in theory. If the employees are being furloughed without any pay reduction then in general terms the holiday pay will be calculated in line with the generally applicable European and British legislative obligations. There may be some issues around particular allowances which may have been affected by the furlough leave, but if the employer is treating such staff as being on variable pay then they will either be paid at an average rate across the 2019/2020 tax year or a comparison with the same month in 2019. We think that employers who are not obliged to take on or other approach under their contracts of employment might opt for an average approach to avoid having to recalculate the allowances each month, with consequential changes to payroll. If staff have been furloughed with a pay cut, then we think the position can be made clear when the furlough letter is being drawn up. Since it is open to an employer and employee to agree a pay cut which applies for all purposes when calculating benefits, there is nothing to stop staff agreeing that the pay cut applies to their holiday pay for holiday when on furlough. However where staff have been furloughed without that clarity then we think a Tribunal, faced with a claim for underpayment of wages, would probably take the view that the full rate of pay was payable. They may well be tempted by the argument that if the employer wanted to cut holiday pay too at the same time it should have made this clear. Bearing in mind that it was uncertain up to this weekend whether staff could take holiday on furlough this may be a classic example of hindsight being a wonderful thing.
- One other issue which has come up for advice a number of times is whether staff who have agreed to be furloughed with a pay cut can then be excluded from a redundancy exercise. Assuming that a fair procedure has been followed and due consultation carried out we think that in general terms a proposed redundancy pool consisting of staff who have declined a pay cut and furlough is potentially fair. Since the question for the Tribunal is whether the approach adopted is within the band of reasonable responses then an employer has considerable flexibility when identifying the pool. In Taymech v Ryan the EAT said “The question of how the pool should be defined is primarily a matter for the employer to determine. It would be difficult for the employee to challenge it where the employer has genuinely applied his mind to the problem”. The employer should make it clear that furlough coupled with a pay cut to save costs is a necessary step, and that redundancies are very likely to follow if pay cuts are not agreed by sufficient numbers of employees. Then individual staff will be making a decision knowing what the alternative course of action will be. In this situation, then we think an employer would have a strong case that it was fair to restrict the pool for redundancy purposes to those who had declined the furlough and pay cut. Clearly this may be harsh on individual employees who are unable to accept the pay cut for entirely good reasons. But since the focus is whether or not the employer’s choice of redundancy pool is one which a reasonable employer might have adopted, then the primary focus will be on the employer’s reasons for the pool rather than the employee’s reasons for rejecting it.
- Finally a number of commentators have flagged up that TUPE transfers after 28 February risk taking staff who might have been eligible to be furloughed out of the scheme. This is clearly a loophole but the arguments have a sound logical basis. The Guidance Note does not say anything about this expressly and it could, surely, have done so if it had wanted to clarify the position. But we think that there is a potential work around. If the employees could have been furloughed by the old employer, and the transfer is after 28 February, we know from the Guidance Note that the employer can take back staff who have ceased to work for it. Remember that they can have ceased to work for the employer for any reason whatsoever. If the new employer wants to furlough the staff then it agrees with staff that their contracts with that employer are suspended, then the old employer rehires them back by consent, furloughs the staff, and then when the scheme is finished the employees temporary arrangement with their old employer ends, and the underlying contracts with the new employer become operational. Indeed there would seem to be a potential for an employee to work some percentage of their time for the new employer and get hired by the old employer to be furloughed for the balance of their time. Again we know that a furloughed employee is able to work for a third party without being in breach of the furlough arrangements. In short with some explanation and a degree of creativity we think that a transferor and transferee who wish to ensure a TUPE deal goes ahead but who need to be able to furlough some staff, should be able to achieve this. It would have been simpler if the Guidance Note simply confirmed that a TUPE transfer is not viewed as being new employment post 28 February.