We have now had further guidance from the UK Government on the operation of the Furlough Scheme. The Guidance Note that was published on 15 April 2020 has now been updated two days later to provide more information and details on what to claim for and how to go about it. At the same time the Guidance Note addressed to employees (entitled "Check if your employer can use the Coronavirus Job Retention Scheme") has also been updated. Bizarrely, the Employee Guidance Note contains information which employers definitely need to know about and which does not appear in the employer’s Guidance Note.
We will look at some of the more straightforward changes across the two Guidance Notes before we turn to the significant challenges which exist because of the tension between the Guidance Notes and the Treasury Direction, published on 15 April 2020.
Employers Guidance Note
The Guidance Note to employers ("Check if you can claim for your Employees' wages through the Coronavirus Job Retention Scheme") is now on its fourth iteration. The Guidance Note has had further material added to it, as new issues come into view. These include:
- An emphasis on the fact that HMRC will check claims made through the Scheme and payments can be withheld or required to be repaid if the information provided is dishonest or inaccurate or found to be fraudulent. The Employee Guidance Note continues this theme and invites employees to disclose the identity of any employers making fraudulent claims.
- The Furlough Scheme Guidance Note has made clear for some time that an employee made redundant or who had stopped working for an employer after 28 February 2020 can be reemployed by the employer and put straight onto Furlough. The Guidance Note now makes it clear that they cannot be put on Furlough until they have re-joined the employer and then, only from that date. In other words they cannot have employment retrospectively deemed to go back to 28 February 2020 if they only re-joined on 1 April 2020.
- The Guidance note’s advice on fixed term contracts is also being expanded but, sadly, in a way which indicates that those providing the guidance have not thought through the consequences of their own note. It confirms, as we already knew, that employees on fixed term contracts can be furloughed and, as we also already knew, that the furlough period could be extended by extending or renewing the fixed term contract.A section has now been added into the Guidance Note to make it clear that the contract in question must be renewed or extended before it has expired. Fixed term contracts which have ended, without extension or renewal on or before 19 March 2020 will, according to this section, not qualify to be furloughed once they have ended.However this overlooks the fact that employers are entitled to rehire employees where their employment ended at any point after 28 February 2020 for any reason. Therefore the apparent trap, which sees the fixed term contract have to be renewed or extended before it is expired, is meaningless. That said, of course, it would be better if employers take prompt action to extend or renew fixed term contracts if they are wishing to furlough the individual. Employers should ensure that there is written evidence that the contract has been continued, even if it is only a note of a call in which the extension was agreed.
- The Guidance Note now states that individuals who have been on furlough, when they return to work, must be taken off furlough. They can be furloughed again but each separate instance of furlough must be for a minimum of three consecutive weeks.We think this is not as drastic as it first appears. It is not requiring employees to be kept on furlough leave for multiples of three weeks and anything short disqualifies the final period of furlough leave. It is simply saying that if an employee is on furlough, and then is rotated back to work again, if they are subsequently sent on furlough then that subsequent furlough period is treated as a new furlough period rather than an extension of the old one. This means that staff who are being rotated on and off furlough, that business cycle will probably need to have a minimum three week period on and off.
- The information to be provided in order to make a claim has not changed. However we now have an explicit requirement that employers should retain "all records and calculations” in respect of the employer's claims for furlough monies. This is to include records of the amount claimed for each furloughed employee and the period in respect of which the individual is furloughed and a claim has been made under the Scheme.In other words, and perhaps not surprisingly, the employers are going to have to show their workings if they are claiming money under the Scheme.
The Employee Guidance Note
- As we explained above, the Employee Guidance Note was also reissued on 17 April 2020 and has been updated as well. The Guidance Note is directly relevant to employers as well as employees and there is no logical reason why some of the contents of the Employee Guidance Note are not also in the Employer Guidance Note.
- The key point is that at long last we now have some guidance on the issue of holidays and holiday pay for furloughed employees. The Guidance Note says that whilst employees are furloughed they will continue to accrue leave in line with the employment contract. This of course is subject to the statutory minimum. This is no surprise. The virtually unanimous understanding of commentators was that employers would need to recognise that there were costs for furloughing staff which would not be recoverable, and one of those was that employees would continue to accrue holiday whilst on furlough.
- The Guidance Note goes onto to say that employees can take holiday whilst on furlough. This is extremely important. Whilst most people had assumed, particularly after the ACAS Guidance Note had referenced taking holiday whilst on furlough, that the Furlough Scheme did not preclude an individual taking holiday, it is helpful to have this expressly confirmed. The nightmare scenario was, of course, that one day of holiday might invalidate a three week furlough period, leaving the employer significantly out of pocket.
- The guidance goes onto say that "Working Term Regulations ("WTR") require holiday pay to be paid at your normal rate of pay or, where your rate of pay varies, calculated on the basis of the average pay you received in the previous 52 working weeks".This seems to be clearly aimed at the situation where an employer has reduced the pay for staff who are on furlough, and staff are taking holiday. In such circumstances according to the Guidance Note, the employer should be paying at the normal rate of pay, which is presumably the rate that the individuals would have received if they were not on furlough. Since there is nothing in the Treasury Direction to contradict this, the Guidance Note is unchallenged on this point.
- It does not completely remove the issue however. If employees pay has been cut irrespective of whether they were on furlough, does that affect the rate at which holiday pay would be paid?Similarly, if the rate of pay has been reduced (and let’s assume with appropriate agreement from individuals or otherwise duly authorised under the contract) then this reduction is open ended, what is the normal rate of pay?Clearly this is a question which is going to have to be resolved by the Courts. Unless the Treasury Department issues a revised Direction and it is made as a condition applying for the grant that employees have been paid at the full salary rate irrespective of any reduction after 28 February 2020, then this will be resolved in the Employment Tribunal in due course. This flows from the slightly odd status of the Guidance. The Guidance is guidance to employers applyingfor public monies under the Furlough Scheme. It is not suggested that the treatment of holiday leave amounts to a precondition for claiming payment.Imagine a situation where an employer, in ignorance of the Guidance, pays the employees at the wrong rate for holiday taken. Given that there is nothing in the Treasury Direction, it would seem extremely unlikely that this would mean the employer is unable to make a claim in respect of those furloughed employees for that period. Instead it is simply that the employees would have a claim in the Tribunal that could point to the Guidance Note to support their claim.
- The Guidance Note goes on to say that if individuals usually work bank holidays then the employer can agree that the bank holiday day itself is covered by the application for the grant. If the individual normally takes bank holiday as leave, then the employer either has to top up the pay for that period, up to the full rate (where there has been a pay reduction) or has to allow time off in lieu to be carried forward.
- The Guidance Note finishes this section by saying that the "policy on holiday pay during furlough" is "under review". Do not rule out further guidance coming forward.
- Sadly the guidance does not say anything explicit about whether employees can be required to take holiday during furlough. The Guidance Note is completely neutral on who has initiated the holiday being taken. It states "you can take holiday whilst on furlough". This is a very broad statement. It may be that this is what those who have created the Guidance Note have this particular issue in mind when flagging that there may be further policy on holiday pay during furlough. If there were to be widespread evidence that employers were disproportionately running down holiday entitlement, and in effect double counting (by reducing holiday costs and benefitting from public money) then that might prompt further policy to be announced.
Conflict with Treasury Direction
- Unfortunately there are two areas where there is significant conflict between the Guidance Notes, and in particular the Employer's Guidance Note, and the Treasury Direction. Given that the Guidance Note was issued two days after the publication of the Direction, and one certainly hopes that those doing the Guidance Note had seen the draft of the Treasury Direction before it was put out, it is truly remarkable that these inconsistencies exist. Nevertheless employers need to know what to do in the current circumstances.
- The first issue and by far the biggest, is what is said about employee consent to being furloughed. We wrote about this in the last guidance update. However by way of reminder the Treasury Direction said that an employee had to have been instructed to cease all work in relation to their employment, in order for that employee to qualify as a furloughed employee. In passing we would note that an employee who disobeys that instruction and does some work would still seem to be furloughed, unless the employer consented to that work being done.
- However, paragraph 6.7 of the Direction said "An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such an email) that the employee will cease all work in relation to their employment".Sadly, whilst exceedingly unhelpful, it did at least have the merit of being reasonably clear. Employee consent in writing was required.It ignited a predictable howl of protests from employers who, in reliance on previous iterations in the Guidance Note, had not understood that they needed to get consent in writing from the employee.
- The latest iteration of the Guidance Note now says:
"Agreeing to furlough employees.
Employers should discuss with their staff and make any changes to the employment contract by agreement.
To be eligible for the grant employers must confirm in writing to their employee confirming (sic) that they have been furloughed.If this is done in a way that is consistent with employment law, that consent is valid for the purpose of claiming the CJRS.There needs to be a written record but the employee does not have to provide a written response."
- The sentences in bold in the second paragraph have been added to the Guidance.Nothing has been taken out from the previous guidance note on 15 April 2020.
- How is this to be read consistently with the Direction? The first problem is that the Guidance Note itself is pretty unclear. It says that in order to be eligible for the grant employers have to confirm in writing to employees that they have been furloughed. So far so clear. It then says if "this" is done then provided this is consistent with employment law that consent is valid for the purposes of claiming the furlough grant. A natural reading of the paragraph would assume that “this” refers to the employer writing to confirm the furlough arrangement.The problem is there is no reference to consent in writing to an employee confirming that they have been furloughed.
- We think it is clearly intending to mean that the consent referred to in the first paragraph of the section. However that only applies where employers are making changes to the employment contract by agreement. In other words if an employer is making a change to the employment contract then it needs to be duly authorised (but does not require written consent). We think that it probably follows from this that the writers of the Guidance Note are proceeding on the assumption that furloughing staff is always a change to the employment contract. On that basis this section of the Guidance Note means that if you are furloughing staff, and the process of furloughing staff is authorised ("by employment law") then you do not need to get the consent of the employee.In other words ordinary employment law principles apply. Presumably the reference to "employment law" simply means law applying to employees in whatever format.So we have a situation where the Guidance Note seems (however opaquely) to be saying that you do not need to get written consent where you are furloughing an employee if the instruction is not a breach of contract and is a reasonable instruction.We are back to what we understood the position to be originally, before 15 April guidance and the Treasury Direction.So we are all clear?.
- Sadly there remains a problem.None of this seems to engage with paragraph 6.7 of the Treasury Direction which will have precedence. The Treasury Direction is the legislative framework. The Guidance Note is simply guidance on the Direction.The Treasury Direction continues to say that employees have to have "agreed in writing". We think it is simply impossible to read the two together consistently unless the words in the Direction "agreed in writing" are somehow understood to mean any authorisation mandated by "employment law" is good enough. What is the situation where the employee is sent on furlough without consent, and does not object in any way? Will it be sufficient that even if the employee had a claim for breach of contract, they did nothing and so waived any claim by their inaction?
What are employers to to?
- Our suggestion would be that employers need to take a pragmatic view. If they are in the process of furloughing staff then consider whether it is feasible to obtain consent in some form or another. The difficulty with this is that staff presumably can then refuse to consent and the employer will be left trying to work out whether it has created an additional problem by giving staff the option to refuse to consent to furlough.We think that if the objections are from individual employees and most are willing to sign any consent letter then the employer will elect to furlough the refuseniks without their consent.This should avoid the issue becoming divisive between those who have agreed and those who have not. The employer will have reduced its risk significantly by obtaining majority consent and for the individual refuseniks HMRC may accept that the employer had the power to furlough unilaterally.Naturally if pay cuts or other adverse changes are being implemented as well then this will almost certainly require actual individual consent.
- Where staff have already been furloughed, the question is then is a bit more tricky. The employer will need to consider whether it is best advised to go through a consent process, to try and obtain retrospective consent (which is not certain to work) or whether it is better to let sleeping dogs lie and trust that the makers of the Guidance Note and the authors of the Treasury Direction might both be playing for the same side and attempting to reach a common outcome, and so the Guidance Note’s approach can be relied on by employers.
- Secondly, the position in relation to employees who are ill and whether they can be put on furlough is unclear. Whilst this is obviously less of a ground breaking issue for employers, compared to the previous issue, it is still extremely important that employers know whether they can furlough sick employees, in the midst of a pandemic.
- The Treasury Direction states in paragraph 6.3 "Where Statutory Sick Pay is payable or liable to be payable in respect of an employee (whether or not a claim to Statutory Sick Pay is made) at the time when the instruction [i.e the instruction to an employee be furloughed and do no work for the employer] in paragraph 6.1(a) is given ("original SSP") the period described in paragraph 6.1(b) [i.e the furlough period] in respect of the employee does not begin until the original SSP has ended) but any subsequent entitlement to Statutory Sick Pay by virtue of the employee becoming unfit for work again after the original SSP has ended must be disregarded. (emphasis added)
- Our view therefore, based on paragraph 6.3, is that it is not possible to furlough an employee who is entitled to receive Statutory Sick Pay, even if no SSP claim is made. Remember too that the Statutory Sick Pay Scheme has now been extended to cover those who are self-isolating even if they are not sick, and there is a probably a very significant financial difference between being on furlough and receiving merely Statutory Sick Pay.
- However the Guidance Note also addresses the issue of employees who are sick or self-isolating before they are furloughed.
- It states "Short term illness/self-isolation should not be a consideration in deciding whether to furlough an employee. If, however, employers want to furlough employees for business reasons, and they are currently off sick, they are eligible to do so as with other employees. Employers are also entitled to furlough employees who are being shielded or off on long term sick leave".
- This simply seems to be completely contradictory to the Direction. The Guidance Note expressly recognises that employees who are ill can be furloughed. The Direction does not.
- Clearly, here, for most employers the approach will be to make the claim for sick employees, on the basis that they can be furloughed. If the claims for such employees are denied, then this is unlikely to raise existential issues for the employer. Clearly employers who are relying on the furloughing almost all of their entire workforce, but who did not obtain consent first, may be significantly more troubled by the consent point.
- It is to be hoped that the Treasury will realise the significant and unnecessary confusion that has been caused, and as such move to issue an amended Treasury Direction as a matter of urgency. Employers in the midst of a financial crisis should not have to contend with contradictory guidance of their obligations and options.