This update looks at the Government's guidance to holiday entitlement and pay during Coronavirus (COVID-19).
At long last (and some might say rather belatedly), we have guidance from BEIS as to how holiday entitlement and holiday pay is to work during the Coronavirus pandemic. The Guidance Note is informative in some areas but makes a number of quite odd suggestions in others. We must remember that it is simply guidance. An employee's statutory rights for holiday leave and holiday pay are not affected by this, although the guidance will be of persuasive effect. It will have more impact in relation to the Furlough Scheme, where clearly employers are entitled to expect that HMRC will respect guidance put out by BEIS.
The Guidance Note looks both at the position in relation to statutory entitlement (5.6 weeks for a full time employee) and contractual holiday entitlement. It notes that the statutory entitlement is split into four weeks (the standard EU leave or Euro leave), and the additional 1.6 weeks is derived from UK legislation. It also notes of course that workers and employers can agree to flex any contractual entitlement provided it does not go below the statutory entitlement. It confirms what we had long suspected, namely that the normal rules in relation to holiday apply during the Coronavirus period. Employers have the right to schedule holiday for workers and to cancel workers holiday if they give enough notice to the worker. In order to cancel holiday, the employer needs to give the worker notice equivalent to the length of the holiday being cancelled, and if the employee wishes to schedule holiday it needs to be double the length of the holiday being scheduled.
Specifically in relation to furloughed workers, the Government confirms that such workers are entitled to take holiday and that will not disqualify them from the Furlough Scheme. Similarly, employers can require employees to take holiday whilst they are on furlough. There is a general statement that if an employer requires the worker to take holiday whilst on furlough, the employer "should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday".
Whilst that is true as far as it goes, I think it inevitably raises many questions. We are used to the fact that an employee who is on sick leave cannot be required to take holiday at the same time. However, it is quite different to say that an employee who is furloughed but who is otherwise well and healthy, will be able to decline to take holiday on the grounds that it will not be sufficiently resting or relaxing. Whilst it might be thought that this is unlikely ever to be tested in the Courts, we think that if there is a slew of redundancies coming to the British economy, and employees are desperate to maximise their claims, it is likely that an employee made redundant after being forced to take holiday may seek to challenge this on the grounds that their domestic circumstances were such that it was insufficiently relaxing. Probably the best thing for employers to do, when scheduling holiday, is to make clear why employees are having holiday scheduled for them and also to offer employees the opportunity to put forward any special reasons if they consider the employer’s policy of scheduling holiday should not be applied to them. As always, if an employer offers the employee an opportunity to make representations at the time, and it is not taken, it is easier for the employer to defend a claim based on the same facts afterwards.
Where furloughed employees are furloughed during a Bank Holiday, and would normally have been on holiday at that point, the Guidance Notes says that the parties can agree that day can be taken as annual leave, and the employer must pay the correct holiday pay to the worker, or the day can be taken as a normal furloughed day and the holiday would then be changed into flexible holiday to be taken at a later date. The Guidance Note also points out that employers could theoretically require employees to take the Bank Holiday as holiday giving appropriate notice ahead of time.
The Guidance Note does not address what happens if the parties do not agree what is to happen. Our view is that this would be determined by the contract of employment, but in most cases an employee, where the individual would not have worked on the Bank Holiday, should be treating the Bank Holiday as holiday, rather than automatically converting it into another days holiday. Clearly, again, if neither the employer nor the employee raised the point before the day in question and the employee is paid at their furloughed rate for the day in question, that may be seen as evidence that both parties were, implicitly, treating it as a furlough day, and the employee, in effect, gains a variable day’s holiday, instead of the fixed statutory day’s holiday. From an employer's perspective this is unhelpful and so employers who expect employees to take the Bank Holiday as holiday should make this clear ahead of time.
The Guidance Note also touches on the issue of holiday pay. For furloughed employees the Note says "An employer should not automatically pay a worker on holiday the rate of pay they are receiving while on furlough, unless the employer has agreed not to reduce the worker's pay while on furlough". We think that this rather confusing sentence means that, if an employer is paying an employee in full on furlough then it must pay the employee in full for their holiday pay. However, obviously it is a more difficult question if the employee's rate of pay has been reduced while they are on furlough. The Note simply says that the holiday pay must be paid in accordance with current legislation. We take the view that this means that the furlough rate, if it is a temporary rate, is almost certainly not going to be the correct rate for paying holiday pay, and so employers would need to pay holiday pay based on the employee's normal remuneration and not their temporary reduced one payable during furlough.
The Note explains the carry over rules and provides some additional guidance to them. It distinguishes between the four weeks of Euro leave and the 1.6 additional weeks under English law. At present the additional UK leave can be carried forward if there is a written agreement between the worker and the employer. Up until the recent change in the legislation, Euro leave could not be carried forward. However, it is now possible to carry forward even Euro leave where it was not reasonably practicable to take it in the current holiday year by reason of the impact of the Coronavirus pandemic.
The Guidance Note offers some thoughts on when it would not be reasonably practicable for a worker to have taken the four weeks Euro leave. It is important to remember that there is not a unilateral right to carry-over Euro leave (although in practice if both the worker and the employer want to carry-over, there is no-one to object to a carry-over).
However, if either the employer or the employee dispute whether holiday should be carried over, it may be necessary to consider whether it would have been reasonably practicable for the worker to have taken some or indeed all of that four week holiday. The Guidance Note sets out a number of factors which may help decide the question. Many of the Government's factors are relatively sensible. For example, has the business faced a significant increase in demand due to the Coronavirus, meaning that it would necessarily require the worker to be present for a greater proportion of the year? Or alternatively has the business been disrupted, and it is not possible to obtain temporary contractor support to cover any shortfalls? What has the health of the worker been (presumably especially if they have been ill or shielding for a considerable period of time)? One of the factors that might be relevant, according to the Guidance Note, is "the extent to which the worker taking leave would impact on society's response to a recovery from the Coronavirus situation". Presumably those in front line services can look forward to a particularly gruelling second half of the year.
As explained, the furlough pay rate is likely to be lower than the correct holiday pay rate. The Note makes the remarkable statement that "workers who are on furlough are unlikely to need to carry forward statutory annual leave as they will be able to take it during the furlough period (in most cases at least)". This is a remarkable statement on two grounds. First, it seems to indicate very strongly that the Government does not expect employees to be able to argue that they are being deprived of holiday if they are required to take it during furlough (see above). Secondly, an employee who has been furloughed for even the most common furlough period (which is likely to be March to July) is being told that they should not need to carry-over any holiday because they will have (presumably) used a disproportionate amount of holiday during the furlough period, so as to avoid any likely need to carry-over any holiday. This comment will be seized on by employers who are keen to schedule and/or require employees to take disproportionate holiday during furlough leave so as to run down their holiday pay liability, in effect by reliance on the Furlough Scheme. Employers, however, who are not trying to schedule holiday for employees on furlough leave, but are merely encouraging it or who are scheduling proportionate holiday, will presumably take little comfort from this statement in the Guidance Note. If employees have not as a matter of fact taken all of their holiday by (say) November 2020 then either they will have to take it before the end of the year or they will have to carry it over. Accordingly, we think that the Government's statement will probably be seen as a green light by employers who are scheduling disproportionate holiday to be taken during the furlough period.
The Note then continues with an even more surprising statement. It provides "If, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the worker to take their leave, enabling the worker to carry their annual leave forwards". This is remarkable because it indicates that an employer's financial constraints override the employee's health and safety right (i.e. to take holiday for the purpose of rest and well-being). This is surely controversial and an employer who tried to rely on this may well find they were challenged and/or have a constructive dismissal claim as well as having a very disgruntled workplace.
Where holiday is carried over, the Note suggests (and few would disagree) that it is best practice to run down the carried over leave before moving to the new holiday entitlement. The Guidance Note states that there is no "statutory requirement" to give workers notice that they will be able to carry holiday forward if they do not take it. The Guidance does note that it is unlawful to prevent workers from taking holiday to which they are entitled. Presumably, this is envisaging a situation when neither the worker nor the employer realised that the employee is not taking sufficient holiday, until after the end of the holiday year. However, it would surely be more constructive for employers and workers to engage on this subject so that holiday can be scheduled during the holiday year to avoid unnecessary disruption but also to explain to workers the ability to carry-over holiday but only if it is reasonably practicable. This is especially the case given that the right to carry-over holiday is widely known about by staff. We are seeing a number of cases where employees are asking questions based on the assumption they have the absolute right to carry holiday over, which of course, is not the case.