Coronavirus job retention scheme: what employers need to know

Under the Coronavirus Job Retention Scheme, the Government will pay 80% of wages to PAYE employees. But how will it work, asks Jon Fisher of law firm Pinsent Masons?

The scheme is intended to avoid layoffs and redundancies. Employers will be able to contact HMRC for a grant to cover most of the wages of their workforce who remain on the payroll but are temporarily not working during the coronavirus outbreak.

However, many questions remain outstanding over what is covered by the scheme.

Payroll questions

It is unclear what will count as wage costs, and whether the cost of benefits in kind, pension contributions, commissions, bonuses, overtime payments and other premiums are covered.

It is also not yet clear whether the apprenticeship levy or employers’ national insurance contributions are covered, and how pay will be calculated for employees on zero-hours contracts or variable hours.

Who is eligible?

The scheme will apply to people who have been designated by their employers as “furloughed employees”, and who have been notified of this by their employer.

“Furloughed” means still employed but not doing any work at all, with the government’s employee guide stating: “To qualify for this scheme, you should not undertake work for them while you are furloughed”.

It appears therefore appears that people who have had their hours reduced but who are still working will not be eligible.

Who could be excluded?

The scheme does not apply to self-employed people or contractors.

The position of agency workers is unclear. It is also unclear if it will apply to ‘workers’ as well as employees, and the position of people who were made redundant since 1 March is also uncertain.

Questions are also outstanding about the status of people who are sick or self-isolating, and whether employers can designate them as furloughed enable them to receive more than statutory sick pay, or to cover the cost of company sick pay.

What are the employment law risks?

In these circumstances, it is important not to overstate the legal risks. The practical risk of claims must be much-reduced given the wider issues people are facing and the financial cushion provided by the scheme.

In particular, if employers agree to top up to full pay, the risks ought to be negligible. Nevertheless, employers need to at least be aware of the potential claims they may face.

The announcement made clear that the scheme must be implemented in accordance with employment law. There will be no statutory right to designate an individual as “furloughed”.

Lay-off clauses

Where there is a contractual lay-off clause, employers are in a strong position to benefit from the scheme. They will just need to check the precise rules on how someone is designated as “furloughed” once they are published. They must also use objective criteria for deciding who should be furloughed.

Where there is no contractual lay-off clause, technically employers will still need an individual’s consent to being furloughed. Without that consent, an individual could claim breach of contract or unlawful deduction from wages to recover the lost income if the employer does not top up to full pay; constructive dismissal; and potentially a protective award for failure to consult in the run-up to dismissal.

Given that the scheme potentially only has 10 weeks left to run, imposing the change through dismissal and re-engagement is unlikely to be an attractive option save for people with very short service. It would also attract negative PR.

Gaining employees’ consent

Employers should consider how they could obtain consent to reduce the legal risks. The most obvious route is to run a voluntary scheme and perhaps to offer some form of top up to the scheme payment. Where employers have collective bargaining, they should talk to the union first before launching the scheme.

With people increasingly nervous about leaving home, and many now facing childcare difficulties, voluntary schemes should be successful. If anything, the issue may be that they are over-subscribed.

Employers should ensure they have objective reasons for selecting who is furloughed and who is not. If the scheme permits them to alternate furloughed status between individuals, they should give serious consideration to doing that. In theory an employer could face breach of trust and confidence or discrimination claims from people who are not furloughed but who want to be, or from those that are and who miss out on pay (because the employer is not topping-up). An objective selection process should provide a strong defence to such claims.

Imposing furloughed status

If an individual will not consent to being furloughed, it is likely to be better for the employer just to impose it anyway. That way, they can claim the 80%.

If employers still want to implement redundancies, care should be taken to consider whether the option to furlough is a reasonable alternative to dismissal, in order to reduce the risk of unfair dismissal claims.

If employers still want to implement redundancies, care should be taken to consider whether the option to furlough is a reasonable alternative to dismissal, in order to reduce the risk of unfair dismissal claims.

About the author

Jon Fisher is a partner at Pinsent Masons. This article is reproduced with permission from Pinsent Masons’ website.

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