Furloughs and Employment Law
Posted on 24th March 2020 at 16:33
Tucked away in the very sparse information currently available about the Coronovirus Job Retention Scheme is a little phrase that says "changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation".
What does this actually mean in practice, and what should employers who have furloughed staff, or are considering it, do as a result?
The Coronovirus Job Retention Scheme - doing it legally
The Chancellor announced the scheme on Friday 20th March 2020, and said employers would be able to “furlough” employees rather than making them redundant. Within a matter of days it has gone from a phrase few had heard of, to a term we all think we understand.
Furlough has no legal standing in UK law, but it is essentially a paid period away from the workplace, where the employee does no work for the employer. The Chancellor said that the new scheme would allow employers to claim a grant to cover 80% of their employment costs for staff on PAYE, up to £2,500 per employee.
The Chancellor was careful to mention the need to comply with employment law, and here's why:
As an employer, you cannot, legally, impose a furlough, or a lay-off, or a period of unpaid leave, or a reduction in pay on any employee, unless you have a specific clause in your employment contract to allow you to do so.
Most employers won’t have these clauses (although certain industries e.g. construction often have a lay-off clause).
Without a written lay-off clause in your contracts, you must consult with your staff and obtain their consent to introduce a furlough and/or reduce their pay, as it is a temporary change to their terms and conditions of employment. Failure to consult and gain consent may result in a breach of contract claim to an Employment Tribunal for unlawful deduction from wages.
Most employees will consent when they understand the alternatives, but to protect your business you need to have this consent in writing.
For staff already furloughed, or any you propose to furlough, it's best practice to write a letter to each employee clearly outlining each of their options, and asking them to sign their consent to a furlough. I strongly recommend that employers get this written consent as soon as possible.
The full details of the Coronavirus Job Retention Scheme have not been published yet, so employers should not make any commitments or decisions beyond what has already been published (e.g. do not make any commitments or decisions about how you will treat those on sickness, maternity or paternity leave, stopping accrual of any other benefits such as holidays, or varying the rate of pay during furloughs. We simply do not know yet if any of these will be allowed.)
The mechanism for claiming furlough grants has not yet been set up – it is being built from scratch and we have been told not to expect the system to be in place until the end of April 2020 at the earliest. Employers who will struggle to find money to pay March and April salaries may be able to secure funds through the Coronavirus Business Interruption Loan Scheme.
At this stage we have no idea what evidence of furlough employers will have to provide to HMRC, but written consent will provide evidence for any Employment Tribunal claims.
I can provide a letter for you to send to your staff setting out their options as currently understood, and seeking their written consent to the furlough arrangements, and I can also help with employee consultation if needed (in writing or virtually, obviously) or any employment queries from employers.
Please contact me to find out more.
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