Government publishes new Covid-19 Job Retention Scheme Directions

Important considerations for employers who have decided to furlough staff

Five weeks after the online portal opened for applications under the Coronavirus Job Retention Scheme (the Scheme) two thirds of UK businesses have used the scheme and by 3 May HMRC reported a total of 6.3m jobs had been temporarily laid off by 800,000 companies, with claims amounting to £8bn. Recently published ONS statistics indicate that the sectors with the highest proportion of furloughed workers are the accommodation and food service industry (at 80%) and the art, entertainment and recreation industry (at 68%).

The publication of government guidance relating to the Scheme had slowed down in pace however on 20 May HM Treasury published new Directions. In this article we consider whether the new Directions affect the arrangements you have in place for furloughed staff and set out some important considerations for employers who have made the decision to furlough some or all of their staff.

Do employers need to obtain the written agreement of employees to be furloughed?

There has been some confusion about exactly what needs to be documented to evidence the decision to furlough employees.

The HMRC guidance and the Directions were, on the face of it, contradictory on what is required. The most recent HMRC guidance states:

"To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming through the scheme. Collective agreement reached between an employer and a trade union is also acceptable for the purpose of such a claim. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years."

On the other hand, the original Direction stated that an employee will only be furloughed if they have been instructed by the employer to cease all work in relation to their employment and if "the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment".

This discrepancy has been rectified in the updated Direction which is more specific about the arrangements to be put in place when an employee ceases work and is furloughed. Both employee and employer must agree the employee will cease all work and the agreement between them must set out the main terms upon which the employee will cease all work. These may, for example, include a reduction in pay and other benefits, the length of the furlough leave period and any other conditions the employer may wish to put in place. The agreement must form part of the employee's contract of employment (as a variation to the contract) and it must be confirmed in writing by the employer. The Directions no longer state or imply the agreement must be signed by the employee.

This means employers who did not obtain a written confirmation of agreement from their employee when furloughing them will not be disqualified from claiming under the Scheme providing they fulfil all other requirements. However, in circumstances where employers are reducing the salary of their employees by 20% (or more for higher paid staff) they are advised to obtain written consent from the employee to the reduction in salary otherwise they may risk claims for unlawful deduction from wages or breach of contract. See our previous article on the risks of these claims here.

Due to the various versions of the guidance which came out before the original Direction, there is the potential for employers who furloughed workers shortly after the Scheme was announced to have simply instructed employees not to work and for there to be no record of the agreement between employer and employee. In some cases, employers with layoff clauses in their employment contracts may have relied on these to impose furlough and have no written record of the instruction to the employee to cease work, or any agreement between them that the employee will be furloughed.

Regardless of the earlier contradiction between the guidance and the Direction and in light of the new Direction, it is advisable for employers to document the agreement with the employee that they will cease work and be on furlough leave, even if this is set down in writing retrospectively. Documentary evidence of the agreement between employer and employee should then be securely kept for five years in case it is requested by HMRC in a future audit.

What needs to be set out in a furlough agreement?

The employer should set out the business reasons for the decision to put the employee on furlough, for example the reduction in work due to the government's stay at home orders. It is advisable to state that the agreement is subject to the rules of the Scheme and the employer's eligibility for a grant under the scheme in relation to the employee.

Although we know that the Scheme will be in place at least until 31 July and in a phased form thereafter, employers are unlikely to know precisely how long the furlough leave will last. That said, it is a good idea for employers to state that the leave lasts for at least three weeks (which is the minimum required furlough period). The employer should make clear that the furlough period will continue (subject to the continuation of the Scheme) until the employer provides notice to the employee that the furlough leave is ending. Employers who are utilising a rotation of furloughed/non- furloughed staff should clearly set out these rota periods.

The agreement should make clear that the employer has instructed the employee not to do any work for the employer whilst furlough leave continues. It should state the percentage of pay which the employee will receive and how pay will be calculated (where there are variable hours). The agreement should make clear how other contractual benefits will be impacted by furlough, including pension contributions, and can include any requirements for taking holiday during furlough.

Do employers need to consult with staff about furlough?

It is of course good practice for employers to engage with staff as much as possible before taking the step to place them on furlough leave. Employees who are given enough information to understand the financial and operational context of the decision to furlough are much less likely to raise concerns, grievances or claims about the decision in future. Where time and circumstances allow, employers should hold discussions with individual employees in which they can ask questions, raise concerns and suggest alternatives to furlough. 

Where there are recognised trade unions or other staff forums in place, the employer should engage with them to discuss the need for furlough and how this will impact on staff and the organisation as a whole. It is possible that collective agreements are in place which require the employer to consult with the trade union about any change to pay and conditions. In that case, the employer should do what it reasonably can to follow the normal consultation process, adapting processes so that meetings can take place remotely and assisting representatives as far as possible to provide information to and take feedback from staff via secure and reliable means of communication.

If an employee objects to being furloughed, employers have the option of dismissing and re-engaging the employee on new terms including furlough leave and the reduction in pay; or considering whether they have a genuine redundancy situation and dismissing on those grounds. In the circumstances most employees have accepted the furlough arrangement, which is fortunate as any dismissal, particularly where a fair process was not followed, is a much riskier route to take and may leave the employer at risk of unfair dismissal claims. If the objection applied to 20 or more employees, this would also trigger collective redundancy consultation requirements (see below).

If the employer is contemplating 20 or more redundancies* at one workplace within a 90 day period, it should comply with its collective redundancy consultation obligations and ensure that consultation with representatives commences in time. Where there are between 20 and 99 potential redundancies, consultation should start at least 30 days before the first dismissal. Where there are 100 or more potential redundancies, consultation should start at least 45 days before the first dismissal. Employers in these circumstances must also send form HR1 to the Secretary of State.

* It is important to note that the number of "redundancies" for collective consultation purposes includes any employees who do not agree with changes to their terms and who are therefore dismissed, even if they are re-engaged on new terms.

Employers should plan for consultation processes, particularly collective consultation, to take longer than they usually would. They can prepare for such processes by gathering relevant contact details for staff and putting the necessary technology in place so that remote communication can be made. Where plans could impact on 20 or more employees and trade unions are not recognised, employers should consider facilitating the election of employee representatives with a remit for consulting on changes to terms or redundancies ahead of time.

Even though the current restrictions may make it difficult to use the usual modes of consultation, it is important for employers to do what they can to keep communication channels open and to use remote means to consult as meaningfully as possible. It is important to remember that, should claims be brought in the employment tribunal, employers will be expected to do what they reasonably can to consult with staff before making changes to terms and taking dismissal decisions. 

Fraudulent furlough claims

HMRC has confirmed that it has received hundreds of reports that employers have been making fraudulent claims under the furlough scheme, for example making claims for employees who are continuing to work and may not even know the claims have been made. The whistleblowing charity, Protect, has seen an increase in calls to its helpline from employees concerned about such misuse of the scheme. They report that employees have been furloughed but asked to "volunteer" for their employer at the same time.  In some cases, employees who have protested have subsequently been made redundant. This may give rise to whistleblowing and unfair dismissal claims.

These risks highlight the importance of clearly documenting the decision to furlough and instructing staff and managers on what they can and cannot do during furlough. It is very important that organisations make clear to staff that, at least until the scheme changes on 31 July, furloughed workers cannot carry out any work for the employer. They are able to carry out training during furlough but cannot perform services or generate revenue for the employer organisation. Furloughed workers can volunteer for other organisations, but not where these are part of the employer's group. Please see our previous articles on the detail of the furlough scheme at https://www.wrigleys.co.uk/news/covid-19/.