As the impact of Covid-19 continues to be felt across the country, the Government announced an extension of its Coronavirus Job Retention Scheme (CJRS) until 30 June 2020. Despite further guidance being issued by the Government, some key questions remain and we outline some of these below.
1) Do employers require an employee’s written agreement to be furloughed under CJRS?
Early HMRC guidance on the furlough process stated, ‘Both you and your employer must agree to put you on furlough.’ Many employers, keen to benefit from the scheme during the initial period of the COVID-19 crisis, proceeded on the basis of this simple guidance without consideration of any formalities required to effectively vary an employment contract.
Later updates given in the Treasury Direction then specified that to be furloughed an employee must have been instructed by their employer to cease work, which happens ‘only 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’ (our emphasis).
This leaves employers at risk on two fronts.
Firstly, it is unclear whether HMRC will decline claims from employers who do not have express written consent from employees. Whilst it appears that HMRC intend to rely on their initial guidance and contradiction of this could lead to judicial review because employers had a legitimate expectation to make successful claims for the grants based on HMRC's initial guidance, strictly speaking, the later Treasury Direction takes legal precedence.
Secondly, employers who have not obtained written consent may have exposed themselves to claims for unlawful deduction of wages. Where the requisite level of prior written consent has not been obtained to vary an employment contract and pay is being reduced, it will be classified as an unlawful deduction from wages. This is an issue both for employers who did not gain written consent for furlough and those who gained consent retrospectively.
If a deduction is found to be unlawful an Employment Tribunal must order the employer to pay the amount unlawfully deducted, with no upper limit. In addition, the Employment Tribunal may award compensation for any financial loss sustained by the employee as a result (e.g. bank overdraft charges).
The Treasury Direction guidance is the legally correct approach and although HMRC have said that it is for employers to follow the guidance, this offers little comfort to the employers who have furloughed their employees without following a written furlough agreement process where the employee’s agreement or consent is crucial. For them, the position remains unclear and further clarity on the issue from HMRC would be welcome.
2) Can employers instruct their employees to take holiday during furlough?
Updated guidance released on 17 April confirmed that employees can take annual leave during furlough leave.
However, the guidance remains silent on whether an employer can require an employee to take annual leave during furlough. Employers may want to do this in order to reduce outstanding annual leave to be taken once business returns to normal.
Acas guidance states that employers are legally entitled to require employees to take holiday in the usual way provided the employer gives notice that is twice as many days as the amount they are required to take.
This position is supported by existing case law requiring certain workers to take holiday at a time when they would not otherwise be working.
However, it is not clear if the same principles apply during furlough. The purpose of annual leave is for rest and leisure and some employees may argue that they are unable to achieve this whilst in lockdown. A counter-argument is that despite the lockdown, employees are still able to take daily exercise, carry out DIY and enjoy time at home with their household, including any children who are away from school.
The position remains unclear and may remain so unless and until the matter is litigated in the future. An employer who choses to require employees to take holiday during furlough needs to anticipate, and be prepared to respond to, any argument that the purpose of holiday cannot be achieved during lockdown.
3) Do employers have an obligation to collectively consult employees who are due to be furloughed?
Government guidance notes that if sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure employee agreement to be placed on furlough. No further information has been provided on this statement.
Collective redundancy consultation is required where an employer proposes to dismiss 20 or more employees for non capability or conduct reasons (generally referred to as redundant) in a 90 day period at one establishment. The process, which must start at least 30 days before the first dismissal, requires an employer to provide specific information and consult with employee representatives as to methods of avoiding or reducing the number of dismissals. If 100 or more dismissals are proposed the process must start at least 45 days before the first dismissal.
Collective consultation is unlikely to be required when the employer is merely considering a furlough scheme with the aim of persuading a sufficient number of employees to accept it, without warning of redundancies if employees do not agree.
However, if 20 or more employees fail to consent to furlough, leading to a realistic prospect of redundancy for 20 or more employees, or if the employer intends to terminate contracts with a view to offering employees new terms, the collective consultation obligations would be triggered.
Also, if the furlough scheme is being considered alongside a well-advanced plan to make redundancies, then the obligation to collectively consult may be triggered as will the obligation to complete an HR1 form and submit to the secretary of state for BEIS.
An exception to collective consultation is permitted in ‘special circumstances’, a term narrowly construed by the courts. Some employers will find it difficult to rely on the special circumstances exemption to justify no or a short consultation processes, given the existence of the CJRS, as those employers may be less likely to face significant financial difficulty if they take advantage of the scheme.
Compliance with collective consultation obligations is not to be taken lightly as failure to comply can lead to claims worth up to 13 weeks gross pay per employee.
Employers currently considering offering furlough to a large number of employees should assess the risk that 20 or more of them will not agree before proceeding.
This issue may come up again if or when the CJRS is terminated, as businesses who do not anticipate a quick return to normal may again have to consider redundancies as a means of cutting costs.