Coronavirus Job Retention Scheme: How will it fit with employment law?

Due to Government guidance published following the publication of this article, we are now working to update it. The content here should be read as accurate on 25.03.20.

On 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme.

Through the scheme the Government commits to cover 80% of the wages of ‘furloughed workers,’ up to £2,500 per month. A ‘furloughed worker’ is someone who remains employed but is not provided with work. The aim of the scheme is to ensure that employers who cannot afford to pay staff wages do not make redundancies.

The announcement was broadly welcomed by unions and businesses, although concern has been expressed at the lack of similar provisions for the self-employed.

This Insight looks at how the scheme will fit within existing employment law.

When will the Government provide support?

Government guidance for businesses says it will help cover the wages of furloughed workers who would otherwise have been let go during the Covid-19 pandemic.

At the time of writing, it is unclear whether an employer will have to prove they cannot otherwise pay the employee’s wages.

The scheme will cover wages from 1 March and will initially be in place for three months. However, on 24 March the Chancellor said in the House that the scheme may not be rolled out until the end of April.

What is a ‘furloughed worker’?

‘Furloughed worker’ is not a recognised term in UK employment law, although it is commonly used in the USA. Government guidance says someone is furloughed if they remain employed but are not undertaking work (in the UK the legal term would be ‘laid off’). Importantly, this suggests that the scheme does not cover employees who have agreed to work reduced hours.

Employees generally have the right to be paid their full wages if they are willing and able to work, even if their employer cannot provide them with any. Some employers will have a contractual right to lay off workers without pay but this is rare in practice.

As a result, most employers will need the consent of their employees if they are to put them on furlough with reduced pay. To do so unilaterally could be a breach of contract and an unlawful deduction from wages. However, as the alternative will likely be redundancy, obtaining the employee’s agreement may not be difficult.

There is some uncertainty as to how this will apply to those on zero-hours contracts, as an employer may seek to simply reduce their hours. The same could be true for many agency workers who have no assignments.

It is also currently unclear whether an employee can come on and off furlough leave.

Which workers will be covered?

On 24 March the Chancellor said in the House that all those who are on Pay-as-you-earn (PAYE) will be covered by the scheme. A number of employment lawyers noted on Twitter that this would exclude many who are ‘limb (b) workers’ under employment law. The point was also later made by Shadow Chancellor John McDonnell.

It is unclear whether employees will need to have been employed by a particular date or worked for their employer for a particular length of time.

It is also unclear whether employers can re-hire employees they have already made redundant and put them on furlough. Government guidance does say the payments will be backdated to 1 March 2020. Alan Bogg and Michael Ford QC, Professors of Law at the University of Bristol, noted that under the current law, employees who are re-hired can still claim redundancy pay.

How will employers select employees to put on furlough?

Where employers operate with reduced capacity, they may need to select which employees to ask to go on furlough.

Employers must ensure they do not discriminate in asking particular employees to go on furlough. If an employee refuses to go on furlough and is made redundant, it is also possible that the selection criteria for furloughing could be a factor in any subsequent unfair dismissal claim.

If the alternative to furlough is redundancy, and an employer is seeking to furlough more than 20 employees, it is possible that collective consultation obligations could apply.

Just as employers cannot normally unilaterally lay off workers, employees likewise cannot demand to be put on furlough.

How will wages be calculated?

The Government said it will cover 80% of an employee’s wages, up to £2,500 per month. For employees with a regular salary, determining wages should be straightforward. However, for employees with variable wages, such as those paid by the hour or by output, this could be more difficult.

In employment law there are complicated rules on determining what constitutes ‘a week’s pay’. It is usually calculated by reference to a 12-week period. In some cases, these calculations can exclude payments like bonuses, commission and overtime.

It’s possible that for these purposes, pay will be determined differently (such as through HMRC’s PAYE records).

It is not clear if employers are required to pay the additional 20% (or any amount in excess of £2,500). The Government guidance says this is a decision for the employer. However, as noted, employees generally have a contractual right to be paid in full, so employers would need the employee’s consent to reduce pay to 80%.

How else could furlough affect employment rights?

Putting workers on furlough leave can have implications beyond pay.

Some employment rights are dependent on the length of time a person has worked for their employer (called ‘continuity of employment’). A period of a week where there is no employment contract in force breaks continuity. There are some exceptions, including a ‘temporary cessation of work’. Alan Bogg and Michael Ford QC argue that the law should be amended to make it clear that continuity is preserved if a worker is self-isolating or on furlough.

Bogg and Ford highlight that under the current law an employee on furlough may still have the right to claim statutory guaranteed pay. They also note that employees who are laid off for more than four weeks currently have the right to resign and claim redundancy pay.

Another point of uncertainty is whether an employee who is on furlough leave would have to drop down to the lower rate of statutory sick pay if they fall ill or have to self-isolate.

Further Reading

Coronavirus Job Retention Scheme, Gov.Uk

Legislating in Times of Crisis: The Coronavirus Job Retention Scheme, UK Labour Law blog

Furloughing employees – what does it mean for employers?, Lewis Silkin LLP

Next steps to support family incomes in the face of the coronavirus crisis, Resolution Foundation

About the author: Daniel Ferguson is a researcher at the House of Commons Library, covering employment and equality law.