The Risks of Furloughing Employees

UPDATE 17 APRIL: Claim for your employees’ wages through the Coronavirus Job Retention Scheme (CJRS) A step by step guide for employers

UPDATE 17 APRIL:  Job Retention Scheme Extended By One Month

UPDATE 15 APRIL: Furlough Scheme Cut-Off Date Extended To 19 March

It has been a number of weeks since the Government announced the Coronavirus Job Retention Scheme to support UK businesses and employees. The scheme is rumoured to cost around £30-40 billion of funding over the coming months and the application process is simple enough – but it’s important to be aware of the risks.

We’ve put together this quick guide to help you reduce or eliminate five of the key risks associated with putting employees on furloughed leave.

What is ‘Furlough’?

As a result of the ongoing COVID-19 crisis, the Government introduced the ‘Coronavirus Job Retention Scheme’ on the 1st March 2020 for an initial period of three months. The aim of this scheme is to support UK businesses to retain their staff, as opposed to laying them off or making them redundant. Put simply, ‘furlough’ is a leave of absence. In the period of the COVID-19 pandemic, employers can furlough their staff as part of this Job Retention scheme. The scheme will reimburse employers 80% of the employee’s salary, or £2,500 per month per employee (whichever is lower).

Find out more about the Coronavirus Job Retention Scheme

By now you are already probably aware of the Coronavirus Job Retention Scheme and the term ‘furlough’ has become a lot more familiar in business’ vocabulary. However, HR teams and advisers are quickly trying to understand and educate employers on the risks associated with the scheme. Read on below to find out the five main challenges and how your business can avoid them.

1. Breaching Contract

Government guidelines on furlough leave are focused on the simple requirements for registering on the portal. Note that they don’t touch on the contractual or employee relations aspect of implementing the scheme. To put your employees on furlough leave, their employment agreement must state you’re able to vary their existing terms and conditions simply by notifying them. If you do not have this contractual right, you must talk to your workers and gain their verbal and written agreement. The key areas to cover in seeking your workers’ agreement are: a. What change you are proposing b. Why you are proposing to make that change c. When that change will take effect. Who is likely to be affected by that change and for how long the change will be in place If you do not gain written agreement, you will very likely be in breach of the employment contract. Not sure if the relevant clause is in your employment contracts? Either way, you must get your employees written acceptance to be furloughed. That way, you definitely have the relevant documentation on record.

KEY POINT: Furloughed workers are not permitted to perform any work for you. They can take part in volunteer work or training, as long as they are not providing services or generating revenue. If you currently have employees laid off, placed on short-time working or issued with notice of redundancy, we encourage you to engage them as soon as possible. Either notify them they are now designated as a Furloughed Worker, or begin meaningful consultation with a view to agreeing in writing their move to being designated a Furloughed Worker. 

2. Constructive Dismissal

If you fail to get written consent to furlough workers, you may end up facing constructive dismissal claims. Where an employer has committed a serious breach of contract, entitling the employee to resign in response to the employer’s conduct, the employee is entitled to treat themselves as having been ‘dismissed’. In this case, the employer’s conduct is often referred to as a ‘repudiatory breach’. In the coming months, we may see an increase in the number of employers being taken to tribunal on the back of incorrect furlough processes having been followed. Further to this, compensation claims for constructive dismissal can be expensive. This could represent a huge cost to many businesses if they fail to carry out the process correctly for the employees they put on furlough leave.

KEY POINT: If you have a recognised trade union or employee consultation group, you must check the terms of any collective agreements that are in place.

3. Disagreement 

If an employee doesn’t agree to being furloughed, your options – with the relevant contractual right – are lay-off, short-time working, or redundancy. Lay-off and short-time working may attract statutory guarantee pay and this is not covered by the COVID-19 Job Retention Scheme. Redundancy may attract a redundancy payment (only applicable for employees with more than two years’ service). This is also not covered by the scheme.. An employer looking to make 20+ affected employees redundant must follow a statutory redundancy procedure. Failing to follow that statutory procedure can, in addition to bringing risk of unfair dismissal complaints, present risk for rather costly “protective award” claims which can be up to 13 weeks gross pay per affected employee.

4. NMW Employees

Furloughed workers do not work any hours, therefore they must be paid for the lower amount of 80% of their wage, or £2,500 a month. This will occur even if, based on their normal hours, the payment amount would fall under either National Minimum Wage (NMW) or National Living Wage (NLW). However, if training is undertaken whilst they are Furloughed e.g. they’ve participated in an online course, then they must be paid NMW or NLW for the time spent training. This must happen even if the payment is more than the 80% of wage that will be subsidised. Getting this wrong may see businesses bogged down with internal complaints procedures and having to defend Employment Tribunal claims.

5. Maternity Leave

An employee on statutory maternity or adoption leave cannot simply switch to being furloughed, although it’s likely to mean a bigger income for most people in this position. Difficulties may arise if you allow someone to return earlier than anticipated and the furlough ends. They won’t be able to go back onto maternity leave, and you may then have difficulties agreeing how they can use Parental Leave to manage their childcare.

  • Keeping In Touch Days: This is an arrangement agreed between employer and employee for the employee to work up to ten days during their maternity leave without affecting their maternity leave or pay. The remuneration can be agreed between the parties, but in practice most agreements are for a normal day’s pay. If you’re furloughing staff on 80% of normal pay, it could create difficulties to honour ‘keeping in touch’ days when there’s very little work available.
  • Discrimination: If you’re in the position of choosing staff to furlough, then one valid criterion is someone’s status as a ‘shielded’ person. An employee who is struggling to return from maternity leave because of the closure of nurseries or grandparents self-isolating, could also be a priority for furlough. You need to be very careful that your choice of furloughed employees is not perceived to have been done on discriminatory grounds, and careful thought is required. If you have an employee on maternity or adoption leave my advice is to write to the employees concerned to explain the current epidemic and that you are furloughing certain workers.
  • Upcoming Maternity Leave: If you have employees who have notified you of their intention to begin maternity leave fairly imminently, you may still need to include them in furlough plans. Employers cannot trigger an early start to maternity leave unless the employee is in the four weeks before the expected week of childbirth and off sick for a pregnancy related reason.

The package of support for UK businesses announced by Chancellor Rishi Sunak on 20 March 2020, was met with a sigh of relief from many. The opportunity for businesses to keep their staff in employment during such a period of economic uncertainty, was welcomed. If you’ve already commenced the process of furloughing your employees, or you’re about to start – we urge you to take care. As outlined in this article, there are a number of risks that businesses – and HR professionals in particular – need to work to avoid. Mistakes along the way could be costly in the long-term. When undertaking the furlough process and managing the risks, we recommend – if possible – you seek the input and advice of a qualified employment law expert, to support you through the process, ensure you’ve complied with legislation, and most importantly – give you peace of mind.

The Coronavirus outbreak is causing huge uncertainty and anxiety for many UK businesses and self employed. However, we are constantly receiving updates and additional schemes being announced for the UK economy. Our COVID-19 Business Support Hub has all the latest information and insight available, including the Furlough Scheme Cut-Off Date Extended To 19 March and Coronavirus Job Retention Scheme portal update.

It is very important that you seek legal advice, to ensure the appropriate changes are made to employment contracts if you are considering furloughing staff, and also to take tax advice to fully understand your obligations and the implications of furlough.

If you have any queries or concerns in relation to applying for the CJRS, or just generally in relation to your way forward through this coming period, please contact the team directly on 01942 816 512 or email us at HR@ekwgroup.co.uk

EKW Group

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