September 16

What is the legal position regarding furloughing staff?


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The legal position regarding how to furlough staff is ambiguous. Please be careful:  The promise of 80% funding with a £2,500 cap to avoid making layoffs by ‘furloughing’ staff, asking them to take a ‘temporary leave of absence’ might be attractive, but the legal position is unclear.

Further information and clarification is expected from Government shortly, for now, unless your contracts of employment have what is called ‘A Lay-off Clause’ which allows you to send employees home without pay, or ‘such action is a regular practice’, you need to proceed cautiously.

The Government has been clear, that its announcement does not create a legal right to place employees on furlough leave. The employee’s status will continue to be subject to employment law and existing contracts of employment. There is a right and a wrong way to do it…

It is unlikely that you have the contractual right to lay staff off without pay.
If you just send employees home because there is insufficient work, your employees should continue to be paid. If they are not paid or there is no contractual right to send them home in the absence of work, then you could face claims for the unpaid wages (breach of contract or unlawful deduction from wages claims) and potentially constructive dismissal claims at some point in the future.

What is a furloughed employee and when is it appropriate?
The term ‘furloughed employee’ is someone who rather than being dismissed for redundancy, is kept on the payroll during a period where you as their employer does not have any work for them to do. It is not a concept specifically created for the Covid-19 outbreak. The scheme is only intended to cover employees registered for PAYE.  Self-employed individuals (independent contractors) are not covered by the Scheme.

The scheme cannot be applied to employees who have already been dismissed or made redundant.  The Scheme is designed to help employers keep their employees on the books during the COVID-19 crisis by offering a significant wage subsidy. It cannot be used where shorter hours or reduced pay have been negotiated in response to the COVID-19 crisis or for employees on sick leave or in isolation.

What do I do if my contracts of employment don’t include the appropriate clauses?
If you don’t have the contractual right to place staff on temporary leave you will need their consent before you place staff on furlough leave. make sure you get this in writing. If you unilaterally place your employees on furlough leave, you run the risk of a constructive dismissal claim, (right now the risk of a claim may be low when the alternative is possibly the loss of their job entirely). Unless you have the right to reduce pay during a period of temporary leave, then you are also obliged to make up any shortfall, and continue benefits during any period of furlough, unless your staff agree to reduced pay (e.g. as an alternative to redundancy).

When will it apply?
The Government has announced the Scheme will cover backdated wages from 1 March 2020, however it is likely to be some time before businesses start receiving financial support.

How do you apply?
The scheme is still being set up. An online portal is to be set up for employers to notify HMRC and apply for the grant, after employees have been furloughed.

For updates on the situation please refer to the website

Previous Update to the Coronavirus Job Retention Scheme (29th May 2020)
Next What is the Self-Employed Income Support Scheme?
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