Flexible furloughing and calls for clarity: third time lucky?

Flexible furloughing and calls for clarity: third time lucky?

Flexible furloughing and calls for clarity: third time lucky?

On 25 June 2020, HMRC issued a “Further Treasury Direction”, modifying the Coronavirus Job Retention Scheme (CJR Scheme). This is the third iteration of the original Treasury Direction and it can be read here

The Government issued detailed guidance on the extension of the CJR Scheme on 12 June 2020, including the introduction of flexible furloughing from 1 July 2020 and updated this guidance again on 1 July 2020. We outlined the key changes to the CJR Scheme here.

Treasury Directions are the legal basis for the administration of the CJR Scheme. The drafting of the two previous iterations has been complex, sometimes ambiguous and often contradictory to existing Government guidance. The third iteration, unfortunately, follows suit and in many ways raises more questions, rather than clarifying the details. We set out below some of the outstanding issues.

  1. Can employers claim a grant under the CJR Scheme in respect of employees who are under notice of termination?

Government guidance confirms that, “Your employer can still make you redundant while you’re on furlough or afterwards.” Many employers have, therefore, proceeded on the basis that employees may remain on furlough leave while they are serving out their notice period.

The Further Treasury Direction has, however, raised some queries in relation to this approach as it states, “Integral to the purpose of [CJR Scheme] is that the amounts paid to an employer pursuant to a [CJR Scheme] claim are used by the employer to continue the employment of employees in respect of whom the [CJR Scheme] claim is made…”

The question which has now arisen is whether the requirement for an employer to use the CJR Scheme grant to continue employment prohibits an employer from claiming a grant in respect of employees who have been given notice of termination (as there is arguably no intention to continue their employment following expiry of their notice). An alternative interpretation of the Further Treasury Direction is that an employer is still continuing employment in circumstances where the employee is furloughed during their notice period. This is on the basis that the employer could otherwise terminate the employee’s employment earlier and pay the employee in lieu of notice. 

Further, using the CJR Scheme to facilitate the employee remaining employed until the expiry of their notice period may, in some circumstances, avoid the ultimate termination of their employment, if circumstances within the employer’s business change before the expiry of that notice (e.g. an alternative vacancy becomes available and the employee can be retained).

We discuss this issue in more detail here, including the pay to which an individual may be entitled while serving out their notice period on furlough leave.

  1. Does an employee need to be at risk of redundancy in order to qualify for a grant under the CJR Scheme?

The Further Treasury Direction sets out that the purpose of the CJR Scheme is for employers to use the grant in respect of employees “whose employment activities have been adversely affected by coronavirus and coronavirus disease or the measures taken to prevent or limit its further transmission.” 

This has raised questions whether eligibility under the CJR Scheme has reverted to the early days of the CJR Scheme when Government guidance suggested that the grant would only be payable in respect of employees who would otherwise be made redundant. Our view is that this is most unlikely, as it would represent a wholesale reversal in policy and, if this were the case, we would expect any Guidance and the Further Treasury Direction to make this explicitly clear, which it does not. 

Our view is that “employment activities” may be interpreted subjectively and could include factors such as health concerns and also childcare responsibilities arising from the coronavirus pandemic and the measures taken in response (such as schools closures). Our view is that “employment activities” is not intended to be limited to situations where an employer does not have work for the employee. 

  1. Do the employer and employee need to enter into a written agreement to flexibly furlough?

It is clear that the employer must document the terms of the agreement in writing to the employee but it is less clear whether the employee must always respond and provide written confirmation to that agreement.

Given the complexity of some flexible furlough arrangements, and the need for both employer and employee to be certain about matters such as working hours and pay, it would be good practice to enter into a written agreement, signed by both employer and employee or for the employee to otherwise give their consent in writing. It may also be the case that the employee’s terms and conditions of employment may only be varied by a signed agreement in writing.

  1. How should furlough pay be calculated following a pay reduction or reduced hours scheme?

The provisions relating to the calculation of furlough pay are particularly complex.

The Further Treasury Direction confirms that, “The reference salary of a fixed rate employee is the amount payable to the employee in the latest salary period ending on or before 19 March 2020...” It also confirms that, in order to calculate “usual hours” for a flexibly furloughed employees, “the relevant repeating shift pattern is that having effect in relation to the employee under the terms of a contract having effect at the end of the latest salary period ending on or before 19 March 2020.” In other words, the starting point is the employee’s pay and contractual hours in the last pay period prior to 20 March (which, for most monthly paid employees, is likely to be their salary and contractual hours in February 2020).

This raises a number of interesting and possibly controversial employment relations issues, including:

  • where an employer has implemented a pay reduction scheme after 19 March 2020, the furlough pay of a flexibly furloughed employee will be calculated on the basis of their pay prior to the pay reduction. Depending on the level of pay reduction and whether the monthly cap applies (currently £2,500), it may be the case that the employee receives more pay during their furloughed hours than during their working hours, and it follows that, in such a scenario, the furloughed employee may receive more pay during their furloughed hours than their colleagues receive while working; and
  • where an employer has implemented a reduced hours scheme after 19 March 2020 (e.g. a four day week (80%)), when calculating the flexibly furloughed employee’s “usual hours”, these will be employee’s contractual hours prior to the reduced hours scheme. Again, depending on the particular circumstances, this could result in flexibly furloughed employees being financially better off compared with colleagues working the same or more hours.

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