Following the Government’s announcement on Friday 20th March 2020, there has been much discussion about the Government’s support for businesses through the Coronavirus Job Retention Scheme. Central to the scheme is the ability for an employer to designate employees as ‘furloughed workers’ and claim up to 80% of their salary from the government, capped at £2,500 per month.
What is furlough leave?
Currently, very little guidance exists regarding furlough leave and there is quite a bit of confusion, particularly around the Government referring to furlough leave as an alternative to employees being ‘laid off’. Some of this confusion may have been caused simply by the use of these terms. These are terms more often used in America, where – unlike in the United Kingdom – there is no statutory scheme relating to employees who are placed on a period of ‘lay off’. In the UK ‘lay off’ and ‘redundancy’ mean completely different things whereas in the USA they do not.
So, what does ‘lay off’ mean?
Many employers in the UK have contracts of employment that entitle them to place their employees on a period of ‘lay off’ or short-time working. Employees are not paid during such a period of lay off but do have statutory rights to claim a limited amount of ‘guarantee pay’ and can also apply for a statutory redundancy payment, following a period of four weeks lay off, provided they comply with pretty complicated statutory rules.
The UK Government’s new initiative on furloughed workers should not be confused with lay off. The complex rules relating to claiming a statutory redundancy period following a period of lay off only come into play if an employee is not receiving pay during a period of lay off. So, in situations where an employee is placed on a period of furlough leave, where their employer intends to make a claim from the Government for 80% of their wages, it follows that such employees must be receiving pay during the period of furlough leave. This would mean they would not be entitled to make a claim for a statutory redundancy payment after four weeks of furlough leave.
The limited government guidance on placing employees on furlough leaves states ‘changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation’. It is critically important that employers note that they will be unable to place any employee on furlough leave which involves an employee receiving less contractual pay than that which is stated in their contract of employment, without the employee’s consent. Employers may have provisions for garden leave, but this will typically entitle an employer to place an employee on a period of leave if they make payment of their full remuneration. Likewise, those employers that have a contractual right to lay off employees typically will only have the right to lay such employees off without any pay whatsoever (so that the employee can make a claim for a statutory redundancy payment if necessary). Therefore, unilaterally placing an employee on any period of furlough leave where an employee is receiving less than their full salary is likely to give rise to claims for breach of contract and constructive unfair dismissal.
It is therefore important that employers reach an agreement with employees that they are placed on a period of furlough leave. In the present circumstances, it is highly likely that employees will agree to such a period of leave. Typically, such agreed leave should be recorded in a letter or document signed by both parties.
We appreciate this is an unprecedented time for many businesses and employees. If you have any questions at all, please do not hesitate to contact us on: firstname.lastname@example.org
The information in this article was correct as of 23rd March 2020.