News & Events
Important update: Coronavirus Job Retention Scheme
From an employment law perspective, one of the key features of the Government’s response to the Covid-19 outbreak has been its publication and updates of Guidance dealing with the Coronavirus Job Retention Scheme (CJRS).
The Guidance set out details regarding which employers could furlough which employees and what would be paid. Ultimately, the Guidance indicated that the CJRS was there to assist employers who were affected by Covid-19. However, the Guidance has no real legal effect. The legal basis for the payment of furlough grants to employers arises from HM Treasury’s directions to HMRC as to how and in what circumstances those grants should be paid. The first Treasury Direction actually appeared some time after several versions of the Guidance had been produced. In theory, the Direction should mirror the Guidance. As we understand it, employers have received payments in a relatively straightforward manner. So far, so good.
Updates to the Guidance were not always consistent with previous iterations and it came to pass that the initial Treasury Direction, also known as ‘the law’, was not quite the same as the Guidance it sought to give legal effect to. You may recall that under the Direction, employers were required to reach a written agreement with workers to furlough them despite the Guidance simply requiring a notification. A substantial difference.
HM Treasury recently issued its third Direction to HMRC in order to deal with the legal basis for the changes to the CJRS as a result of the introduction of flexible furlough and the winding down of the scheme will end on 31 October 2020. Paragraph 2.2 of the Direction states that ‘Integral to the purpose of the CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees (our emphasis) in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the coronavirus and coronavirus diseases or the measures taken to prevent or limit its further transmission’.
If payments made to employers under the CJRS are to be used only to ‘continue the employment of employees‘, that appears to suggest the CJRS should not be used in respect of employees who are under notice of termination of employment. If the employee is to be dismissed then that is not consistent with the employment being continued. This represents a significant change from the Guidance which made no mention of this type of limitation. It has been generally accepted that furlough grants would cover notice pay.
We are aware of anecdotal reports that inquiries to HMRC have lead to verbal assurances that the CJRS will still cover employees at risk of redundancy and during notice periods. Whilst that may be the case (and ought sensibly to be so), the wording of the Direction is less than clear or satisfactory. Our view is whilst there are clear reasons why the CJRS should still cover notice pay, further clarification is required. We would also expect that this change of wording would not impact upon redundancies already carried out before the latest Direction was issued.
That said, for those employers who furlough employees solely or mainly for the purpose of the CJRS covering any notice pay, it is less likely that such an approach will fall within the spirit of the scheme. This could lead to requests from HMRC for re-payment by the employer of the relevant furlough payments made to them.