Furlough – what is it and how does it work?

The Government’s financial announcement on Friday 20th March 2020 has resulted in many discussions about the support provided for businesses and employees through the Coronavirus Job Retention Scheme.

 The scheme offers 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?

There is a limited amount of guidance around furlough leave and a lot of confusion, and this has been heightened by the Government referring to furlough leave as an alternative to employees being ‘laid off’.

Furlough leave and being ‘laid off’ are terms more commonly used in America, unlike in the UK where we have no statutory scheme relating to employees who are placed on a period of ‘lay off’. In the UK, the terms ‘lay off’ and redundancy have two completely different meanings.

What does this mean?

Many businesses in the UK have their employees on contracts of employment that entitle them to place their staff on a period of ‘lay off’ or short-time working (where hours are cut).

In periods of ‘lay-off’ employees do not receive their full pay, but  are instead entitled to ‘guarantee pay’. Contracts of employment which contain lay-off and short-time working clauses may set out the amount of pay that the employee is guaranteed to receive. If there is no information in the contract of employment about the rate of guarantee pay, then an employee would be entitled to statutory lay-off pay. Statutory lay-off pay is currently £29 per day for 5 days in any 3-month period. Employees can also apply for a statutory redundancy payment following a period of four weeks lay-off, provided they comply with statutory rules.

The UK Government’s new initiative on furloughed workers should not be confused with lay off.

Furlough leave and Coronavirus Job Retention Scheme.

The Government has advised that as an alternative to lay-offs and in an attempt to prevent mass job losses, businesses may apply to HMRC for support of up to 80% of salaries (subject to a max of £2,500.00 per month).

In return for the support, employers must keep the “furloughed” employees on their payroll system so that they continue to be employees of the business. Employers may decide whether they wish to fund the 20% difference so that employees receive their full pay.

The scheme is intended to last for an initial period of 3 months from 1 March 2020 but this may be extended if necessary. During this period employees are not to undertake any work for their employer.   

The limited government guidance regarding placing employees on furlough leave states that “changing the employment status of employees” remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation”. 

Guidelines

It is essential that employers understand that they will be unable to place employees on furlough leave, which involves an employee receiving less pay than  stated in their employment contract, without the consent from the employee.

This means that placing an employee on any period of furlough, where there is no contractual right to do so and where they receive 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 communicate clearly and reach an agreement with their employees when they are thinking of implementing furlough leave.  In the present circumstances, it is hoped that employees will agree to being placed on furlough, and where  this is agreed the leave should be recorded in a letter or document signed by both parties.

We can help

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 via email connect@verisonalaw.com or call us on 02392 981 000, where a member of our Employment Law team will be able to assist you.

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023 9298 1000


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