What is the Coronavirus Job Retention Scheme and how does it work?

The new Coronavirus Job Retention Scheme (furlough leave) was announced by the government on 20 March 2020. Under the scheme, all UK employers, regardless of size or sector, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll (“furloughed”), of up to £2,500 a calendar month for each employee. Employers can choose to top up the remaining 20% if they wish.

The Chancellor announced that the scheme will be backdated to 1 March 2020, be open for at least three months and will be extended if necessary. HMRC are urgently working to set up the new system of reimbursement, but the government hopes that the first grants will be paid within weeks.

What employees are covered?

The scheme will apply in respect of all employees on PAYE, including those on zero-hours contracts.

What steps must employers take to put employees on furlough leave?

Employers will need to:

  • Decide which employees to designate as furloughed employees.
  • Notify those employees of the intended change.
  • Consider whether it needs to consult with employee representatives or trade unions. For example, where varying the contracts of 20 or more employees, if intending to dismiss employees who do not consent to the change in their terms. This would mean those employees will be classed as dismissed by way of redundancy and the relevant processes will need to be followed.
  • Agree the change with the furloughed employees. Most employment contracts will not permit an employer to make this change to an employee’s status without agreement. However, faced with the alternatives, which are likely to be unpaid leave, lay-off, or redundancy, the majority of affected employees are likely to agree to be placed on furlough leave.
  • Confirm the employees’ new status in writing. Ideally, the employer should advise how long it expects furlough leave to continue. This may be difficult in the current climate.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. The COVID-19: support for businesses guidance states that HMRC will set out further details on the information required.
  • Ensure that the employees do not carry out any further work while they are furloughed.

What does the £2,500 cover?

Government guidance states that employers will be reimbursed “80% of furloughed workers wage costs, up to a cap of £2,500 per month”.

It is unclear at this stage whether the £2,500 reimbursement is intended to cover anything other than the employee’s basic salary. However, the use of the words “all employment costs” in the guidance for employees suggests that this could include additional costs such as pension contributions or other benefits.

Are employers obliged to top up the remaining 20%?

The guidance states that “your employer could choose to fund the differences between this payment and your salary, but does not have to”. Withholding 20% of an employee’s salary, will however, amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. It is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off, or redundancy.

Can an employee request their employer puts them onto furlough leave?

Yes, an employee can request this, but the employer does not have to agree. It is the employer’s decision which employees to place on furlough leave, if any.

It seems that it is also the employer’s decision whether to place employees on furlough leave, or make them redundant. The potentially redundant employees do not have a right to require their employer to place them on furlough leave as an alternative to redundancy. It is hoped that many employers will see the new scheme as preferable to business closure and making redundancies.

Does the employer have to change the terms of employment?

If the employer is not topping up the remaining 20% then they will need to change the terms of the employees’ contract. If changing a contractual term is not authorised by the contract, the employer should consider whether to:

  • seek affected employees’ prior written consent to the change before implementing; or
  • unilaterally impose the change.

Employees may respond to a change that is imposed on them unilaterally in a number of ways. They may “work under protest” and bring claims for breach of contract or unlawful deductions from wages. If the breach of contract is a fundamental breach, going to the root of the contract, they may resign and bring a claim for constructive dismissal. If the change is so substantial that it amounts to a termination of the old employment contract and an introduction of a new employment contract, the employee can work under the new contract and claim to have been unfairly dismissed from the old one.

What steps should an employer take if the employees do not agree to the proposed change?

The employer can dismiss the employees’ and offer re-engagement on new terms. The employer will need to follow certain procedures in order to do this which we have explained below.

Make a presentation to all employees who may be affected

  • This should take place as early as possible to provide affected employees with adequate warning of the proposed change. Given current events you may need to make this presentation using a video conferencing facility.
  • Explain the nature and the proposed timing of the change as well as the employer’s business reasons for the change. It will help to draw out any potential benefits for the employees and make clear the likely implications for the business if the change is not implemented.
  • Present the proposed change and proposed revised terms of employment. Explain to employees that they should consider the proposed change and revised terms, before deciding whether or not to agree. Invite any questions about the proposed new arrangements. Explain that, if not all affected employees agree to the proposed change, a consultation process will follow as appropriate.

Consultation

  • An employer will need to collectively consult with employees if 20 or more employees will be affected by the proposed change and if the dismissal of 20 or more employees is a possibility due to the number of employees likely to not accept the change. Be aware that there are strict procedures to follow when collectively consulting with employees.  
  • Hold individual consultation meetings with affected employees. Individual consultation must take place in addition to collective consultation (if collective consultation is required). There is no legal requirement for employees to be accompanied at individual consultation meetings at this stage in the process. Individual consultation meetings will normally take place after any initial period of collective consultation has ended.
  • Receive employees’ feedback on the proposed change.
  • Note any objections to the proposed change and the reasons for the objections. Consider if the proposed change can be varied to address any concerns raised by, or on behalf of, the employees.

Hold further collective or individual consultation meetings (as appropriate)

  • Respond to any representations made by the employees or their representatives (as appropriate).
  • Warn employees (or their representatives) that if agreement cannot be reached, the employer may serve notice under employees’ existing employment contracts and immediately offer re-engagement under new terms incorporating the proposed change. Explain that this is very much a last resort and it is hoped that voluntary agreement to the change can be obtained.
  • Consider any further representations made at the meetings or after the meetings and respond as appropriate.

Write to affected employees

The employer should:

  • set a deadline for obtaining employees’ written agreement to the new terms and state that, if agreement is not secured by that deadline, the employer will consider terminating employment and offering re-engagement on the revised terms.
  • set a date and time for the employee to attend a meeting in the event that voluntary agreement to the new terms has not been obtained by the deadline (and notify the employee that they are entitled to be accompanied by a colleague or trade union representative at this meeting).
  • set out the business reason for the proposed change, consistent with the earlier announcement and any communications to affected employees, and refer to the process that has taken place to date (including meetings with the employee).
  • make clear that any decision to terminate the employee’s employment contract will be on due notice.

In practice, the information detailed above may be set out in a series of letters to the employee, depending on the approach taken by the employer.

If employees voluntarily agree to the change

Ensure that their agreement is recorded in writing within one month of the change taking effect. This will usually be by signature of the revised employment contract or a side letter amending the contract.

If employees do not voluntarily agree to the change

Hold further individual meetings:

  • Employees may be accompanied at this meeting.
  • Discuss the employee’s refusal to agree to the proposed change and the risk that the employer may terminate their employment on its current terms. Allow the employee to make representations and listen to what they say.

Consider any representations made by the employees and respond as appropriate.

Send written notice of termination of employment:

  • If collective consultation has started, ensure that this has been concluded before serving notice of termination. Where there are between 20 and 99 proposed dismissals, dismissals cannot take effect until at least 30 days have elapsed from the start of consultation. Where there are 100 or more proposed dismissals, dismissals cannot take effect until at least 45 days have elapsed from the start of the consultation.
  • Make an offer of re-engagement on the new terms incorporating the proposed change. State that the new terms will take effect on the expiry of the notice period, provided that the employee agrees to the new terms by a specific date (before the expiry of the notice period).
  • Offer employees a right of appeal against the decision to terminate their original employment contract.

Hold an individual appeal meeting with any employee who appeals the decision to terminate their original employment contract. Inform the employee that they may be accompanied at this meeting.

Following an appeal meeting, write to the employee to confirm the appeal outcome and that this outcome is final.