Guest blog: Coronavirus Job Retention Scheme – what we know and more importantly what we don’t know.

Our friends at Alpaca have kindly put together a quick blog on the Coronovirus Job Retention Scheme. Written by employment lawyer Sally Gwilliam it’s based on the information we have right now (23/3/2020).

On Friday 20 March the Government took the unprecedented but welcomed decision to set up the Coronavirus Job Retention Scheme to provide further financial support for businesses impacted by Covid-19.

What is it?

In summary (and this is all we really have to date) the scheme means that instead of employees being made redundant, which was looking a likely prospect for millions of employees, employers could instead “furlough” these employees (i.e. send them home without any work) and then claim from the HMRC 80% of the wage cost for each employee up to a cap of £2,500 per month.

The detail around the scheme is limited, but what do we know so far?

  • Any employer will be able to access this scheme, be it a limited company, partnership, or charity.
  • It applies to employees who would otherwise have been laid off during this crisis. By this, we believe this means would otherwise have been made redundant or laid off on a temporary basis.  What this also means is the employee should not therefore continue to do any work for the employer.  If the employee still has work to do for the employer, then they should not be furloughed. Workers such as those on Zero-Hour Contracts will be excluded from the scheme.
  • Unless employers have a contractual right to lay off employees or reduce their pay (which most don’t) and unless the employer is going to top up the salary to 100%, they will need to seek the consent of the employees to do this. This is because the employees will be taking a 20% pay cut which would be a fundamental breach of contract if the employer does not have the employee’s consent.  In reality, it is highly unlikely that an employee would not consent to this pay cut given the alternatives would be redundancy or lay off without pay.
  • We don’t believe an employer is under any obligation to top up to 100% pay.
  • If an employer does furlough some or all of its employees, it must submit the information to HMRC through a new online portal. However, this is not set up yet and may take some days/weeks to do so.
  • The scheme is to start from 1 March 2020 (as payments can be backdated) initially for a 3-month period, following which it will be reviewed.
  • It is likely to be the end of April before the first grants are paid.

So that is what we know, but there are a number of questions that we don’t know the answers to and at first sight there appears to be some unintended consequences which may arise from this scheme.  In particular:

  • What information will the HMRC need about these employees, how long will it be before the portal is set up and should employers be notifying employees that they are being furloughed in the meantime? We would say at this time to wait a couple of days to see what further guidance comes from the government before starting to engage with employees where possible. If this is not possible, we would suggest where you are making lay offs or redundancies that you provide the alternative to the employee of putting the employee on furlough, subject to the terms of the scheme and the employee meeting all the criteria.
  • Is the £2,500 cap the net or gross income of the employee. It appears at the moment to be all the costs of the employee so including pension contributions and national insurance.
  • We can see this scheme working well for businesses that have been forced to close like restaurants, gyms etc and those businesses which have reduced their operations in the interest of preventing the further spread of the virus. However, in other businesses where they wanted to try to keep trading on a skeleton staff or by reducing the working week, these businesses may now decide that the business and the employees are better off put out of work completely on furlough.  However, this could lead to these businesses ceasing to trade at all, which must be an unintended consequence of the scheme, particularly given this scheme is only meant to be temporary.  We consider a much more balanced outcome would be if, for example, an employer reduced the working week by say 5 days to 3 days, then the government would compensate the employee for 80% of the two days’ work they had lost.  From the wording of the guidance so far though, it looks unlikely that such a claim would be able to be made.
  • How will the Revenue police the scheme? In particular, how will they know if the employees are working or not. Without seeing this, it appears at first sight that the scheme is open to any struggling employer to claim the 80% salary costs but keep the employees working for them.
  • Can employers now no longer make redundancies? We can see an argument that where an employer wants to make an employee redundant and the employee has more than 2 years’ service, that the employer will likely have to offer furlough to the employee as an alternative to dismissal.  If they do not, we can see in some circumstances this potentially being an unfair dismissal.
  • We don’t know how long the scheme will operate for and whether there will be a limit on the total amount which an employer can claim across all employees in receipt of the payments.
  • Will businesses which were already operating at loss through reasons unconnected to economic impact of the virus still be able to benefit from this scheme? There could be some businesses which, through poor management or otherwise, have not been able to turn a profit and were already contemplating laying staff off or making redundancies. Should they now be able to take advantage of this?

In summary

As we have outlined there are still a lot of questions to answer around how the scheme will work and who will be able to benefit. Nonetheless, this will provide an important lifeline for a lot of businesses and if you are considering lay-off’s or redundancies it may be prudent to wait to see what further guidance is issued on this in the coming days.  On the information available it is likely that those businesses which have been ordered to close by the government will not have any issues meeting the eligibility criteria. There is a grey area for those businesses that could continue operating in some capacity but choose to furlough the remaining workforce leading to a complete cessation in trade.

This article has been prepared on the basis of information available on 23rd March 2020 and is subject to change as and when further information is made available by the government/HMRC.  The views expressed in this article on the operation of the scheme is our interpretation of current guidance and may change as and when further guidance is issued.

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