Furloughing Q&A

Since our last Q&A on furloughing (What you need to know about furloughing), there have been significant developments to the Coronavirus Job Retention Scheme (CJRS), including the opening of the online portal for claims on 20 April 2020, and clarifications provided in accompanying guidance.

We have also received queries from clients in relation to furloughed employees and in particular the impact that furlough has on annual leave and potential redundancies. We set out some of the frequently asked questions about the scheme below. The government’s CJRS guidance update on 17 April 2020 has provided some additional clarification, however, as you will see there are areas which remain unaddressed or unclear. Given the complexities of employment law and the underlying reality of human relationships, this is perhaps unsurprising. We have also been liaising with specialist barristers regarding the implications of the guidance for practical decision-making, where some areas are now clearer, but this is a new body of law and not all the answers are currently available. Additional government guidance will be necessary.

We will endeavour to make matters as clear as possible, however, this is for general information purposes and does not constitute legal advice. Given the changing nature of the circumstances, we would always urge you to consult the most recent guidance and seek professional advice where appropriate.

At the end of the Q&A, we have included some

Links to guidance

(below) from government covering the scheme – including a step-by-step guide for claiming through the furlough scheme.

Q1 Will employees continue to accrue holiday during furlough leave?

Yes. The update confirms this.

Where workers are entitled to 5.6 weeks of statutory paid annual leave each year this must be complied with. An employer can request a change in contractual terms such that any annual leave over and above statutory leave does not accrue during furlough leave, but this would need to be agreed.

If you are unsure as to your employees’ rights or how to agree to vary contractual terms, you should seek independent legal advice.

Q2 Can annual leave be taken during furlough? And, if so, how much should employees be paid?

Yes. The updated guidance has confirmed that employees can take annual leave during furlough. This will not break the period of furlough or interrupt the employer’s application for reimbursement. However, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations (WTR). The employer can still claim 80% (up to the £2,500 cap) through the grant, they will have to top up the 20% additional pay to the employee’s normal holiday pay.

Q3 Do employers have to top up furloughed employees’ pay for bank holidays?

The guidance states that if an employee usually works bank holidays (as may be common for businesses in certain sectors e.g. in leisure and retail), then the employer can agree that this is included in the furlough payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay or give the employee a day of holiday in lieu. Given that there were two bank holidays this month (10 April and 13 April), employers should bear this in mind when running payroll. In addition, there will be a further two bank holidays during the proposed period of the scheme (8 May and 25 May).

Q3 Can employers require employees to defer annual leave?

Yes. Because employees will be entitled to their usual holiday pay during annual leave and employers will be obliged to pay the additional amounts due to the employee over the 80%/£2,500 cap, employers may require them to defer taking annual leave. Guidance states that employers will have the flexibility to restrict when leave can be taken if there is a business need. It is possible for employers to designate furlough as a period during which no annual leave may be taken.

Alternatively, if a blanket rule is not desired, employers may generally refuse an employee’s holiday request by serving a counter-notice. Under the WTR this must be given at least as many calendar days before the date on which the leave is due to start as the number of days which the employer is refusing. Employers who want to refuse requests because they are not in a financial position to pay furloughed employees in full for any annual leave should follow this rule.

If the employer is financially able to pay some but not all of the period requested, they may refuse part of the request and give notice for the refused period only. For example, if an employee requests 10 days’ holiday, and the employer wants to refuse eight days of the request, it must give notice at least eight calendar days before the date on which the leave was due to start.

The position within the employment contract should also be checked prior to any decisions being made. Again, if you are unsure, or want to discuss your business need and/or notice options, you should always seek professional advice.

Q4 Can employers require employees to take holiday during furlough?

Technically, yes, but this is a complex area and should be approached with caution. An employer may generally give notice requiring a worker to take statutory holiday on specified dates. Under the WTR, the notice must be at least twice the length of the period of leave that the worker is being asked to take. For example, if you are directing an employee to take two weeks’ annual leave, you must give at least four weeks’ notice. (As always this is a general example and the terms of the employment contract should be reviewed.)

Whilst it is possible to require employees to take holiday during furlough, it is important to consider the purpose of annual leave: rest and relaxation. A period during which an employee is unable to enjoy rest and relaxation could not be designated as annual leave by the employer, and an employee would be entitled to reschedule pre-arranged annual leave during such a period. It may be arguable that a total lockdown could be interpreted as a period during which it is not possible to enjoy rest and relaxation. This may be a weak argument, particularly as in the current state of lockdown members of the public are able to leave their houses, albeit for limited reasons. Due to the uncertainty, taking a risk-based approach, employers may decide not to require employees to take holidays now in order to avoid the possibility of employees bringing claims in the future.

We know that as both directors and employers you are having to make difficult decisions on behalf of your business on a daily basis. Requiring employees to take or defer holiday are clear examples of this tension between business interests and employers’ responsibilities. At present there is no specific government guidance on this matter, so you may want to talk this through with us. Employers which are small businesses often have a closer relationship with employees and may want to discuss any decision making with them. If you feel that it is appropriate, it may be useful to gauge your employees’ opinions and openness to different options.

Q5 Where a worker does not take annual leave in the relevant leave year because they were on furlough, can they carry it forward to the next leave year?

In short: it will depend on the circumstances.

The government has passed emergency legislation relaxing the restriction on carrying over the four weeks’ leave derived from the Working Time Directive (WTD) to permit the carry-over of any untaken WTD leave where it was “not reasonably practicable” to take it in the leave year “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”. It will be possible to carry up to four weeks’ holiday forward for the next two holiday years. This will ease concern for some employers where all of its workforce may otherwise seek to take accrued holiday in a shortened period.

These changes were, however, aimed at key sectors such as healthcare and supermarkets, where employees may be unable to take holiday due to the importance of their roles. As the general rule is that employees are able to take holiday during furlough leave, it is not entirely clear whether furlough in itself will mean it is not reasonably practicable to take it in the leave year. However, Acas has suggested that furloughed workers may be entitled to carry over their holiday.

If an employer requires their employees to defer holiday for a period, it would not be practicable for the employee to take holiday in that period. For example, an employer may decide to suspend annual leave during the furlough period to protect cash flow and/or after the furlough period in order to have the full workforce available to focus on rebuilding the business following the pandemic. Employees may therefore have the right to carry over holiday entitlement because they have not had an effective opportunity to take it.

Q6 Can an employer require employees to take accrued holiday once the furlough period comes to an end?

In principle, yes. However, this is subject to the following:

The employer would need to give sufficient notice as required under the WTR or any relevant agreement (the same notice period applying as in relation to requiring leave to be taken whilst on furlough:
see further above Q4 Can employers require employees to take holiday during furlough?
The possibility that the annual leave would not be regarded as a period of rest and relaxation would need to be considered relative to the government guidance at the time.
It is plausible that the employee could assert the right to carry forward leave as it is not reasonably practicable for them to take it in the leave year for a reason related to COVID-19 (see above Q5 on the relaxations to carrying forward holidays). For example, if the employee was caring for a close relative who is shielding and they were also socially distancing to protect that relative, then they may assert that it is not reasonably practicable to take annual leave at that time. In general employees do not have a right to reject an employer’s notice that they take annual leave so it is questionable whether such a right can be implied in this context. In addition, the question of reasonable practicability is unlikely to be a question of enjoyment of holiday and instead whether it is feasible for the worker to take time off and enjoy rest and relaxation.

Q7 Can an employer make employees on furlough redundant? And if so, how?

An employee can be made redundant while on furlough or afterwards, and an employee’s redundancy rights will not be affected by being furloughed. However, it is clear that an employer cannot claim reimbursement of redundancy payments under the scheme (though they can still be reimbursed for the employee’s wages during the notice period).

Practical difficulties could arise in undertaking redundancy consultation while the vast majority of the affected employees are on furlough. The employer would need to consider virtual meetings and, where the employees concerned do not have the facility to participate in a video call, the possibility of conducting consultation meetings by telephone or in writing.

If an employer needs to make 20 or more employees redundant, it must undertake collective redundancy consultation. This would involve consulting on its proposal with representatives of the affected employees and notification to the Department for Business, Energy and Industrial Strategy. Employers should bear in mind the minimum time limits for consultation when making decisions regarding redundancies. For example, where the employer is proposing to dismiss between 20 and 99 employees in a 90-day period, consultation must begin at least 30 days before the first dismissal takes effect.

We would urge any employer who is facing a redundancy situation and/or is not clear about their options to speak to us.

Q8 Can an employee on furlough be served with notice and what notice pay are they entitled to?

The guidance does not specifically address this. However, we are not aware of any reason that a furloughed employee could not be served with notice of termination of employment. Their notice pay would be based on their entitlement under the contract of employment, and the statutory right to notice pay. We are happy to assist with any review of notice provisions or help understanding the complex statutory notice pay provisions.

The guidance has also confirmed that if sufficient numbers of employees are involved then it may be necessary to engage in collective consultation to procure agreement to change the employees’ terms. It is therefore clear that there is no exception to the obligation to collectively consult in this context where the duty arises.

Employers may be inclined to pay in lieu of notice, particularly in the redundancy context. However, there does not appear to be any mechanism for employers who dismiss and pay in lieu of notice to reclaim the PILON payment under the CJRS. It may therefore be financially preferable from the employer’s perspective to keep employees on furlough for their notice period so that at least part of their notice pay can be recovered. There are differing opinions within legal commentary regarding notice pay under the scheme. We have sought clarification on this point and hope to receive guidance shortly.

This is a complex area and uncertainty remains. If you are unsure of specific matters when running payroll over the coming weeks and months, we would urge you to contact your accountants. HMRC may also be able to provide advice regarding claims under the CJRS via their Webchat service and via telephone on 0800 024 1222.

If you would like us to talk you through any decision making processes and implementation, or if you have any other questions, you can contact us via 020 3709 9670 or enquiries@fortunelaw.com.

Links to guidance

Updated guidance for employers’ regarding the CJRS is available here.
Updated guidance for employees’ regarding the CJRS is available here. This also has covers areas which is useful for employers and informs understanding.
Updated guidance on working out 80% of employees’ wages is available here.
Guidance covering claims through CJRS: a step-by-step guide for employers is available here.
HMRC have held a series of webinars on the CRJS, which are now available for viewing on their YouTube channel here.

If you would like to discuss any of the decisions you are making in these challenging times, or have any other questions, you can contact us via 020 3709 9670 or enquiries@fortunelaw.com

See the links below to our COVID-19 related articles which may be a useful read in these challenging times

The legal impacts of COVID-19

Rental Holiday? COVID-19 and commercial leases

What you need to know about Directors’ duties

What you need to know about furloughing

Remote working? Practical advice for small businesses

Coronavirus; practical guidance for small businesses