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Furloughing: what is it and how does it relate to the law?

Furloughing: what is it and how does it relate to the law?

Juliet

20/04/2020

As our lives have changed over the past few weeks our vocabulary has changed too. One of the many words to suddenly emerge out of obsolescence is the term ‘furlough’. When the chancellor first announced a plan for the government to pay some employees’ wages, it may have sounded simple. However, in reality its legal implications are anything but.

What is furloughing?

People are described as ‘furloughed’ when they’re placed on the Coronavirus Job Retention Scheme (CJRS). Under this scheme they continue to be employed but 80% of their wages, or £2,500 a month if this is less, are paid by the government and they are not allowed to do any work for their employer. The government also pays employers’ National Insurance Contributions for furloughed employees. The goal is to limit unemployment by enabling firms to retain workers whose services they won’t need until after social distancing measures have been relaxed and by reducing the number of firms that collapse.

Which employers can furlough people?

This is a much more complicated question than it might sound. When the government updated its advice on 4 April, it clarified that the CJRS should be used only by firms that cannot retain staff because their operations have been “severely affected” by coronavirus. Herbert Smith Freehills, among others, interprets this as meaning that it can’t be used by employers such as care homes or supermarket chains, even to furlough workers who are shielding for 12 weeks and therefore unable to come to work. That is not to say that shielding employees can never be furloughed: the government’s guidance explicitly states that they can be. However, it may be difficult for firms of this kind to argue that their operations have been “severely affected” by coronavirus because demand for their services has not reduced. Crucially, HMRC, which operates the CJRS, has explicitly retained the right to audit firms’ claims retrospectively, meaning that understanding the details of the eligibility requirements for furloughing is a key priority for firms and their lawyers.

Can employers choose who to furlough?

Once again, the answer here is a little complex. If firms don’t pay the 20% of wages not covered by the CJRS, then furloughed employees will be receiving less than their normal wages. That requires a change in their contracts, which employers can’t make without permission. On the other hand, the Law Society suggests that in most cases an employer willing to pay the extra 20% could furlough an employee without their agreement because employment contracts usually grant a right to receive pay, rather than a right to work. However, even this comes with a caveat. Laws against direct and indirect discrimination still apply – for example, employers cannot operate a last-in, first-out policy because this would indirectly discriminate against younger employees. Similarly, placing a disproportionate number of women on furlough could lead to discrimination claims.

Can employees be made redundant after being furloughed?

In a word, yes. The government guidance clarifies that when the CJRS ends employers can choose whether to make furloughed employees redundant or whether to continue to employ them. However, the normal legal requirements around redundancies still apply. That means that under the Trades Union and Labour Relations Consolidations Act 1992, redundancy schemes affecting more than 100 employees require a 45-day consultation period, while those affecting between 20 and 100 employees must be consulted on over at least 30 days.