What is furlough?

Following the UK Government’s announcement on Friday 20th March 2020, there has been much discussion around the Coronavirus Job Retention Scheme

The scheme allows 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 very little guidance regarding furlough leave. There is some confusion caused by the use of the terms ‘furlough leave’ and ‘lay off’. Both are terms more often used in America; where there is no statutory scheme relating to employees who are placed on a period of ‘lay off’.  In the UK ‘lay off’ and ‘redundancy’ have completely different meanings, whereas in America they do not.

So, what does ‘lay off’ mean?

Many UK Businesses have employment contracts that entitle them to place employees on a period of ‘lay off’ or short-time working.

Employees are not paid during the period of lay off, but do have statutory rights to claim a limited amount of ‘guarantee pay’. Following a period of four weeks lay off, employees can apply for a statutory redundancy payment, provided they comply with complicated statutory rules.

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme (CJRS) on furlough leave should not be confused with lay off.  The rules relating to claiming a statutory redundancy period, following a period of lay off, only come into play if an employee is not receiving pay during that period.

In situations where an employee is placed on furlough leave, and the employer intends to make a claim under the CJRS for 80% of their wages, such employees must be receiving pay during the period of furlough leave. This would mean they would not be entitled to make a claim for a statutory redundancy payment after four weeks of furlough leave.

The guidance on placing employees on furlough leave states that ‘changing the status of staff employment remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation’.

It is essential that employers note that they will be unable to place any employee on furlough leave that involves an employee receiving less pay than stated in their employment contract, without the employee’s prior consent.

Garden leave

Employers may have provisions for garden leave, but this will typically entitle an employer to place an employee on a period of leave if they continue to pay them in full.

The employers that have a contractual right to lay off employees will typically only have the right to lay off employees without any pay whatsoever (so that the employee can make a claim for a statutory redundancy).

Therefore, placing an employee on any period of furlough leave where an employee is receiving less than their full salary, without their prior consent, is likely to give rise to claims for breach of contract and constructive unfair dismissal.

It is therefore important that employers reach an agreement with employees that are placed on a period of furlough leave. In the present circumstances, it is likely that employees will agree in order to keep themselves and their colleagues in a job long-term. Typically, such an agreement should be recorded in a letter or document signed by both parties.

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 on 01296 318 500 or email law@pandcllp.co.uk