Last Friday, during his daily address, the Prime Minister announced a plan to state aid 80% of wages of workers who had been furloughed by their employers because of the virus. While the announcement is welcome, the government has yet to publish (or perhaps even write) the small print. This post looks at what we known and, perhaps more crucially, what we do not know about the plans.
What is a furloughed worker?
Furlough leave – often referred to as “lay-off” in the UK – is a situation where an employee is placed on a period of unpaid leave by her employer. Typically, this will happen because the employer has no work for its employees to do.
Unlike redundancy, where an employer dismisses its employees, furlough leave does not terminate an employee’s contract. Instead, it simply suspends the contract in the expectation that it will be revived at some point in the future. This is the reason why furlough leave is typically used by employers as an alternative to redundancy where they find themselves facing a downturn in business that they think (or hope) will only be temporary.
What rights do furloughed workers have at the minute?
Not a lot. If an employee’s contract does not contain a provision allowing her employer to place her on furlough, then she will probably be entitled to resign and claim a redundancy payment. She will also likely be entitled to payment for the period of time she had been furloughed.
The risk with this approach is that this will bring an end to the employee’s employment. In the event of an upturn in her employer’s fortunes, she will have to gamble on her employer re-hiring her on the same terms she had before her resignation. Even if her employer agrees to, her period of continuous service will have been broken and all the accumulated rights associated with that (notice pay, redundancy, unfair dismissal) will no longer exist.
Where an employee’s contract does contain a provision allowing her employer to place her on furlough, she will not be entitled to resign. She will have a statutory right to claim a redundancy payment after a certain length of time.
What are the Government proposing?
The government are proposing a grant, payable to employers, of up to the lower of 80% of the employee’s salary or £2,500 per month. The guidance published has said that this is to cover “all employment costs”
Is it as good as it sounds?
Not necessarily. The grant is to cover “all employment costs”. At present, there does not appear to be a requirement that any or all or that money must be paid by the employer over to its furloughed staff. The amount of each the grant is determined in reference to the employee’s wage, and some employers may use that money to cover other employment costs, such as employer contributions, backdated training costs, professional memberships or registrations, etc. An employer could even just keep it.
How has "Employee" been defined?
It hasn’t. As all exasperated employment lawyers know, employment status is currently a highly contentious issue and has been the subject of many high profile cases in the appellate courts over recent years (Pimlico, Uber, Deliveroo to name but three). Unless the guidance contains a clear, concise and indisputable definition of “employee”, then the scheme will be pointless, as the sole purpose of providing the grants is to give employees and employers immediate respite from the shock of the closedown.
The easiest way to do this would be to simply make the payment available to anyone who receives payment through PAYE. Given that applications are to be made by employers to HMRC, it seems likely that this is the definition that they will go for.
This is good news for some workers: many people will be paid through an employer’s PAYE system who would not qualify through the stricter definition of “employee” contained in the Employment Rights Act. This will however exclude many workers in a typical working relationships: individuals who contract with would-be employers through limited companies, for example.
Another crucial point to note is that it will only be available to employees who have been placed on furlough leave. Any employees who have been placed on short time working by their employers (that is, who are still working, but are been given less work (and consequentially a lower salary than before) will not qualify.
What employers will be eligible?
Again, we do not know. The advice says that the scheme will be available to any employer who has had to lay off staff because of the virus. It is not clear how broadly this applies: that is, will it only be available to employers who have been told to close because of the virus? And if so, would that cover an employer who had experienced a sudden and unexpected downturn in business in the past fortnight?
If the grants are only available to employers in the former category, a large number of employees will still be left unremunerated. Ideally, the definition should encompass employers who have had or will have to lay-off staff not strictly because of the virus, but because of the economic shock caused by it.