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COVID-19: worker pay protection – what it means for businesses

23/03/2020
"For the first time in our history, the Government is going to step in and help to pay peoples' wages"

   
We are all navigating unchartered waters as business and society faces up to the impact of COVID-19.  We very much hope you and your loved ones remain in good health. 

 Please be assured that Fieldfisher is continuing to work with clients to navigate COVID-19 related issues and on business as usual needs.  Do get in touch with us if you would like to chat anything through.



On 20 March 2020, the UK Government announced a raft of new and unprecedented measures designed to protect against large-scale job loss across the UK economy, following the measures imposed to limit the spread of the COVID-19 virus. 


Key new announcements


Protecting peoples' jobs

The Government is establishing a new 'Coronavirus Job Retention Scheme', which will cover 80% of the wages of employees who would otherwise have been be "laid-off" as a result of Coronavirus, subject to an overall cap of £2,500 per calendar month (£30,000 per annum). It is open to employers to top up salaries if they so choose, however, there is no obligation on the employer to do so. 

It is not yet clear whether "laid-off" is being used in a legal sense (i.e. pursuant to a pre-existing contractual right to lay-off) or more broadly. However, as only very few employers have the right to lay-off workers, it is most likely that the definition will include those workers that would otherwise be made redundant.

Beyond this, the details of the scheme are yet to be substantially defined and the information provided to date has been vague. However, due to the proposed time-scales for implementing the Scheme, we are likely to see more comprehensive guidance in the coming days.

Government employers' guidance – accessible here

The scheme will be open to any employer (regardless of size), including not-for-profit organisations and charities. To take advantage of the scheme, employers must designate relevant employees as 'furloughed workers'. 

'Furlough' is a new concept in the UK and currently has no legal definition. The term originated in the US; however, there are only a few instances of furloughs being implemented in the private sector in the US (most recently in the aftermath of the 07 / 08 financial crisis). A furlough is a temporary leave of absence to be used by an employer in exceptional circumstances.  
    
Implementing the furlough will necessarily require business planning, in particular to determine who will be designated. Employers will therefore have to consider the potential friction caused where part of their workforce is furloughed and others remain at work and how best to message this within their business.  

The Scheme also does not appear to be as flexible as some other schemes introduced in Europe, for example in France.   In order to qualify for the scheme, employees cannot continue to work - the scheme does not cover short-time working where employees are asked to work fewer hours for less pay.  This may prove problematic for employers, especially those who choose to continue certain work functions and who may still need employees to work, albeit on much reduced hours, or may need to access furloughed employees to work for intermittent periods.

Employers will be able to apply for funding, back dated to 1 March 2020 and the Scheme will be available for at least 3 months; however, the Government has signalled that it will be extended if necessary. Applications for the Scheme will be made through an online HMRC portal, which is in development, and the Government expects the first wage payments to be made in late April.

Government employees' guidance – accessible here 

The guidance for employees makes it clear that, to take advantage of the Scheme, an employer must first notify designated employees of the proposed change and, depending on the terms of their contracts, may need to enter into contractual negotiation.  Since employee agreement will be required in the majority of cases, it is likely that any offer will need to be proposed as an alternative to redundancy and, depending upon the numbers concerned, this may trigger an employer's collective redundancy consultation obligations.  Those obligations require consultation with appropriate representatives of the employees.  Employers without appropriate representatives currently in place may want to remedy that situation sooner rather than later.   

Nevertheless, it is unlikely that employees will refuse these changes if the alternative is redundancy without any financial support. 

Currently, there is no equivalent protection for self-employed people, however, the Government has announced extensions to Universal Credit and the Employment and Support Allowance.


Conclusions

Although the announcement was initially viewed positively, the devil will be in the detail and many employers have increasingly taken the view that the temporary nature of the new Scheme may only serve to buy time before an inevitable redundancy situation. 

Nevertheless, the Coronavirus Pay Protection Scheme is another option for employers to consider alongside the existing suite of loan, grant and tax support available. 

However, the details and eligibility criteria of the Scheme are yet to be substantially defined and many questions remain answered, including:
  • Will employers have to follow a formal process to notify their employees that they have been designated for furlough?
  • Does the scheme apply equally to workers?
  • Will it be possible to furlough employees on a rolling basis?
  • Can employees be required to take furlough leave?
  • Can employers continue to contact furloughed employees?
  • To what extent will furloughed employees be able to conduct ad hoc work for their employers?
  • Can employers who have already made redundancies re-hire their staff and take advantage of the Scheme?    
  • Can employers who have chosen to defer employee start dates take advantage of the scheme or where employment offers have been withdrawn?
  • How will 'pay' be calculated in the case of employees with varying rates of remuneration (such as those who work on commission)?
  • How will holiday entitlement and pay be treated during the period of furlough?
  • Will the Scheme be available for employees who are already receiving statutory or contractual sick pay?
  • Will redundancies be considered unfair in circumstances where employers could have applied for the Scheme?
  • Will any "special circumstances" defence be compromised by the Scheme where the employer feels financially compelled to ignore the obligation to consult on collective redundancies prior to any dismissals or seeks to shorten the mandatory collective consultation period?
  • Will the Scheme be extended for more than three months?


How we can help

We are working with many businesses, across various sectors, impacted by the Government's recent measures, who are looking closely at whether or not they can take advantage of the new Scheme as part of a series of measures to protect their businesses.  Please do call or email any member of the team for more information on the Scheme and for advice as to how best your business can take advantage of it.

For support on this matter or with regards to any queries on this topic, please visit our dedicated Coronavirus Legal Impilcations page here
 

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Employment