What we know about the Government response to COVID-19

Posted: March 24, 2020

In response to the economic shock caused by COVID-19, the Government has released a series of unprecedented measures in an attempt to protect employment. Most significant is the creation of a job retention scheme, whereby the Government will essentially cover the wages of people who are unable to work due to the current crisis.

Unfortunately, detailed guidance has not been provided. The below is a summary of what we know now, however, as always the devil is in the detail so the position could change in the coming days.

Under the proposed scheme, an employer will have to declare to HMRC that an employee is “furloughed”, essentially laid-off. HMRC will then reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.

From what we understand, employers can furlough their employees now. There is no formal method for doing this, however, we recommend that employers send a letter or email to the relevant employees confirming that that have been “furloughed”. It is possible that HMRC may request evidence before giving the relevant grants to companies.

Unfortunately, HMRC do not currently have a mechanism for paying money into a business’s account and it may be a few weeks before systems are created that enable employees to receive these grants.  In the meantime, companies should pay furloughed employees for now and get reimbursed later. Failure to do this could lead to claims for unlawful deductions from wages and constructive unfair dismissal (if the relevant employee has over two years’ continuous service). Naturally, for some companies this will be difficult. However, there are advantageous Government-backed loans for small businesses that are designed to help them meet this cost. These should be enough to support most businesses given that the Government scheme should be running soon.

See: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/ for more information about these loans.

It is not yet clear whether an employee can be forced to accept furlough leave. It is also not clear whether an employee can be made to accept only 80% of his/her salary (i.e. the maximum that the Government is willing to offer). However, it is likely that employees will agree if the alternative is redundancy.  In practice, when sending an employee a letter or email confirming that they have been furloughed, we would recommend that you ask an employee to confirm agreement to this. In the event that an employee refuses, and there is no work available, redundancy may be the only option. As stated in our earlier guidance, additional steps are required if more than 20 employees are likely to be made redundant. We would strongly recommend seeking legal advice before making any mass redundancies.

It is possible that the Government may give employers the right to “furlough” employees without agreement, however, we don’t know this yet and companies should not assume that dismissing an employee for refusing to be furloughed will always be fair.

As stated, we expect that the scheme will be retrospective. Accordingly, employers should be able to furlough employees now and reclaim the cost, however, it is not clear whether employers can reinstate employees who were recently made redundant for the purpose of furloughing them. We hope that this will be addressed, however, for the time being we are advising companies not to reinstate anyone that they have already made redundant.

The Government has encouraged all employers to refrain from further layoffs or redundancies until they have tried to apply for this Government help. We would also recommend avoiding drastic action until more detailed guidance is issued. It is likely  that a redundancy will not he considered  fair if furlough leave was available as an alternative.

Susan Thompson, Partner, Simkins LLP

Andrew Lloyd, Associate, Simkins LLP