The Range of Reasonable Responses Newsletter: April 2020
Well this has been quite a month.
I hope everyone is staying safe and healthy during this extraordinary crisis.
Nobody's work is unaffected by the lockdown. Some employers simply have no work to offer their employees; others are making unprecedented demands on their employees' effort and commitment. Even when a business can continue to operate, work is being done differently than before. It is starting to seem very strange that we once required employees to turn up to a big building where they sat next to their colleagues, working on a computer and talking on the phone. It is difficult to see how normal office work can ever be the same again.
Obviously while the lockdown continues my normal schedule of visiting clients to deliver training and speaking at conferences and seminars is on hold. Indeed it is difficult to imagine when it might seem like a good idea to gather your whole team into one room for a day to talk about employment law – much less travel to a conference venue and mingle with a hundred others.
Getting to grips with furlough
In the past month it has almost felt as though normal employment law has been put in suspended animation. Instead employment lawyers have been picking over the Coronavirus Job Retention Scheme – subjecting the HMRC’s guidance to a level of forensic scrutiny that it was never intended to bear. That scrutiny went into overdrive when, on 15 April, the Chancellor signed a formal Treasury Direction - which is the nearest thing we will get to a law setting the scheme up. Not only was the Direction hugely complicated (apparently this is the sort of thing that tax lawyers have to deal with every day - I don't envy them) but in several places it appeared to directly contradict the guidance issued by HMRC to employers.
There are two main issues. The first is the level of agreement you need in order to place an employee on furlough. Telling an employee to stay at home and not come into work is generally not a problem as far as employment law is concerned. The employee will still be entitled to be paid in line with the contract of employment, but most employees do not have a contractual right to actually perform the work that they are employed to do. As long as the employer is willing and able to pay them as normal then that should be fine.
Do you need the employee's agreement?
Employment lawyers were a bit puzzled when the early versions of the HMRCs guidance on the scheme talked about the need for employees to agree to being furloughed. Most of us took this as being related to the fact that the furlough scheme only covered 80 per cent of wages up to a maximum of £2,500 per month. If the employer was only proposing to pass on this payment and not top it up to full pay, then that is certainly something that would need agreement – at least in the case of salaried employees. Lots of model letters and agreements were drafted on that basis.
Then we get the Treasury Direction - and what it says on the subject is strange and unexpected. Here’s the paragraph in full so that you can get a taste of the sort of wording we are dealing with:
"6.7 An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment."
This clearly means that the instruction not to work is only valid if the employee has agreed to obey it – which is an interesting take on the concept of an instruction. That agreement has to be in writing even if it only consists of the employee replying to an email to indicate their agreement.
By the time the Direction was signed, huge numbers of employees had already been furloughed. Many of them would have agreed in writing to accept a reduced level in pay, but that is not the same thing as agreeing to an express instruction not to work. Did that mean that those employees were excluded from the scheme? Could the employee’s agreement be obtained retrospectively? There was even talk of a judicial review of the Direction.
After the Direction, the HMRC clarified its guidance. At least it tried to. What follows is perhaps the most badly written paragraph in the English language:
To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming through the scheme. Collective agreement reached between an employer and a trade union is also acceptable for the purpose of such a claim. There needs to be a written record, but the employee does not have to provide a written response. A record of this communication must be kept for five years.
So the Direction says that there must be a written agreement, but the guidance says that the employer just needs to give an instruction ‘in a way that is consistent with employment law’ and keep a record of that instruction for five years. I don’t think any employment lawyer would argue that he Direction and the guidance are consistent with each other. But does that matter?
Furlough and sick leave
There is another contradiction when it comes to employees who are off sick. The Direction is less than straightforward. It says that when someone is given the instruction not to work (which is what triggers furlough) and is at that time entitled to SSP, then the 21-day minimum furlough period does not begin ‘until the original SSP has ended’. That suggests at least that the employee’s current fit note should have expired before furlough can begin.
The guidance on the other hand, while warning against using furlough as a way of dealing with short term absence, says:
"If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees. In these cases, the employee should no longer receive sick pay and would be classified as a furloughed employee."
So which is it? The guidance says you can furlough staff who are off sick and entitled to SSP but the Direction says you can’t - or at least that the furlough does not start until the SSP has come to an end. It would be pretty ironic if the Government, having extended entitlement to SSP (modest as it is) to those who are not sick but who are self-isolating or shielding then excluded those employees from the furlough scheme.
Which takes priority?
The natural lawyer's response is to say that since the Direction is a formal legal document and the guidance isn't then if there is any conflict between the two, the Direction takes priority. That has to be right in theory – but I’m not sure that it is in practice. The Direction after all is addressed to HMRC – not to employers. The guidance reflects HMRC’s interpretation of the Direction and I don’t see how employers can be criticised for following it. HMRC can hardly say ‘Oh well we might have told you that you didn’t need the employee to agree to being furloughed in writing – but you shouldn’t have listened to us’.
One of the reasons that the scheme has not collapsed in the first week is that employers do not have to submit information about any of the issues that are unclear or contested. As long as you have the relevant payroll details of the employees who have been furloughed you simply work out how much you want to claim and press send. You don't have to show your working out. You don't have to submit copies of any agreements with employees or make any declarations about whether or not they would be off sick or on some other form of leave if they were not being furloughed. HMRC is not granting claims after examining all the employer’s paperwork and making an independent decision as to whether the requirements of the scheme are met.
That does not mean that you can just ignore those requirements. Records have to kept for five years and employers may be subject to audit by HMRC. But their resources for carrying out those audits will be limited. There are hundreds of thousands of employers who have made claims under the scheme. Even if HMRC devoted thousands of staff to auditing claims once the crisis has passed, they will only be able to scratch the surface. They will have their work cut out just identifying cases of deliberate fraud – employers who claimed for employees who were actually still working for example. I very much doubt that they will have the time or inclination to pull employers up on those areas of the scheme that were ambiguous.
Leave it to HMRC
I am not qualified to advise anyone on their relationship with HMRC. I have never had direct dealings with them and I hope that I never do (nothing to hide of course, but paperwork isn’t my strong point). But the furlough scheme is designed to be easy to use and the guidance produced by HMRC represents their view of how it should operate. Employers are not expected to look behind the guidance to a Treasury Direction and try to figure out whether HMRC might have got it wrong.
I think my advice to employers would be to follow the guidance. I have real trouble imagining HMRC telling employers that they should have studied the Direction signed by the Chancellor more carefully and ignored the guidance that HMRC itself gave them.
I suspect that when the dust settles, most of the rather fraught legal analysis of the furlough scheme will be forgotten. Employers should claim for what strikes them as right and appropriate given the guidance from HMRC and not worry too much about the technicalities of the Treasury Direction.
In any event we should not let some of the glitches distract from the remarkable achievement of putting the scheme in place so quickly. It seems that the first payments under the scheme have already been made which is frankly pretty impressive. Given the circumstances I think we should forgive the odd grey area in the scheme’s coverage.
New: Bespoke Webinar Service
So I’m not getting out much these days. Having me round to talk to your HR team isn’t going to be an option for some time. But I think I have a solution.
I’ve been delivering webinars in one form or another for years, but they often have a problem. There are just too many people attending with a diverse range of interests and levels of knowledge. This means that there is little scope for interaction. In the Q&A, your question is unlikely to be selected – and you might not be very interested in the questions that other people ask.
But I could run a webinar designed exclusively for your team – with you choosing who attends and the topics to be covered. Here’s what you would get:
By keeping the numbers small it can feel like we’re all in the same room together – almost. And of course this is a much cheaper option than organising a full-day’s training delivered in-house.
- An hour-long webinar (or longer if you prefer) on the employment law topic or topics of your choice
- A really interactive experience with questions and discussion in real time. Delegates could join in by submitting written questions or live over their computer audio. They could even join in via video link if that’s what you would prefer.
- A full video recording of the webinar for you to keep and share with colleagues
If this is something that you think you would benefit from then get in touch. Email me at Darren@darrennewman.co.uk and we can talk about what you need and how we can make it happen.
Thanks for subscribing - and stay safe