Lay off, furlough, CJRS
09 April 2020
Mike Nicholas MCIPP, editor, brings together information, guidance, and advice.
According to Wikipedia: “furlough – from the Dutch word ‘verlof’, leave of absence – is a temporary leave of employees due to special needs of a company or employer, which may be due to economic conditions at the specific employer or in the economy as a whole. These involuntary furloughs may be short or long term, and many of those affected may seek other temporary employment during that time.”
“The term … can also refer to annual leave, long service leave, time off based on a company-planned schedule. For example, with a ‘work three weeks, off one-week’ schedule, a company's workforce is divided into four groups. Each group, in turn, takes a week off on furlough while the remainder work. It can also refer to a vacation from missionary work, military leave, or, in the case of convicts, parole, probation, conjugal visit, or work release.”
In the UK, the term furlough was used until at least 1908 to describe military personnel home on leave. Since then usage in the UK has seemingly been rare until the current government revived it as part of emergency response measures to the coronavirus outbreak – namely, the Coronavirus Job Retention Scheme (CJRS).
Outside the UK, ‘furlough’ has often been associated with practices in the USA. A recent and notorious furlough in the USA ran from 22 December 2018 to 25 January 2019, affecting some 350,000 federal employees. (A fact sheet governing furloughs in the USA published last year makes interesting reading as it is highly detailed (https://bit.ly/2JKdhtI), albeit it may have already been replaced by COVID-19 countermeasures.)
In the UK, provisions in the Employment Rights Act 1996 (‘the Act’) set out what happens when employees are laid-off by their employer. Though these provisions continue in force, the UK’s CJRS provides for furlough measures to support employers and workers, where an employer cannot provide work for staff because of the outbreak. Whether the temporary period will be extended remains to be seen, but premature cessation could lead to many more workers losing their employment.
Key points of the CJRS measures are that furlough of an employee is temporary and its duration must be at least three weeks.
An important aspect of furloughing rather than laying off an employee is that the employment is maintained so that the individual may not be able to claim termination of employment and redundancy payment under the provisions of the Act. Retention of employees and their skills may well be essential for the employers when the emergency ends.
It makes sense for the UK government to support employers as otherwise, they might have to make many employees redundant and perhaps cease trading/operating with potentially ensuing impact on the economy and employment. There is also the likely outcome that millions of workers might also begin claiming from the government substantial amounts in social security benefits and, in some cases, unpaid redundancy pay and wages if their employer cannot meet these liabilities.
An awkward problem for employers is selecting employees for furlough. A particular issue is that not all employment contracts provide for an employee’s wages/salary or benefits in kind to be withheld or suspended where because of a lack of work the employer lays off (furloughs) the individual.
The employer and selected employees should discuss and reach an agreement to vary for a fixed period the terms and conditions of their contract. If there are more than twenty employees affected, employers will need to consult staff representatives.
In the event the parties cannot reach an agreement, the employer may need to obtain professional legal advice on how to proceed, such as changing terms and conditions. In the absence of an agreement being reached, and the employee is laid off, under the Act entitlement to guarantee payments and to redundancy payment could arise. There may also be dismissal issues that could be subject to litigation.
A furlough agreement should be in writing, and (probably) include the date furlough starts, how much the person will be paid, and when it will be reviewed. Furlough letter templates can be found here: www.acas.org.uk/furlough-letter-template.
Under the UK’s emergency measures, the government will pay employers for up to the lesser of £2,500 and 80% of wages (plus some other costs such as secondary class 1 National Insurance contributions and employer workplace pension contributions). It is open for employers to decide whether to top up the wages to 100%, but if they choose not to do this they should inform the employee and explain why.
HM Revenue & Customs (HMRC) will reimburse employers the wage costs of furloughed workers making such payments every three weeks, as three weeks is the shortest period a furlough can last.
Employers will be able claim reimbursement when HMRC's new system is available. Claims can be backdated to 1 March 2020.
Employers in need of short-term cash flow support may be eligible for a Coronavirus Business Interruption Loan.
The information in the article is correct at the time of publication.