UK Coronavirus Job Retention Scheme: increasing confusion for employers

When it was first announced, the UK Government’s Coronavirus Job Retention Scheme (the JRS) was widely praised as a speedy response to mitigate the economic impact of the pandemic. 

The JRS is designed to allow employers to furlough staff (i.e. to suspend them from all work) and to receive a government grant, covering a portion of their employment costs. The aim is to seek to reduce the need for employers to make redundancies. 

While the original design of the JRS had controversial elements – principally the exclusion of any newly hired employees (which was an anti-abuse feature) – the JRS seemed to be a reasonably straightforward and easy to understand arrangement. Initial statistics suggested a very significant level of expected take-up, causing estimates of the cost to government to be significantly increased. 

Unfortunately, there is now increasing confusion about some of the key aspects of the JRS. This has caused considerable concern for employers, who thought they had a clear understanding of how the JRS was intended to work only to find that the goalposts may now have shifted.

Initially, the only indication for employers of how the JRS was intended to work was set out in government guidance. Originally published on 26 March 2020, the Government has since issued several updates. 

Then, on 15 April 2020, HM Treasury published a direction to HMRC (the Direction). As the name suggests, the Direction was intended to set out the formal terms of the JRS and to instruct HMRC (as the body through which grants to employers will be made) on how to apply them. It therefore appeared that the Direction should be treated as the definitive position on how the JRS operates. 

Surprisingly, the Direction contained changes that had not previously been set out in the guidance. To compound matters, the Government has since published a further version of its guidance on 17 April 2020, which appears to be inconsistent with the Direction in certain key respects. It is scarcely surprising that many employers are left wondering what they are required to do.

The question of employee consent has always been the most contentious aspect of the JRS. Is express employee consent required to furlough employees (and to secure agreement to a reduction in salary, where employers do not top up the amounts recoverable under the JRS to 100 per cent of an employee’s salary)? 

The initial JRS guidance reminded employers that any changes to the employment contract needed to be made by agreement, but was not otherwise prescriptive about how furlough should be implemented. Because of the practical difficulties of obtaining express consent from a large workforce in a very short period of time, many employers sought to rely on implied consent to furlough. Although not legally watertight, this was a pragmatic approach. 

Unfortunately the Direction takes a different approach. It states that an employer cannot secure funding under the JRS in respect of any furloughed employee unless that employee has consented in writing (or electronically) to their furlough (the Direction is silent on the approach to be adopted for employers who wish to reduce salaries to the amount recoverable under the JRS, which is unsurprising as this is a private matter for employer and employee outside the JRS terms). 

The change in position set out in the Direction caused a number of employers who had relied on implied consent when implementing a workforce furlough to change their approach and to scramble to obtain express consent, even though on a strict wording of the Direction retrospective consent may not be permissible. 

Given the shift in eligibility requirements, it has been suggested that the Government would be vulnerable to a public law claim if it sought to deny access to the JRS to an employer who has not obtained express consent from a furloughed employee. But it is clearly unsatisfactory that employers do not have greater certainty and might have to sue the Government to secure a grant under the JRS. 

Just to add to the confusion, the latest version of the guidance (published on 17 April, after the Direction) appears to take a different approach again. There is no reference to the requirement for written consent. Instead, the guidance provides (as in previous drafts) that to be eligible for a grant under the JRS employers must confirm in writing to their employee that they have been furloughed. It then goes on to provide that “if this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the [JRS grant]. 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.” 

This is inconsistent with the Direction, and suggests that implied consent may in fact be sufficient after all. Although the High Court highlighted various potential difficulties with reliance on implied consent in its recent decision in the Carluccio’s case, it did not say that consent could never be implied. 

So, are employers expected to treat the Direction as definitive, or can they seek to rely on the guidance? The answer must be that, even though it predates the latest version of the guidance, it would be prudent for now to treat the Direction as setting out the definitive terms of the JRS – as the guidance does not have legal force. But the lack of co-ordination within government on this fundamental point is extremely frustrating for employers. Is it possible that the Direction may now be altered? The simple answer is that we do not know – which cannot be acceptable for employers who are having to take real-time decisions.

The Direction and the latest version of the guidance also differ in other areas. One of these relates to employees who are sick. The guidance issued on 9 April 2020 had suggested that employees on long-term sick leave or self-isolating could be furloughed under the JRS. The Direction then took a different approach, indicating that the furlough period for an employee who is in receipt of or eligible for statutory sick pay cannot commence until statutory sick pay eligibility has come to an end. However, the 17 April 2020 version of the guidance restates the same language as in the 9 April version. So, how do employers treat employees on long-term sick leave? Once again, the prudent approach must be to rely on the Direction.

The latest guidance does at least provide some clarity on holidays: it seems, as we suspected, that holiday can be taken during furlough but must be paid at pre-furlough rates (with the employer required to top up the payment beyond the amount recoverable from the Government). It is still not clear whether employers can compel employees to take holiday whilst they are furloughed, although we do not expect this will affect the ability to claim under the JRS.

It is inevitable that arrangements introduced at short notice and without the luxury of advance planning will contain gaps and uncertainties. It is regrettable however that the Government appears to have made a volte face on the core issue of consent – and to have compounded this by issuing apparently contradictory statements on what is required. A difficult time for employers has become even more testing in the face of such uncertainty on a crucial issue.