PEOPLE: JOB RETENTION SCHEME (UK) - Herbert Smith Freehills

PEOPLE: JOB RETENTION SCHEME
(UK)
04 June 2020 | UK
Legal Briefings

On 22 May 2020 the UK Government issued a new Direction amending
the legal framework for claims under the Coronavirus Job Retention
Scheme. On 29 May 2020 the Chancellor announced that partial
furlough would be permitted from July and that employers would be
required to shoulder some of the financial cost from August 2020. We
have updated our briefing on the Scheme below to reflect the
changes, which are also highlighted in our blog post here.

The HMRC's Coronavirus Job Retention Scheme ("CJRS"), announced on 20 March 2020 and
opened for claims on 20 April 2020, has now been extended for the second time. Originally
due to end on 31 May 2020, then 30 June 2020, the Chancellor announced on 12 May 2020
that it would continue without change until the end of July 2020. It will remain in place and
available to all sectors through to the end of October 2020, but from July 2020 (brought
forward from August 2020) there will be greater flexibility. Employers currently using the
scheme will be able to bring furloughed employees back part-time. From August 2020
employees will continue to receive at least 80% of their wages subject to the £2,500 per
month cap, but employers will be asked to 'start sharing the cost' of the scheme. This
briefing focuses mainly on the scheme applicable until the end of June 2020; the amended
scheme applicable from 1 July 2020 to 31 October 2020 is summarised in the final section.
The Government intends to provide further information on this on 12 June 2020.

The CJRS sets out the terms on which employers can claim reimbursement for a proportion of
employee earnings (and does not alter employment rights as such). Claims can only be
made where someone who was on the employer's PAYE payroll on or before 19 March 2020 is
"furloughed" for a minimum period of 3 weeks. (The cut-off date was changed from 28
February 2020 on 15 April 2020.)

Guidance for employers on the CJRS first published by HMRC on 26 March 2020 has since
been updated several times (and divided into separate web pages) and changes continue to
be made; the current version of the various pages (together the "Guidance") is available
here and there is also a Step-by-step guide on making a claim. HMRC has also published
guidance for employees ("Employee Guidance"). On 15 April 2020 the Treasury published
a Direction and Schedule pursuant to powers under the Coronavirus Act 2020 setting out the
legal framework for the CJRS (the "15 April Schedule"). A further Direction dated 20 May
2020 and published on 22 May 2020 replaces the framework with an amended version (the
"20 May Schedule"). Claims for payment under the CJRS made after 22 May 2020 will have
to comply with the 20 May Schedule; claims made on or before 22 May 2020 should comply
with either of the Schedules (as a whole).

The 20 May Schedule resolves many of the inconsistencies between the various versions of
the Guidance and the 15 April Schedule, at least in respect of claims after 22 May 2020. For
earlier claims, in theory the 15 Schedule should be given precedence over the Guidance in
any event. However, in reality HMRC is likely to refer to its own Guidance in the first place.
Employers do not need to provide any supporting evidence for claims up front and, given
HMRC's limited resources, it seems likely that efforts to audit claims retrospectively will focus
on identifying deliberate fraud (eg, claiming for employees who continue to work) rather than
looking to claw back claims where an employer has followed the HMRC's own Guidance but
arguably not complied with the relevant Schedule. Of course further amending Directions
and versions of the Guidance are expected, not least to set out the revised terms to apply
from August, so this should be kept under review. The briefing below sets out the key points
and will be updated when further information becomes available.

A separate briefing here looks at other key employment issues arising in relation to the
COVID-19 outbreak, including sickness and self-isolation, health data, homeworking, holiday
and other issues.

WHICH EMPLOYERS CAN ACCESS THE CJRS?
The CJRS is open to any entity with a UK bank account and which, at the time of making the
claim, has a PAYE payroll scheme that was created and started on or before 19 March 2020
(this was originally 28 February 2020), including businesses, charities, recruitment agencies
and public authorities. The Guidance notes that employers who receive public funding for
staff costs are not expected to furlough their staff, but there is no reference to this in the
Schedules. Employers must also have enrolled for PAYE online.

The CJRS can be accessed by individuals who employ others (eg, nannies) where the payroll
conditions are met and by administrators (although administrators would only be expected to
access the CJRS "if there is a reasonable likelihood of rehiring the workers", for example after
the sale of the business).

Can employers access the CJRS only as an alternative to COVID-19 related redundancies?

The 4 April 2020 update to the Guidance added the following pre-condition for claims: "If you
cannot maintain your current workforce because your operations have been severely affected
by coronavirus (COVID-19), you can furlough employees and apply for a grant". The Guidance
goes on to note that the CJRS "is designed to help employers whose operations have been
severely affected by coronavirus (COVID-19) to retain their employees and protect the UK
economy. However, all employers are eligible to claim under the scheme and the government
recognises different businesses will face different impacts from coronavirus." (The reference
to the purpose of the CJRS was included in the 26 March 2020 version, but it was not also
expressed as a condition of access.)

This suggested that, as long as an employer "cannot maintain" its current workforce because
of the impact of COVID-19, it will be possible to furlough an employee even though that
specific individual would not otherwise have been made redundant due to the impact of the
pandemic. Conversely, an employer whose business has not been adversely affected or
closed as a result of the pandemic would not be able to access the CJRS, eg, to claim
reimbursement for furloughed vulnerable individuals or parents unable to work from home.

The 15 April Schedule shed some light on this issue (and is unchanged in the 20 May
Schedule). It states that the purpose of the CJRS is "to provide for payments to be made to
employers on a claim made in respect of them incurring costs of employment in respect of
furloughed employees arising from the health, social and economic emergency in the United
Kingdom resulting from coronavirus and coronavirus disease". It goes on to provide that no
claim may be made "if it is abusive or is otherwise contrary to the exceptional purpose" of
the CJRS.

Claims can only be made for a furloughed employee, defined as an employee who has been
instructed by the employer to cease all work in relation to their employment, who has or will
have ceased all work for the employer (directly or indirectly, or for a person connected with
the employer) for at least 21 calendar days, and where the instruction is given "by reason of
circumstances arising as a result of coronavirus or coronavirus disease".

It seems therefore that the decision to furlough must be causally connected with
circumstances arising due to the pandemic, but it is not a condition that
furloughed employees would otherwise have been made redundant.

It is uncertain what, if any, evidence HMRC might require to confirm this eligibility.
 Employers are not required to provide any evidence at the time of uploading their claim. In
evidence given to the Treasury Committee on the CJRS on 8 April 2020, Jim Harra, First
Permanent Secretary and Chief Executive of HMRC stated that claims identified as 'high risk'
would be checked before payment, but that otherwise HMRC was relying on individuals
contacting it if they are aware of employers abusing the scheme. HMRC does expressly retain
the right to retrospectively audit all aspects of any claim with scope to claw back fraudulent
or erroneous claims.

Recent iterations of the Guidance emphasise that HMRC will check claims made through the
CJRS and that payments may be withheld or need to be repaid in full to HMRC if the claim is
based on dishonest or inaccurate information or found to be fraudulent. The Guidance
stresses that dishonest or deliberately fraudulent claims "put our essential public services
and the protection of livelihoods at risk during these challenging times". It also notes that an
online portal has been created for employees and the public to report suspected fraud.
Similar additions have been made to the Employee Guidance, which states that the CJRS is
part of a collective effort to protect people's jobs and urges employees to report abuses (such
as the employer not paying the grant received to the employees, asking employees to work
whilst on furlough, or making a backdated claim to include periods when an employee was
working).

It is worth noting that an employer submitting a claim online is required to confirm that the
claim is "for costs of employing furloughed employees arising from the health, social and
economic emergency resulting from coronavirus" and "in accordance with the HMRC's
published guidance".

Employers will need to bear in mind reputational issues when determining whether it is
appropriate to access the CJRS.

WHAT WILL THE GRANT COVER?
Employers can apply for grants of 80% of furloughed UK employees' gross monthly earnings,
subject to a cap of £2,500 a month, plus the associated Employer National Insurance
Contributions (NICs) and minimum automatic enrolment employer pension contributions on
that wage, provided they keep the individual on payroll. The CJRS will cover the cost of
earnings backdated to 1 March 2020, if applicable. The amount claimed for NICs cannot be
more than 13.8% of the grant claimed for employee's wages. Claims should only cover the
period from when an employee finishes work and starts furlough, and not from the date of
the decision or when the employee is written to confirming their furloughed status.

The employer must pay the employee at least the lower of 80% of earnings or £2,500. The
employer can choose to top up earnings to 100% but is not obliged to do so (and Employer
NICs and employer pension contributions on any top-up cannot be reclaimed). Any more
generous pension contributions above the minimum mandatory employer contribution cannot
be reclaimed, nor can the cost of other benefits (so some employers may seek to agree with
the employee, as a condition of furlough, that certain benefits are paused where this gives
rise to a cost saving). Equally, the Apprenticeship Levy and Student Loans should continue to
be paid and cannot be reclaimed.

The requirement to pay the national minimum wage (NMW) will normally not apply, as
furloughed employees will not be doing any work. However, if employees are required, for
example, to complete online training courses while they are furloughed, then they must be
paid at least the NMW for the time spent training, even if this is more than the 80% of their
wage that will be subsidised; this will be particularly relevant for apprentices. The annual
increases to NMW rates took effect on 1 April 2020.

The method of calculating the "reference salary" (used to calculate the 80% (subject to the
cap) which must be paid and can be reclaimed) depends on whether the individual is a "fixed-
rate employee" or on variable pay. For both types, the 20 May Schedule now makes clear
that benefits in kind, including where these are in lieu of a cash payment for example
through salary sacrifice schemes, are not included in reference salary – it is the post-sacrifice
salary that must be used (including where pension contributions are made through salary
sacrifice schemes). However, the Guidance notes that HMRC agrees that COVID-19 counts as
a life event allowing employees to switch out of salary sacrifice arrangements, if the relevant
employment contract is updated accordingly. Our Pensions Team have publishing a briefing
covering the pensions aspects of the CJRS and the Pensions Regulator's guidance.

An online calculator is now available to assist with calculating the more straightforward
claims and HMRC intend to add more employment situations to the calculator in due course.
For the more complex situations, employers are referred to the examples given here.

Fixed-rate employees

The Schedule defines a fixed-rate employee as an employee entitled under their contract to
be paid an annual salary (and no other payment) in respect of basic hours determined by the
contract, paid in equal instalments per pay period (of a number of weeks or a month)
regardless of the number of hours worked in that period, and where the basic hours do not
normally vary according to business, economic or agricultural seasonal considerations.

For fixed-rate employees, the reference salary is the rate as at the last pay period before 19
March 2020 (changed from 28 February 2020). The employer can use the 28 February 2020
figure, if different, for its first claim under the CJRS. Subject to this, the 20 May Schedule also
provides that where an employer has been paying less than is required under the CJRS (using
the 19 March 2020 reference salary), the employer can top this up to the required amount
either before making a claim under the CJRS or within a reasonable period after receiving the
further amount from the CJRS. (This is more favourable than the original 15 April Schedule,
which limited the ability to top up to underpayments made for furlough periods between 1
March 2020 and 18 April 2020 and required the employer to top up before making a claim.)

Furloughed individuals who have recently returned from sick or family-related
leave

The Guidance was updated on 9 April 2020 to clarify that, for employees without variable pay
who have returned from statutory family-related leave or sick leave after 28 February 2020
and subsequently been put on furlough, the reference salary for furlough purposes should be
their normal gross salary and not the pay they received while on leave. The latest version
clarifies that normal gross salary should also be used for those returning from unpaid
parental leave, unpaid sabbatical or other unpaid leave. This was reflected in the 15 April
Schedule, which specified that pay for these purposes should be the same as for "paid
leave"; the 20 May Schedule clarifies that this means the rate of pay for paid annual leave
under the Working Time Regulations ("WTR"). The 20 May Schedule also makes clear that,
when calculating reference salary, this WTR annual leave pay rate should be assumed for
periods of shared parental leave without statutory pay entitlement (although this would
presumably be covered by "unpaid leave" anyway, as would maternity/adoption leave after
statutory pay has ended, which are not expressly covered). It also provides that the WTR
rate applies to paid statutory family-related or sick leave whether or not the employee
receives more than the statutory rate, and for periods of "reduced rate paid leave"
immediately after a period of statutory sick or family-related paid leave on terms other than
the statutory leave terms. In other words, where an individual is furloughed after family-
related or sick leave, the calculation of reference salary should assume WTR pay for those
periods regardless of any lower or nil pay period.

Variable pay employees

For employees whose pay varies, the reference salary is the higher of the employee's
earnings in the same month the previous year or the employee's average monthly earnings
for the 2019/20 tax year (or, if the employee has been employed for less than 12 months, an
average of the employee's monthly earnings since starting work). The employer must pay
80% of the higher of these, subject to the £2,500 per month cap.

Non-discretionary payments

The position as to what payments should be included in the calculation has evolved. The 26
March 2020 Guidance stated that fees, commission and bonuses should not be included. The
4 April 2020 version altered this, stating that employers can claim for "any regular payments
[they] are obliged to pay" including "past overtime, fees and compulsory commission
payments" but excluding "discretionary bonus (including tips) and commission payments and
non-cash payments". This was reworded again, focussing on regular payments which the
employer is obliged to pay, "including regular wages [paid] to employees, non-discretionary
overtime, non-discretionary fees, non-discretionary commission payments and piece rate
payments". Payments where the employer is under no contractual obligation to pay are
excluded, for example tips, discretionary bonuses, and discretionary commission payments.
Non-cash payments and non-monetary benefits are also excluded. The 15 April Schedule
provided that "regular" salary or wages excludes "conditional payments" and benefits in kind,
and only includes payments which arise from "a legally enforceable agreement,
understanding, scheme, transaction or series of transactions". It can include pay that varies
according to the business's performance, the employee's contribution to the business's
performance, the employee's performance of employment duties, or otherwise at the
employer's discretion but only where pursuant to such a legally enforceable arrangement. It
was unclear from this whether the intention was to exclude regular overtime payments
(which are "conditional" on working in excess of contractual hours), particularly if the
overtime is not compulsory on the part of the employee and/or guaranteed by the employer.

The question of overtime was finally addressed in the 14 May 2020 update to the Guidance.
This states that non-discretionary payments only include payments which an employer has a
contractual obligation to pay and to which the employee had an enforceable right, but notes
that when variable payments are specified in a contract and those payments are always
made, then those payments may become non-discretionary. The Guidance goes on to
provide that payments for overtime worked are non-discretionary for the purposes of the
CJRS when the employer is "contractually obliged to pay the employee at a set and defined
rate for the overtime that they have worked". The focus is therefore on whether the employer
is obliged to pay specifically for overtime hours worked and it does not matter whether the
overtime itself is compulsory and/or guaranteed. The 20 May Schedule is now consistent
with this. The reference to payments not being conditional on any matter has been removed
and the 20 May Schedule now defines non-discretionary payments (which are included in
reference salary) as payments which are (i) in respect of overtime, fees, commissions or a
piece rate, (ii) made in recognition of the employee undertaking additional or exceptional
responsibilities, (iii) made in recognition of the circumstances or time of undertaking the
duties, (iv) made in recognition of similar considerations, provided that the method of
calculating the amount (whether or not that involves the exercise of a discretion) is set out in
a "legally enforceable agreement, understanding, scheme, transaction or series of
transactions". So it now seems clear that variable payments for overtime, shift work or
additional duties will be included provided there is no discretion about how the
amount is to be calculated.

WHICH EMPLOYEES CAN BE COVERED BY THE
CJRS?

 The Guidance provides that employers can only claim for employees who were employed
 on 19 March 2020 and on the employer's payroll on or before 19 March 2020
 (changed from 28 February 2020) on any type of employment contract. The 23 April
 2020 update to the Guidance confirmed that claims can be made for employees who
 satisfy this condition but subsequently are made redundant or stop working for the
 employer on or after 19 March 2020 (if the employees are re-hired and furloughed).
 Being on payroll for these purposes means that a real time information (RTI) submission
 notifying payment in respect of the employee to HMRC must have been made on or
 before 19 March 2020. The RTI submission deadline will mean that some employees put
 on payroll between late February 2020 and mid-March 2020 will still not be covered by
 the CJRS, particularly if payroll is only run monthly.

 Employees who were employed as of 28 February 2020 and on payroll (ie,
 notified to HMRC on an RTI submission on or before 28 February 2020) but who were
 made redundant or stopped working for the employer on or after that date can
 also be covered by the CJRS, if they are rehired and put on furlough (even if this is not
 done prior to 19 March 2020).

 The 23 April 2020 version of the Guidance confirms that the re-hiring provisions also
 apply to individuals on fixed term contracts. It acknowledges that individuals
 (whether or not on a fixed term contract) whose employment starts and ends between
 28 February 2020 and 19 March 2020 are not covered by the CJRS.

 With regard to individuals who are re-hired as set out above, it seems that this could
 include those who resigned or were dismissed for personal reasons, although the CJRS
 eligibility conditions discussed above would still apply. Claims can only be made for the
 period from the date on which the employee is furloughed through the CJRS (ie, this
 cannot be backdated to cover the period when they were not employed by the
 employer). There is no obligation on employers to rehire staff. The Guidance does not
 address the issues of continuity of service or repayment of any redundancy payments in
 these circumstances.

 The Guidance expressly provides that an employer can furlough and claim for staff
 transferred to it under a TUPE business transfer or PAYE business succession rules
 after 28 February 2020 (notwithstanding any inability to satisfy the condition of making a
 RTI submission on or before 19 March 2020). The date of 28 February 2020 was in the
 initial versions of the Guidance, but for a fortnight from 15 to 30 April 2020, the date was
 changed to 19 March 2020 – this was also the date in the 15 April Schedule but has now
 been updated in the 20 May Schedule. The reversion to the original date resolves the
 problem created by the first date change, namely that transferees that acquired
 employees between 28 February 2020 and 19 March 2020 may have expected to be

eligible for a grant, based on the earlier guidance, but found themselves unable to claim
   due to not making an RTI submission by 19 March 2020. Similar provisions are made
   where a group of companies have multiple PAYE schemes and the employees are
   transferred into a new consolidated PAYE scheme after 28 February 2020 (also changed
   from 19 March 2020 in both Guidance and latest Schedule). The 20 May Schedule also
   (i) extends the scheme to cover potential claims where, in the period 1 March 2020 to 30
   June 2020, employees have been dismissed by an insolvent transferor (which means that
   TUPE does not automatically transfer employment contracts) and immediately employed
   by a new employer following a TUPE transfer, and (ii) allows a TUPE transferor to still
   claim under the CJRS for an employee whose furlough did not last the minimum period of
   21 days only because of the TUPE transfer, provided the other conditions are satisfied
   and that the transferee makes a furlough claim for that employee for a period beginning
   immediately after the transfer.

   The CJRS covers full-time and part-time employees, employees on agency contracts,
   employees on flexible or zero-hour contracts and apprentices – anyone paid through
   PAYE. The Guidance expressly notes that foreign nationals can be furloughed and the
   recent versions have made clear that grants under the CJRS are not counted as "access
   to public funds", meaning that employees on all categories of visa can be furloughed.
   Claims can be made in respect of furloughed employees on fixed-term contracts, and the
   updated Guidance confirms that employers can renew or extend those contracts during
   the furlough period without breaking the terms of the CJRS, as long as this is done before
   the contract would otherwise have ended.

   The Guidance sets out a number of types of worker who are not necessarily employees
   but for whom claims can be made if they are paid via PAYE. These cover office holders
   (including salaried company directors and salaried individuals who are directors of their
   own personal service company), salaried members of Limited Liability Partnerships
   (where the reference salary will be the LLP member's profit allocations, excluding
   amounts determined by the member's or LLP's performance), agency workers including
   those employed by umbrella companies, and "limb (b) workers" (those with a contract to
   provide work of services personally and not as part of their own profession or business).
    On 9 April a section was added covering contractors with public sector engagements in
   scope of IR35. (Note that those who pay tax on their trading profits through Income Tax
   Self-Assessment may instead be eligible for the Self-Employed Income Support
   Scheme.) The 30 April 2020 update to the Guidance confirmed that directors who pay
   themselves once a year can also access the CJRS subject to certain conditions.

   A 1 May 2020 addition to the Guidance provides that employees receiving Maternity
   Allowance cannot receive furlough pay at the same time and so, if they have agreed to
   be furloughed, they should give at least 8 weeks' notice of ending their maternity leave
   early and be told to contact Jobcentre Plus to stop their Maternity Allowance payments.
   They will not be eligible for furlough pay until the end of the 8 weeks.

NO WORK FOR EMPLOYER

The CJRS will only apply where employees do no work for (ie, do not provide services to or
generate revenue for) the employer directly or indirectly, nor for a company linked or
associated to the employer. The CJRS cannot currently be used to cover the wages of
employees whose hours or pay have been reduced (but there is no suggestion that
employers could not now agree to amend contracts again in order to place employees on
furlough leave instead). The employee can do volunteer work or training; on 14 May 2020 a
clarification was added that an employer cannot furlough an employee and then ask them to
'volunteer' for the employer in the same or a different role.

The Guidance provides that training can take place provided it is not used by the employer to
generate revenue or for the provision of services. In contrast, the 15 April Schedule provided
that training activities "directly relevant to an employee's employment agreed between the
employer and the employee before being undertaken" will not count as work for the
employer. That left open the argument that training other than this limited type of training
(ie, not relevant to the individual's job but still potentially of benefit in the employer's
business more generally), and/or which is not agreed in advance, could invalidate CJRS
claims. This seemed not entirely consistent with the Government's encouragement to
furloughed employees to use the time to develop more general skills. (On 28 April 2020 the
Government launched a new online learning platform, the Skills Toolkit, with free digital and
numeracy courses, expressly highlighting that the platform offers furloughed employees "an
opportunity to keep up their skills development while they are at home".) The 20 May
Schedule removes the requirement for advance agreement and for the training to be directly
relevant to the employee's job. Instead, it provides that study or training will be not be
regarded as work for the employer if its purpose is to generally improve an employee's
effectiveness in the employer's business or the performance of the employer's business,
provided it does not (i) otherwise provide a service to the employer/a connected person or
their business activities or contribute to those activities or generate income or profit for the
employer/connected person, and (ii) directly contribute to any significant degree to the
production of goods or services which the employer/connected person intends to supply to a
third person for consideration

The updated Guidance proposes that employers can allocate critical business tasks to staff
that are not furloughed, suggesting that there will not be any de minimis exception to the no-
work rule. In theory at least, it seems that permitting employees to carry out small
administrative tasks or answer the odd email could prevent an employer claiming
reimbursement for these employees. In contrast, employees performing tasks in relation to
their own disciplinary or grievance issues, agreeing changes to their own employment
contracts, or attending social catch-ups should not amount to a breach of the rule for those
employees (although clearly this could be 'work' for the managers involved).

The Schedule states that a director carrying out statutory duties relating to the filing of
company accounts or other information would not breach the rule. The 20 May Schedule now
provides that directors performing work directly relating to (i) making a CJRS claim in respect
of, or (ii) paying wages/salary to, an employee of the director's company also does not count
as work for these purposes. The 20 May Schedule also contains a new provision permitting
the carrying out of certain duties as a trustee or manager of the employer's occupational
pension scheme.

Initially, neither the Guidance nor the Schedule made clear whether employees' participation
in information and consultation processes such as for proposed collective redundancies
(whether in terms of nominating and voting for representatives or performing the
representative role) is permitted. The 30 April 2020 update amended the Guidance to
provide that furloughed employees can undertake "union or non-union representative duties
and activities for the purpose of an individual or collective representation of employees or
other workers" (as long as, in doing this, they do not provide services to or generate revenue
for, or on behalf of the employer or a linked or associated employer). This is helpful given
the possibility that employers may wish to start the information and consultation process for
collective redundancies during furlough. Although the amendment is not clearly covering the
involvement of individual employees in electing non-union representatives, this should also
be permissible. Employers without existing representative bodies may wish to consider
starting the election process while employees are on furlough now, to ensure they have
representatives in place if and when needed. The amendment also makes clear that
employees can accompany colleagues at disciplinary or grievance hearings, or at an
individual redundancy consultation meeting, without breaching the terms of the CJRS.

WORK FOR OTHER UNCONNECTED EMPLOYERS
The updated Guidance now expressly notes that employers can allow furloughed employees
to take on work for other entities. Employers will want to maintain a prohibition on
employees working for competitors but may be prepared to expressly permit other work, at
least where this is in support of the national effort, in social or health care or other essential
services. The Employee Guidance notes that employees who do take on other employment
while on furlough will need to be able to return to work for the original employer if they
decide to end the furlough and must also be able to undertake any training they require while
on furlough.

Where employees work for more than one employer, they can be furloughed for each job and
the 80% cap applies to each employer separately. However, if an employee has had multiple
employers over the past year and only worked for one at a time, and is being furloughed by
their current employer, none of the former employers should re-hire, furlough and claim for
them under the CJRS.

EMPLOYEES CURRENTLY ON LEAVE/ABSENT FROM WORK

    The 15 April Schedule provided that employees who were on unpaid leave on 28
    February 2020 can only be furloughed after the expiry of the period of unpaid leave as
    agreed or contemplated in advance. The Schedule also stated that claims cannot be
    made under the CJRS in respect of any period of unpaid leave beginning before or after
    19 March 2020. The intention behind this second provision was unclear, particularly
    given the overlap in dates. The 20 May Schedule contains new drafting on this issue. As
    before, where the unpaid leave began before 1 March 2020, an employee can only be
    furloughed after the expiry of the period of unpaid leave as agreed or contemplated in
    advance (at the time the leave began), but the new drafting provides that the expiry

date/point of the leave can effectively be varied for these purposes IF the variation is
made after the leave began and before 20 March 2020 (when the CJRS was announced).
With regard to a period of unpaid leave enjoyed between 1 March 2020 and 30 June
2020, the revised Schedule provides that no CJRS claim can be made in respect of that
period and furlough cannot begin until the leave has ended; however, there is no
express prohibition on the parties agreeing to bring it to an end earlier than planned in
order to furlough.

The Guidance states that employers can decide to furlough employees who are already
on sick leave by moving them off statutory sick pay (SSP) and onto furlough wages (in
respect of which a claim to reimbursement can be made). In contrast, the 15 April
Schedule provided that the furlough period for which a claim can be made will only start
once the employee's eligibility for SSP (whether due to COVID-19 absence or otherwise)
has ended. That is the case whether or not a claim to SSP is made (and whether or not
the employer is a small employer able to recoup SSP). The discrepancy was particularly
relevant where an employer is proposing to place on furlough an extremely vulnerable
employee who has been advised to shield for 12 weeks, as pursuant to amending
regulations in force from 16 April 2020, these individuals are now deemed to be sick and
therefore eligible for SSP if they are unable to work as a result of shielding. The 15 April
Schedule meant that these individuals could not be furloughed until the end of their
shielding period (currently the end of June). The Guidance still states that employers can
claim for furloughed employees who are shielding in line with public health advice.
 Fortunately, this discrepancy appears to have been resolved in the 20 May Schedule.
This provides that an employee on SSP can agree with their employer to end the
period of sick leave and start furlough immediately thereafter. This will likely
only be appropriate where an employee's entitlement to SSP is because of self-isolating
or shielding under the COVID-19 amendments, rather than actual illness.

The Guidance has been revised a number of times in relation to whether it is possible to
furlough other individuals who could be unable to work for reasons related to COVID-19.
Recent versions of the Guidance have now made clear that the CJRS is available if
employers furlough individuals who are unable to work because they need to stay home
with someone who is shielding or because they have caring responsibilities
resulting from COVID-19 (such as needing to look after children). Where an employee's
role cannot be done from home, parents needing to provide childcare will clearly qualify;
there may be more scope for argument where parents can theoretically perform their
tasks from home, but find this challenging whilst also providing childcare. (Previous
iterations of the Guidance suggested that the CJRS would only cover those shielding or
staying home with someone shielding if the employer would otherwise have had to make
the individual redundant, but the Schedule has confirmed that this is not a condition of
eligibility for the CJRS and it has been omitted from the latest versions of the Guidance.)

There is no specific reference in the Guidance to furloughing employees in vulnerable
groups (but not extremely vulnerable and therefore not shielding) who are "strongly
advised" to follow the social distancing measures. However, the Schedule now makes
clear that the decision to furlough must be causally connected with circumstances
arising due to the pandemic, but it need not be the case that furloughed employees
would otherwise have been made redundant. This should therefore mean that, where

work cannot be done from home, vulnerable employees and other employees who refuse
    to attend work due to health and safety fears can be furloughed, even if there is work
    available for them to do.

EMPLOYEES STARTING STATUTORY LEAVE AFTER BEING PLACED ON FURLOUGH
The Guidance states that employees still have the same rights at work, including to SSP,
parental rights, and the right to claim unfair dismissal or redundancy pay. The 4 April 2020
update made clear that this includes during furlough.

Sick leave

The 15 April Schedule seemed to envisage that, for those who become 'sick' after being
placed on furlough, they could remain on furlough and sick leave simultaneously but that a
claim under the CJRS for reimbursement of wages for any furlough period must be net of the
amount of any entitlement to SSP during that period (whether or not the entitlement is
actually claimed, and whether or not the employer is eligible to reclaim COVID-19-related
SSP). The Guidance did not reflect this, stating that it is up to employers to decide whether
to move these employees onto SSP (which cannot be reclaimed through the CJRS) or to keep
them on furlough and reclaim the full furloughed rate without deduction of the SSP rate.
HMRC also updated its Statutory Payments Manual to provide that employees do not qualify
for SSP if they are on furlough. The 20 May Schedule simply removes the inconsistency by
deleting any reference to the issue of claiming SSP through the CJRS, presumably leaving
employers to follow the Guidance on this.

Of course in reality, employees who have been furloughed may see no benefit in declaring
their actual or deemed sickness if there is no incentive to do so (ie, there is no entitlement to
contractual enhanced sick pay during furlough). Employers may want to agree as a condition
of furlough that they disapply any contractual sick pay scheme which provides remuneration
greater than the furlough entitlement.

Family-related leave

The Schedules and Guidance envisage that employees can start family-related leave having
already been put on furlough and simultaneously with furlough. The Employee Guidance as at
23 April 2020 noted that, if earnings have reduced because an employee is put on furlough
leave before maternity leave started, that might affect statutory maternity pay, presumably
recognising that the rate for the first 6 weeks could be based on the 80% salary under the
rules for calculating that rate.However, relevant regulations have since been amended to
provide that, for furloughed workers starting family-related leave on or after 25 April 2020,
their statutory family-related leave pay rate will be based on their usual earnings rather than
the furloughed pay rate. The Guidance now notes that the statutory pay entitlement may
need to be calculated differently for these furloughed employees and refers employers to
updated webpages on SMP here.

The Guidance states that employers can claim through the CJRS for enhanced contractual
pay paid to employees on maternity, adoption, paternity, shared parental or parental
bereavement leave ("family leave").This seems to suggest that it is not necessary to bring
the family leave to an end nor is a furlough period broken by these types of leave.An
employer can reclaim (probably 80% of) the cost of contractual enhancement (up to the cap).
Employers could then reclaim 92% of the statutory pay as usual, but would not be able to
claim the 8% balance through the CJRS.Both Schedules expressly provide that a claim under
the CJRS for reimbursement of wages for any furlough period must be net of the amount of
any statutory payments made for family-related leave during that period (the 15 April
Schedule provided that this was the case whether or not the pay entitlement was actually
claimed, but this has been deleted from the 20 May Schedule).

Annual leave and continuity of service

The Schedules do not address the issue of annual leave and continuity of service for
furloughed employees. Given that the contract of employment continues during furlough, it
seems clear that holiday will continue to accrue and continuity of service be preserved
(meaning that employees could acquire two years' service and therefore entitlement to
statutory redundancy pay and unfair dismissal protection) during furlough. The 17 April 2020
version of the Guidance confirmed HMRC's view that annual leave does continue during
furlough, including any contractual enhancement on top of the statutory entitlement (unless
there is agreement to vary the contract to remove this enhancement during furlough).

The Guidance also now states that employees can take holiday (including bank holidays)
during furlough, and that the Working Time Regulations require holiday pay to be paid at the
normal rate of pay or, where pay varies, the rate calculated by averaging over the previous
52 working weeks. Although there may be scope for argument in some cases, HMRC's view
is that this means the employer should pay the employee's "usual holiday pay in accordance
with the Working Time Regulations" (which would normally be 100% pre-furlough pay) for
days of annual leave. The employer will only able to reclaim 80%, subject to the cap, under
the CJRS, and the Guidance notes that employers will be obliged to pay additional amounts
over the grant, but comments that employers will have the flexibility to restrict when leave
can be taken if there is a business need, both during furlough and afterwards. HMRC also
notes that "during this unprecedented time, we are keeping the policy on holiday pay during
furlough under review". From 14 May 2020, the guidance has also linked to a new web page
published by BEIS on 13 May 2020 setting out (non-legally binding) guidance on holiday
entitlement and pay during COVID-19, which is consistent on the above issues.

Employers may wish to avoid employees returning from furlough with large holiday balances
at a time when they want to maximise productivity. The Guidance and Schedules do not
expressly address whether an employer could require an employee to take their accrued
holiday entitlement during a period of furlough, provided they give the required period of
notice. If not, periods of holiday (including bank holidays) designated by the employer could
break the furlough and mean that the employer falls foul of the required minimum 3 week
period for furlough. This question was addressed for the first time in the BEIS guidance
published on 13 May 2020, which clearly envisages that employers can require furloughed
individuals to take holiday subject to the usual notice requirements and suggests that
employers should engage with their workforce and explain reasons for wanting them to take
leave before requiring them to do so. However, it also goes on to comment that "the
employer should consider whether any restrictions the worker is under, such as the need to
socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying
leisure time, which is the fundamental purpose of holiday". This perhaps reflects the
suggestion by some commentators that tribunals might view enforced use of annual leave
during furlough as an abuse of the employer's statutory right to require holiday. Of course
the same limitations on "enjoyment" would apply in respect of requiring employees who are
not furloughed to take holiday during lockdown. However, further on in the guidance, BEIS
states that "in most cases" furloughed employees will be able to take holiday during the
furlough period. This perhaps indicates that BEIS's view is that designating holiday during
lockdown will generally be effective except for vulnerable individuals who are following the
stronger social distancing guidance, extremely vulnerable individuals who are 'shielding', or
individuals who are self-isolating due to their or their household having symptoms. Given
that social distancing is likely to be the 'new normal' for some time, it would perhaps be
surprising if the social-distancing restrictions on society as a whole were to be treated as
sufficient to prevent enjoyment of holiday. However, there is clearly scope for argument, at
least until lockdown restrictions are further relaxed. Claims are perhaps more likely where an
employer seeks to require furloughed employees to use up their entire year's entitlement
while on furlough. In practice, furloughed employees may accept that a requirement to take
a pro rata amount reflecting the expired portion of the leave year is not an unreasonable
request.

Also note that the Government has amended the Working Time Regulations to allow workers
to carry over up to four weeks of unused statutory leave into the next two leave years where
it was not reasonably practicable for the worker to take some or all of it due to the effects of
coronavirus (on the worker, employer or generally). The BEIS guidance suggests that one
example of it not being reasonably practicable would be where, due to the impact of
coronavirus on operations, the employer is financially unable to top up the 80% covered by
the CJRS to full holiday pay. See our general briefing on COVID-19 issues for employers for
further details.

PUTTING AN EMPLOYEE ON FURLOUGH

An employee can be furloughed for a minimum period of 3 consecutive weeks. The 4 April
2020 Guidance expressly confirmed that an employer can furlough employees multiple times,
meaning they can rotate staff between furlough and work subject to each furlough period
being at least 3 weeks (the Guidance does not provide for a minimum period of work in
between furlough periods).

Although not noted in the Guidance, some employees will have a contract permitting an
employer to 'lay them off', ie, provide no work or pay, but keep them on payroll. However,
this is rare and in most cases the employer will not have this contractual right. Therefore
placing an employee on 'furlough' at a reduced salary will be a change to their terms of
employment requiring the employee's agreement. (Employers will also need to provide the
employee with a written statement of changes to the "section 1 statement" of terms and
conditions, at the earliest opportunity and in any event not later than one month after the
change.)

There is nothing to suggest that the CJRS is not available where employers already have a
contractual right to 'lay off' employees, nor indeed where they have already exercised this
right. Given the choice between 'lay off' on no pay and 'furlough', it would be prudent for
employers to 'furlough' staff. An employer's failure to take the necessary steps to 'furlough'
these employees could arguably amount to a breach of trust and confidence, while leaving
employees laid-off also enables them to bring claims for statutory redundancy payments
after four weeks.

The Guidance recommends that employers discuss furloughing with their staff and make any
changes to the employment contract by agreement. Prior to 17 April 2020, the Guidance
also stated that employers should then write to their employees confirming that they have
been furloughed and keep a record of this communication for five years. However, the 15
April Schedule specified that an employee will be treated as having been instructed by the
employer to cease all work in relation to their employment (which is a condition of
reimbursement) "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".

Possibly in response to concerns about this apparently new requirement for a written
agreement, the Guidance was updated on 17 April 2020 to state: "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 the CJRS. There needs to be a written
record, but the employee does not have to provide a written response." On 23 April
2020 this was amended to provide that a collective agreement reached between an employer
and a trade union is acceptable for the purpose of a claim. Neither amendment accorded
strictly with the requirement in the 15 April Schedule for written agreement between
employer and employee to cease work.

The issue of agreement to furlough was also the subject of published correspondence from
HMRC on 23 April 2020. In response to a request for clarification on HMRC's interpretation of
the requirement in the Schedule, the correspondence stated that HMRC will act at all times in
accordance with the Direction, its interpretation of the Direction is as set out in the HMRC
Guidance, it expects employers to consider the Guidance in the first instance when seeking
to understand the operation of the scheme and the HMRC's interpretation of the Direction,
and it considers that the Guidance is consistent with the Direction. "Put simply", this means
that the employer and the employee must reach an agreement and an auditable written
record of this agreement must be retained. It does not necessarily follow that the employee
will have provided written confirmation that such an agreement was reached in all cases.

This explanation has not yet been added to the Guidance. However, the issue is now
addressed by changes in the 20 May Schedule. This now provides that, for the purposes of
eligibility to make a claim under the CJRS, the required instruction to cease work is satisfied
if:

    the employer and employee have agreed that the employee will cease all work in
    relation to their employment - and this can be made by means of a collective agreement
    between employer and trade union

    the agreement/collective agreement specifies the main terms and conditions of the
    cessation of work

    the agreement is incorporated expressly or impliedly in the employee's contract

    the agreement is in writing or is confirmed in writing by the employer (and writing
    includes in electronic form)

    the employer keeps the agreement/collective agreement/confirmation until at least 30
    June 2025.

Employers who did not obtain written agreement (whether because they were not varying
any contractual terms, or because changes were agreed orally) will welcome this change for
future claims for furloughed employees. They may also be able to rely on the 20 May
Schedule in respect of past claims (if those claims complied with all the provisions of the 20
May Schedule). However, there is still a requirement for agreement, and for a written record
to be made of that agreement (covering both the cessation of work and the applicable
terms). It also remains unclear whether the agreement itself can be retrospective or implied,
for example where employees acknowledge receipt of unilateral notification of furlough and
accept furlough wages without protest, provided that the implied agreement is then recorded
in writing; there is nothing expressly prohibiting this. It would obviously be prudent to
ensure these new provisions are satisfied for newly furloughed employees and to provide
written confirmation of the agreement for those already furloughed if this has not yet been
done.

(With regard to claims covered by the 15 April Schedule, there remains a risk that the HMRC
could require repayment of grants made for employees where written furlough agreements
were not obtained from the employees. Commentators have suggested that employers may
have a credible judicial review claim against the Treasury and/or HMRC on the basis that they
should be entitled to rely on the earlier versions of the Guidance, at least in relation to those
already put on furlough and up to the point of the Schedule being published on 15 April
2020.)

The 30 April 2020 update to the Guidance confirms that employers can extend a period of
furlough by any amount of time whilst the employee remains in furlough. This clarifies that
there is no need to allow furlough to end and then re-start it, although in some cases
extension might require further employee agreement and it would be prudent to get this in
writing if feasible. Obviously furlough can only be claimed for days up until the date the CJRS
ends.

COLLECTIVE CONSULTATION
The Guidance notes that, if sufficient numbers of staff are involved, it may be necessary to
engage collective consultation processes to procure agreement to be placed on furlough.

Collective redundancy consultation is required where 20 or more dismissals (for redundancy
or for some other reason unconnected with the individual) are proposed within a 90 day
period at one establishment. The process involves providing specified information and
consulting with unions or employee representatives about ways of avoiding or reducing the
number of dismissals and mitigating the consequences. The process must start at least 30
days before the first dismissal, and 45 days before if 100 or more dismissals are proposed.

While there is a 'special circumstances' provision which might apply given the 'exceptional'
nature of the pandemic, the availability of furlough grants may make this less applicable and
in any event an employer must still comply with the process so far as is reasonably
practicable. There are significant financial penalties for non-compliance (potentially 90 days'
pay per affected employee).

The employer must also notify the Department for Business, Energy and Industrial Strategy of
the proposed redundancies by letter or on form HR1 (copied to the union/employee
representatives), at least 30 days (or 45 days if 100 or more dismissals) before the first
dismissal. Failure to do so can lead to criminal prosecution and a fine (with no upper limit), on
summary conviction, for the company and/or officers of the company, although only a few
prosecutions have been brought to date.

Case law suggests that the collective consultation obligation would apply where an
employer's proposal is to try and agree furlough with 20 or more employees but, if
unsuccessful, to dismiss them as redundant. In many cases this may well be the employer's
plan. The same would apply where the employer's proposal is to seek employee agreement
with 20 or more employees and, if unsuccessful, to dismiss and re-engage the employees on
the new terms (including the furlough provision). Further, there is EU case law suggesting
that the obligation would apply where an employer proposes unilaterally imposing on 20 or
more employees a substantial change to terms sufficient to amount to a constructive
dismissal; imposing a new furlough term could be sufficient depending on the scope of and
any limitations on the particular furlough term.

In any event, if trade unions are recognised, the employer will likely be required to consult
with them on the extent to which the CJRS will be applied, to whom, for how long and
whether there will be any top-ups. Similarly, if an employee forum is in place, consultation
may be advisable Where there are no existing employee representatives, it should be made
clear to employees that if they do not agree the furlough, redundancies will be proposed and
the information and consultation process will be followed. It would also be prudent to file the
HR1 at the start, accompanied by an explanation that the proposal is to seek agreement to
furlough rather than compel redundancies.

SELECTING EMPLOYEES FOR FURLOUGH
It is possible to furlough only part of the workforce. Employees could request furlough, but
an employer is not obliged to agree.

When deciding to whom to offer furlough, the employer will have some discretion, subject to
discrimination law (as noted in the Guidance), the prohibition on detriment for
whistleblowing/exercising certain other statutory rights and general duties of trust and
confidence.

Employees in businesses which have been ordered to close workplaces and who cannot
perform their roles from home will be obvious candidates for furlough. For others, although
the process may not need to be quite as rigorous as is required for fair redundancy selection,
it would be prudent to set out and apply rational criteria; equally, it would be prudent to
consult on the selection with individuals and any trade union or workplace forum.

Giving preference to placing those aged over 70 on furlough would be direct age
discrimination but would probably be justified to achieve the legitimate aim of protecting
vulnerable employees as identified by Government public health advice. Given the potential
for employees to have widely differing situations (given individual health concerns and family
responsibilities, and dependent on whether work is capable of being done remotely), it would
seem sensible to invite volunteers for furlough as a first step.

If the employer decides to make redundancies later on, it will of course need to apply a fair
selection process at that point. The CJRS does not prevent an employer making
redundancies during or at the end of a period of furlough.

It may be possible for employees to argue that an employer's failure to use furlough rather
than make redundancies renders any redundancies unfair. (This may be less likely where a
small employer was unable to obtain a loan to continue paying wages pending the CJRS
becoming operational, was unable to agree payment deferral with the employees, and its
financial position gave it no choice but to make redundancies before the CJRS opened.)

TIMING AND PROCESS FOR CLAIMS
The CJRS was originally put in place for at least three months from 1 March 2020 to 31 May
2020. In light of the need for employers to start consultation on 18 April 2020 if making 100
or more redundancies on 31 May 2020, on 17 April 2020 the Chancellor extended the CJRS to
the end of June and committed to keep it under review. On 12 May 2020 a further
announcement was made extending the CJRS in its current form to the end of July.
Thereafter, it will remain in place and available to all sectors through to the end of October,
but from August there will be greater flexibility – see the following section.

Employers can upload claims through the HMRC online portal and grants are expected to
arrive in employer bank accounts within six working days. The aim was for employers to be
able to 'self-serve' when uploading claims, and employers were also asked to help HMRC
cope with demand by keeping employees informed and asking them not to contact HMRC.

Where there is more than one claim period, claim periods should follow one after another,
with no gaps in between, where employees have been continuously furloughed. A claim
period cannot start any earlier than the date the first employee was furloughed and grants
for an employee can only cover the time they were furloughed. The claim end date must be
no more than 14 days in the future from the date the claim is made and any claim period
must contain all the furloughed days that the claim amount relates to.

Employers may have put employees on furlough before the CJRS was operational and where
appropriate employers can backdate the claim to 1 March 2020. Businesses may have been
able to obtain loans to cover wages in the meantime or to agree with the employees that
payments will be deferred until the CJRS grant is received.