The Future of Furlough – The Coronavirus Job Retention Scheme extended until the end of October

The Chancellor has this week announced that the Coronavirus Job Retention Scheme (CJRS) is to be extended for four months up to October 31 2020. This will have come as a welcome sigh of relief to many employers and employees alike.

Reviewing current furlough arrangements

However employers should not sit back and relax. Now is the time that employers should be revisiting the terms they agreed with furloughed employees. Employers who furloughed early may have set 31 May 2020 as the end-date for the furlough period and so will need to review whether the period should be extended. And employers that committed to top up the furlough amount to 100% of pay, will likely have done so on the basis that the scheme was for a limited period of time. Whilst many clients are now focusing on how they can resume activities, there may be groups on furlough who will not be brought back into work imminently. Given the ongoing impact of Covid-19 on businesses, employers ought to consider whether the top-up is still sustainable and a prudent use of the organisation’s resources. Any reduction in pay will require a contractual variation and, in this context, that means employee consent. A 20% reduction in pay is significant so we advise employers to start discussions with employees as soon as possible should they now want to take this step as giving employees some notice of such a change is more likely to gain their consent.

Future changes to the furlough scheme

The CJRS is to continue in its current form up until the end of July. This means that employers will be able to recover 80% of furloughed employee’s wages up to a maximum of £2500 per month, so long as those furloughed are not carrying out any work for their employer and have been on furlough leave for a minimum of three weeks.

However, the Chancellor announced that from August, new flexibility will be introduced in order to get employees back to work and boost the economy. Furloughed employees will be able to be return to work part time, and employers will be asked to pay some contribution towards their salary. There has not yet been any announcement as to how this arrangement is to work in reality, and there is currently no indication as to the level of contributions an employer may be required to make, or whether there will be any conditions attached for employers who will still be using the scheme. A question for many may be whether furloughed employees will have to return to work part time in order for employers to benefit from CJRS, or whether claims will still be permitted in respect of employees who are doing no work at all. Specific details in relation to the extension and changes to the CJRS is anticipated by the end of the month.

Holiday during furlough

Given the extension to the CJRS, employers may also be concerned about the level of holiday accrual of employees on furlough. When employers start bringing employees back to work they will want to avoid lots of recently furloughed employees taking annual leave on their return to work; this is so as to maximise productivity and minimise costs.

Initially there was no guidance about the interaction between annual leave and furlough leave and then the Government issued guidance that made clear that employees could take annual leave during furlough. The Government has now published further guidance that confirms that employers can force employee to take holiday during furlough (and lockdown more generally) – using their power under the Working Time Regulations – but they must consider whether any restrictions the employee is under (for example, the requirement to socially distance or self-isolate) would prevent the holiday from being a period of rest and relaxation. This rows back from what employers would have understood the position to be under previous guidance.

The caveat seeks to reflect EU principles about what annual leave actually is, but employers are given no guidance about what the answer is and it leave employers open to challenge that (i) they didn’t consider the point before forcing holiday where it has already been required to be taken, and (ii) holiday can’t be forced because it does not in fact satisfy the principle of being a period of rest and relaxation. This could create all sorts of complications for employers who have to reinstate holiday entitlement and who have enforced holiday usage already during furlough and paid it at full pay when furlough would have been on reduced pay.

If you’d like any information or advice on how the above may affect you, then please contact a member of our Employment, Human Resources & Pensions Team or call 0207 880 4263.

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