Will the furlough scheme trigger constructive dismissals?

by
April 29, 2020

Furloughing? It’s complicated. While it can be a lifeline for businesses facing reduced revenues and cashflow due to the COVID-19 pandemic, it’s a complex, brand-new process. Employers who get it right temporarily slash salary costs while retaining a workforce. But those who get it wrong, lay themselves open to claims of constructive dismissal, or even discrimination, and loss of wages.

It’s tricky because the Government’s Coronavirus Job Retention Scheme (CJRS) has already updated its guidance six times. And despite the changes, there still appear to be discrepancies between that and the Treasury Direction – which employers are expected to follow.

The definition of constructive dismissal is when an employee resigns within a reasonable period of time, in response to the employer’s fundamental breach of an express or implied term of the employment contract. So that means that if an employer gets the furloughing process wrong – if it mistakenly commits to pay the employee more money than it can claim under the scheme, say, and pays the employee less than promised – then an employee may be able to claim breach of contract, which could lead to a constructive dismissal claim.

So what practical steps can be taken now to lower the risk of future claims?

Sorting out problems with existing furlough agreements

The employer must confirm the agreement to furlough in writing, but recent updates have indicated the employer and the employee must agree that the employee will cease all work for the employer and any associated employers.

So if you didn’t do this first-time round, it’s a good idea to do so.

Problems can arise when there’s a difference between what the employee expects and what the employer can claim for, under the CJRS. Which is why having a water-tight agreement in writing with each employee is crucial to avoiding claims.

If there are any agreements which have been sent to employees which may not reflect the true situation (as we now know, from updated guidance) this needs to be addressed.

Here’s an example.

Take an employee with a contract for 15 basic hours a week who regularly works 20 hours overtime. The employee will want to receive 80% of this monthly income (subject to the CJRS £2,500 cap), especially if your furlough agreement / letter promised to pay 80% of basic pay or normal pay. But for some time there’s been doubt as to whether an employer could include overtime under the CJRS.

The updated CJRS guidance says an employer can only claim for regular ‘non-discretionary overtime’ which suggests voluntary overtime is not included.

While an employer will want to claim for the 80% of the 35 hours (and won’t want a disgruntled employee), if they over-claim they risk further scrutiny by HMRC and will potentially have to reimburse the treasury – with money which will have already gone to an employee.

In unclear cases, where the pay varies, it’s therefore vital to have clear communication with employees.

If an employer has written to an employee committing to furlough on 80% of the 35 hours but then realises they may only be able to claim back 80% of the 20 hours, an employer needs to address that with an updated communication and ideally an agreement with the employee, as quickly and amicably as possible.

In some cases, offering a small compromise payment to bridge the gap between what was said originally, and what now needs to be agreed, may be a pragmatic way forward.

Furloughing new employees

For employers who need to furlough employees for the first time, the guidance and process is at least a little further developed now.

It’s crucial to communicate the furlough agreement in writing — outlining that the employee must cease all work, that the furlough period will be for at least 3 weeks (as required by the CJRS), and explaining the reasons and the payments they are likely to receive.

The key here, is not to over-promise. While it’s tough for employers to have to cut salaries, over-promising can lead to frustration, particularly for employees facing financial hardship.

Bringing back the workforce

While the furloughing scheme has been extended to June this year, many employers will require some employees to still do some work. The rules of the CJRS are clear that employees must cease all work while on furlough leave. So some employers may choose to furlough employees on three-week rotations, or to first bring people back into the most critical roles for the business.

All of the usual employment laws apply when selecting who to bring back from furlough. If a fair, and legal process is not followed, employers could face complaints about who was able to work (and brought back on 100% of their salary rather than remaining furloughed on 80%).

One option may be to ask for volunteers within the areas of the business you need people to come back. If that doesn’t work and you need to select who comes back, then it’s vital for employers to follow a transparent process, ensuring people are selected for their skills and experience based on the needs of the business – and not because of any protected characteristic (such as their age, gender, race, religion, sexuality, or because they are transgender).

Having the ability to point to how you fairly selected staff will put you in a better position to manage discrimination claim risks.

About the author

Joanne O’Connell is a journalist for national newspapers, such as the Guardian. She is also editor of Employment Solicitor Magazine, an engaging resource for HR and employers, with expert analysis from employment solicitors about UK’s rapidly evolving labour market.

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