RCUK have been asked a number of employment law related questions by IPs as a result of the series of different measures being offered by the Government to assist struggling businesses. Answers to these questions will assist you in providing the right advice to directors when they consider how to move forward.
The questions have been answered by Tim Kenward RCUK’s retained employment law barrister. Tim heads up the employment law department of one of the largest barrister chambers in the UK. Further information about Tim can be found at https://7hs.co.uk/members/mr-tim-kenward/
If you have any further questions please feel free to get in touch. RCUK will continue to publish relevant questions and answers which we feel are of help to the wider IP community.
My interpretation for a liquidation would be that an employer could Furlough now and liquidate in a week or two, wherein the RPS standard role would kick in and then, if a newco acquires the business and assets, they (newco) could Furlough going forward?
This is an interesting question as it is not entirely clear from the Government Guidance. The Scheme is capable of applying to employees on "any type of contract" so, on the face of it, this would potentially extend to directors where a director is an employee. The potential issue is that the duties of a director will still continue. If the employment contract is in respect of undertaking those duties, it may be difficult to put a director into furlough. Moreover, the guidance states that "an employee can not undertake work for or on behalf of the organisation", which a director will potentially be doing in undertaking his or her duties as a director (whether those duties are undertaken under an employment contract or not).
In truth, it is difficult to give a definite answer. The proof of the pudding may be in the eating, ie making an application may give you your answer.
NewCo had applied for a PAYE scheme but it hadn’t been completely set up by that date – likewise it wasn’t in place as at 28 February 2020. Would the employees be covered by the basis that they were employed by our Company as at 28 February 2020 and TUPE means that their employment was continuous to NewCo? Or will the fact that NewCo didn’t have a PAYE scheme set up as at 28 February 2020 have an impact?
(1) The key issue in the scenario posed by Lorraine is that the employees had not been furloughed prior to any transfer, which took place after 28th February, and NewCo did not have a PAYE scheme in place as at 28 February.
(2) On a literal reading of the Scheme, where NewCo did not exist and / or did have a payroll on 28th February, Newco will not be eligible to claim back the salary paid. According to the Coronavirus Job Retention Scheme (CJRS), the position is as below
“Who can claim
You must have:
created and started a PAYE payroll scheme on or before 28 February 2020”
(3) A possible argument might be there has been a transfer of an undertaking, namely OldCo, to NewCo, pursuant to TUPE, so NewCo might be able to rely on the fact that Old Co had a PAYE scheme in place in respect of the very employee that NewCo now wants to furlough.
(4) This argument appears to fall foul of the wording of the CJRS quoted above. However, I suspect that the effect of TUPE is an issue which the Government may not have not considered or considered fully (and may yet issue further guidance dealing with the specific issue or making the position clearer).
(5) However, at best, the position is uncertain. This means that if NewCo now sought to furlough employees it could become liable for the wages of the furloughed employees from the date of the furlough without being able to claim the sums back under the Scheme.
(6) Hope this assists although I appreciate that it may not be the hoped for answer
(a) Employers reclaiming under the CJRS for furlough leave are entitled to claim money from HMRC for those of their employees who are taking holiday leave while furloughed. The one is not inconsistent with the other.
(b) Eligibility for CJRS furlough payments simply require the employee not to be at work, and not working. If the employee is on annual leave, they are not at work and not working. The two are therefore consistent, not inconsistent.
(c) There seems to be no reason why two weeks’ holiday cannot count as two of the minimum three weeks’ furlough leave needed to claim a salary repayment from HMRC under the CJRS.
4. As such, it is strongly arguable that an employee can be on furlough and annual leave at the same time.
(1) Employers might want to do this for a number of reasons, for example:
to deplete some or all of the employee’s outstanding annual leave
to reduce the amount of leave still to be taken when work resumes
to get the Government to fund 80% of an annual leave payment.
(2) So can they do that? The answer is yes.
(3) The Working Time Regulations 1998 regulation 15 makes it clear that an employer can insist on an employee taking annual leave on particular dates, as long as they give twice the number of days’ notice that they want the employee to take as holiday. So, for example, an employer needs to give two weeks’ notice to require their employee to take one week’s annual leave.
(4) In practice this means an employer can furlough the employee for three weeks and tell them at the start that the third week is annual leave. By definition, this then means they’ve given the required two weeks’ notice of the one week’s annual leave.
The Chancellor published the formal version of the Coronavirus Job Retention Scheme 15.04.20. Paragraph 6.7 is as below.
"An employee has been instructed by the employer to cease all work in relation to their employment 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".
Thus, the position is that an employee cannot be furloughed without agreeing to be furloughed. Technically it might be sufficient for the employee and employer to agree "that the employee will cease all work in relation to their employment". However, this would meet the definition of redundancy unless it is made clear that the cessation is for a limited period.
However, an employee cannot insist on being made redundant.
That said, by not agreeing to be furloughed, an employee can put pressure on an employer to make the employee redundant.
In practical terms it is not possible to backdate the furloughing of an employee.
The Government published the formal version of the Scheme on Wednesday. Paragraph 6.7 is as below.
"An employee has been instructed by the employer to cease all work in relation to their employment 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".
Paragraph 6.1 stated that the instruction had to have been given "by reason of circumstances arising as a result of coronavirus or coronavirus disease".
The Scheme as previously published by HMRC was not so precise but used the wording below.
"Agreeing to furlough employees
Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.
To be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed. A record of this communication must be kept for five years".
The practical effect is that payments for furloughed employees can only be claimed from the later of (a) the date they ceased work and (b) the date they agreed to be furloughed.
The practical effect of the 1st March start date was that an employee had to have been employed prior to that date. in fact the government has recently changed this so that the employee had to have been employed on or before 19th March.
There is nothing in the provisions of the formal Scheme, which specifically deal with this issue. As such my view is that where a company has furloughed employees in compliance with the Scheme (the requirements of which had effectively been announced in advance of the formal Scheme being published) the company becomes entitled to be reimbursed for those payments (which involves submitting a claim through the portal for such claims) and those payments represent a debt for which HMRC is liable. Thus, if the company has not submitted a claim through the portal prior to the point of liquidation, the liquidator would be able to do so on its behalf.
There have now been six iterations of the HMRC Guidance, four of which predated the Treasury Direction. The first iteration simply required the employer to notify the employee in writing that they had to stop work (but did not require the employee to agree anything, and certainly not in writing). The second to fifth iterations added a requirement that the employer keep a copy of that written notification for five years.
In practical terms it is not possible to backdate the furloughing of an employee. The practical effect is that payments for furloughed employees can only be claimed from the later of (a) the date they ceased work and (b) the date they agreed to be furloughed.
The instruction to cease work must also have been given by reason of circumstances arising as a result of the coronavirus pandemic.
The "costs of employment" which can be claimed are those which meet the conditions of the HMRC Direction in that they "(a) they relate to the payment of earnings to an employee during a period in which the employee is furloughed, and (b) the employee is being paid".
As such, my interpretation is that it could be problematical claiming in respect of payments which have not (yet) been made to an employee.
For all of the above reasons, I think that a proposed application by a director for wages not yet due may be found by HMRC to fall outside the scope of the Scheme.
HMRC seems to be making furlough payments where the employer owes debts to HMRC and none of the guidance or the wording of the scheme itself suggests that payments would be withheld on a such a basis or reduced by any amount owed to HMRC.
Adopting a purposive interpretation, the whole point about the furlough scheme is that it is designed, now that it is up and running, for payments to be made very quickly to employers (six days after a claim is submitted) to reimburse them for payments made to furloughed employees so as to encourage them to keep such employees in employment. Withholding the money because the employer owed money to HMRC would defeat the purpose of the exercise as the employees would lose their jobs. The Government published a new step by step guide for employers as to making claims for payment under the scheme https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/881800/Coronavirus_Job_Retention_Scheme_step_by_step_guide_for_employers.pdf?mc_cid=6aca726c15&mc_eid=7fe277a301 and there is no reference to payments being offset or withheld.
Thus, in practical terms, there may not be an outstanding claim for a furlough payment to offset against a debt owed to HMRC. However, applying basic legal principles, if the employer sues HMRC for an unpaid furlough claim, HMRC would potentially be able to set off any sums owed to HMRC against the unpaid furlough claim and it would follow, in my opinion, that HMRC would be able to offset the unpaid furlough claim against existing HMRC debt in a formal insolvency process.
“Yes” is the simple answer to both questions
The Coronavirus Job Retention Scheme (“CJRS”) is intended to be available to companies in administration, as well as those who are not in an insolvency procedure. Guidance provides that “[w]here a company is being taken under the management of an administrator, the administrator will be able to access the [Scheme]. However, we would expect an administrator would only access the [S]cheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.”
The first question related to where a company was about to go into administration, and the director has not yet made a claim to HMRC under the Coronavirus Job Retention Scheme (“CJRS”) for money for furloughing his staff. If the director was to make the claim now (which presupposes that the employees have already been furloughed), and the company was then to go into administration before the furlough money arrived, would the money still get paid or be received? The Scheme provides that the Government will pay any grant monies into the employer’s bank account and the grant monies are to be accounted for as income by the employer. These two features mean that any grant monies paid by the Government under the CJRS will constitute assets of the company in administration. Thus, assuming that the claim was a valid claim in the first place, the fact that the company had subsequently gone into administration would not prevent the money being paid
There has already been a relevant court ruling in relation to this issue (In the matter of Carluccio’s Limited [2020] EWHC 886 (Ch)). The High Court held that the Scheme was available to a company in administration. This was a case where the employees had not been furloughed prior to the administration and the Court held that the administrators could do so (which would involve adopting and varying the contracts of the furloughed employees). If employees had already been furloughed prior to the administration then a claim for payment by the administrator will be valid provided that the requirements of the Scheme had been met when the employees had been furloughed.
Legal opinion - The employee can be made redundant at any stage. Whilst the Scheme guidance originally stated that the Scheme was designed to enable employers to retain their employees, the wording of the formal Scheme does not impose any condition regarding continuing to employ an employee beyond any period for which a furlough payment has been made. In practical terms, payments are now being made before the end of the payment period to which they apply. So, for example, if an employer received a payment today for 80% of the salary costs for an employee for the May pay period, the payment would clearly presuppose that the employee would remain employed for the rest of the May pay period. If the employee was dismissed tomorrow, before the end of the May pay period, then the part of the payment for the period from 20th May to 31st May would be repayable. However, there is nothing stopping an employer dismissing a furloughed employee either now, or when certain lockdown restrictions end or in October when the furlough scheme is now due to end.