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March 25, 2020

Coronavirus and Declining Work—What Options Are Open to UK Employers?

Coronavirus: Labor and Employment Advisory
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Updated Fri 27 March 2020 to incorporate the latest guidance issued by the British government on 26 March.

Introduction

With the British government mandating that the vast majority of members of the public remain confined to their homes, and with many businesses facing a sudden and swift drop in orders and a likely ratcheting up of bad debts, many employers have been considering their staffing options. Should they try and cut employees' hours and pay? Should they make redundancies? The government has stepped in with a number of schemes to help businesses keep afloat, to support workers, and to disincentivize companies from laying off staff.

In this advisory we look at the government's recently announced job retention scheme, which provides an important lifeline, in the form of very generous grants, to employers who opt to retain employees for whom they have no work. We also consider alternative options open to employers for whom the job retention scheme does not meet all their needs. We conclude with a summary of some other supportive measures the government has introduced and of which employers should be aware. The law and government guidance is changing rapidly, however, and this is very much a case of "watch this space."

The UK government's job retention scheme

On 20 March 2020, the government announced its "Coronavirus job retention scheme." Updated guidance answering many of the initial questions about the scheme was published on 26 March 2020:

  • The scheme is open to any UK organisation with employees.
  • Employers can designate "affected employees" (i.e. employees who might otherwise be made redundant) as "furloughed" workers who are paid to remain at home.
  • The government will pay employers a grant of up to 80% of the furloughed employees' usual monthly wage costs, up to a maximum of £2,500 per month per employee, plus Employer's National Insurance Contributions and employer's minimum auto-enrollment pension contributions on the subsidised wage. The government will do this for a period of three months retroactive to 1 March 2020. The government has indicated that the scheme will be extended "if necessary."
  • The employer is required to notify employees it wishes to designate as "furloughed" and must then submit information about the employees and their earnings to HMRC, through a soon to be established on-line portal.
  • The scheme is expected to be up and running by the end of April 2020.

Things to watch out for:

  • The government guidance indicates that furloughed employees should not be asked to do any work whilst on this kind of temporary suspension. So the scheme will not benefit employers who need their employees to keep working, even on a reduced hours basis.
  • To qualify, employers must have started a PAYE (pay as you earn) payroll scheme on or before 28 February 2020 and have a UK bank account. A UK account is required because the grant will be paid by HMRC via the BACS payment scheme, directly to that UK account.
  • A qualifying employer can claim a government grant in respect of full-time and part-time employees, employees on agency contracts, and employees on flexible and zero hours contracts.
  • Employers can also re-hire and then furlough employees made redundant since 28 February 2020, but otherwise, employees hired after that date will not be eligible to be covered under the scheme.
  • Employees cannot be furloughed for fewer than three weeks and employers are not allowed to submit more than one claim for reimbursement in each three-week period. This suggests that it would be possible for employers to rotate which employees are furloughed and which are required to work, as long as each rotation into furlough is for a minimum three-week period.
  • The new rules remain "subject to existing employment law." Employers do not normally have the contractual right to remove work/pay from employees, so the latest guidance makes clear that employers should discuss furloughing with their staff and make any changes to their contracts by agreement. That should not be difficult if the alternative is redundancy in a market with few, if any, jobs. However, if large numbers of employees are impacted, there is an open question whether collective redundancy consultations are required (see below section on redundancies).
  • Employers should write to employees confirming that they have been furloughed and keep a copy of this communication.
  • Designating employees as furloughed should be relatively easy where the employer wants to furlough all its employees, or a whole team or category of employees, or employees who are in unique roles (for example, the sole Marketing Manager or the only Sales Director). However, employers should exercise caution when seeking to furlough some, but not all, of a group of employees doing similar work. Such a decision should still be possible, but may require the employer to implement a fair selection process and to adhere to the requirements of equality and discrimination laws.
  • There was previously considerable uncertainty as to how the government grant would be calculated. The latest guidance provides that the grant will comprise the lower of 80% of the employee's regular wage, (excluding fees, commissions and bonuses), and £2,500 per month, plus the associated Employer's National Insurance Contributions and minimum automatic enrollment employer pension contribution on that subsidised wage. Additional guidance will be published addressing how employers should calculate their claims for Employer's National Insurance Contributions and employer pension contributions.
  • Employees' wages whilst on furlough will be subject to normal payroll deductions and employees will be required to pay automatic enrollment employee pension contributions on their reduced wage.
  • Employees who are on sick leave or self-isolating should get statutory sick pay, but after that, they can be furloughed. Employees who are shielding in line with public health guidance can be placed on furlough.
  • The position of employees on family leaves is not totally clear: it seems that employees on these leaves receive their normal statutory leave pay whilst on leave. Any company enhancement to maternity pay can be claimed as a furloughed wage cost.
  • The government guidance makes clear that employers will have discretion whether to top up the 80% government contribution. However Employer's National Insurance Contributions and employer's pension contributions relating to the top-up payment will not be funded through the furlough scheme.
  • Any payments an employer receives under the government scheme should be included as income in the employer's calculation of its taxable profits for income tax and corporation tax purposes.
  • While HMRC's on-line portal through which grant applications can be made is not yet ready, the guidance provides that employers will eventually need to input the following information:
    • their ePAYE reference number,
    • the number of employees being furloughed,
    • the claim period (start and end date),
    • the amount claimed,
    • the employer's bank account number and sort code, and
    • the name and phone number of the employer's contact person.
  • Employers will still have health and safety duties with which to comply for all employees who are now required to stay at home due to government isolation measures (not just furloughed staff). Those duties include steps to ensure employees have a safe place and system of work. In addition, there may be a number of other practical issues to consider, such as allowances if staff use their own stationary and equipment, and introducing procedures to ensure staff are checking in from time to time and are genuinely working. Many employers are therefore approaching us to provide work from home policies that address these and a number of other important teleworking issues.
  • The government's scheme helps protects employees on PAYE. There has been much concern that a similar scheme was not being rolled out to benefit the self-employed. However on 26 March 2020, the government announced a series of measures that will see similar protections extended to self-employed people with trading profits of up to £50,000. Those earning more than that amount will fall outside the scheme and will not be able to claim a grant.

What if the job retention scheme does not work for your business?

There may be a number of reasons why the job retention scheme will not work for some businesses. The two most common we are finding are: (a) the employer still has work for its employees, but needs them to work shorter hours and lower pay to reduce overheads; and (b) the employer considers its business is over-manned, and taking advantage of the government scheme would merely postpone the inevitable need for redundancies and/or the employer cannot afford to wait for reimbursement of employees' wages through the job retention scheme. We now look at how employers may address these two issues.

Reduced Hours ("short time working")

An employer may want staff to work shorter hours in return for a reduction in pay. The problem is that employers do not have a unilateral right to change employees' hours and remuneration. Therefore, in the absence of a clause in the employment contract permitting such action, or a well-established industry practice, the employer needs to seek the employees' agreement.

It is fairly rare to find an employment contract that provides for the employer to be able to reduce employees' hours; and even where such a clause exists, it may be so vague that it is unenforceable. Likewise, industry practices allowing for enforced reductions in hours and pay are uncommon. Therefore, in most cases, the employer risks a number of claims from the affected employees if it forges ahead to vary terms relating to hours and pay without consent. These include claims for constructive unfair dismissal or, if the employees are not inclined to resign over the issue, claims for unlawful deduction from wages.

Therefore, employers wanting to introduce reduced hours working should instead make a "proposal" to change employees' hours and pay. The proposal should include an outline of the reasons why the variations are being proposed and details of any measures the employer proposes to facilitate the change for staff. The employer should then consult employees about the change. In the very challenging environment in which we currently find ourselves, employees may well be willing to agree to fairly drastic changes in order to protect jobs, rather than face the risk of redundancy. However, scripting these conversations correctly is critical and certainly something we can assist employers to do.

What if redundancies ("reductions in force" in US terminology) are required?

A detailed examination of redundancy law is outside the scope of this advisory. However, here are a few points to bear in mind:

  • In virtually all cases, employers should consult employees before carrying out dismissals. A failure to consult is one of the most common grounds on which redundant employees claim unfair dismissal. Even if there is no time for extensive consultations because the need to downsize is so urgent, employers should attempt some discussion with impacted staff.
  • Consultations should include the option of a furlough as an alternative to down-sizing. Employers should always put their minds to alternative solutions to making job cuts. Even if furlough is rejected, perhaps because the employer simply cannot afford to wait for government re-imbursement of 80% of its wages cost, it should be on the table for discussion.
  • It may be a relatively easy solution to first dismiss short-serving employees, with under one year and 51 weeks' service, who generally do not enjoy unfair dismissal protection. In such cases therefore, the employer is not obliged to follow a fair redundancy process, or even to consult. However be careful: if an employer hastily dismisses short-serving employees who are doing the same job as longer-servers, but then purports to embark on "a fair consultation process" with the longer-serving employees in the same category, the longer-serving employees may claim "foul." They may argue the employer has shown its hand already by dismissing the short-servers without consultation and that any consultations with the longer-servers are a sham since all the relevant decisions have been taken. In that situation, the employer may be better off including all employees in the consultation process regardless of their length of service.
  • A common mistake employers make - even those employers who intend to consult about the planned redundancies - is to use language in their communications with staff that indicate redundancies are a fait accompli. Instead, employers should present their plans as "proposals" on which they are seeking employee feedback and not "decisions." Beware also of creating documents behind the scenes, such as organisational charts showing the organisation's final structure, before consultations have concluded, or sending emails between HR and line managers which indicate that the outcome of the process has been pre-determined. Such documents are not privileged and will be disclosable in any litigation. At the very least, employers should mark documents "provisional and subject to the outcome of consultations with employees."
  • When an employer is seeking to reduce the size of a team doing the same work, it will generally be unfair at the outset of the process to pick on the weakest performers and simply propose them for redundancy. Rather, it is important to go through a fair selection process. Such a process will involve the employer's coming up with proposed selection criteria, which should be as objective as possible and include both a scoring system and consultation with all those in the team before any scoring is actually undertaken. The employer will also need to build in individual one-on-one consultations with the lowest scorers. Only once that process is completed should employees be dismissed. If there is simply no time for that kind of procedure, we can advise on truncated processes. These are not risk free, but may provide an acceptable compromise in the circumstances.
  • Where the employer is proposing to dismiss twenty or more employees at any one establishment within a period of 90 days, "collective consultations" will be required. (They could also be triggered where an employer makes clear that, if furloughs are not accepted, it will have to make large-scale redundancies). Collective consultations are undertaken with a union recognised in respect of the employees concerned or, if no union is recognised, with specially elected employee representatives. Mandatory information must be given to the union/representatives and consultation is required to cover certain core matters. No dismissals should be carried out for 30 days to allow time for proper consultations. The 30-day period is extended to 45 days if 100 or more employees are proposed for redundancy. The fact that an employer has consulted with employee representatives does not excuse the employer from conducting individual consultations before dismissals are made.
  • "Special circumstances," such as a sudden and significant loss of custom, or some other imminent threat to the business, may provide a defence for an employer who fails to comply fully with the rules on collective consultation. Such a situation may, for example, be created by the ongoing coronavirus pandemic. However, even if special circumstances exist, the employer is still required to take reasonably practicable steps to consult, even if it ends up being a somewhat short-form process.
  • Employers must notify the government of any contemplated collective redundancies within the mandatory time limits. It is a criminal offence to fail to do so.
  • Even if the employer is not minded to implement redundancies at a point when it can take advantage of the government's job retention scheme, employers will need to bear in mind all the above principles if redundancies are required after the government scheme comes to an end and work levels are not quickly restored.

Other support available from the UK government

The government has proposed a host of additional measures to support businesses at this very difficult time. These include allowing businesses to defer VAT; business rates holidays in certain sectors; a Coronavirus business interruption loan scheme for small- and medium-sized enterprises with a turnover of no more than £45m per annum; a Covid-19 Corporate Financing Facility for larger companies; and an HMRC-operated time-to-pay service for businesses in financial distress facing outstanding tax liabilities.

The measures most relevant to those with HR responsibilities relate to a new right for eligible workers to take time off for emergency volunteering, and reforms to the statutory sick pay scheme to help those impacted by coronavirus.

Volunteering Leave

  • In relation to volunteering leave, the Coronavirus Act 2020 provides a right for workers to take unpaid leave to volunteer to help support health and social care services. The right does not apply to those working for organisations employing fewer than ten employees.
  • To avail themselves of the leave, the worker must obtain a certificate from "an appropriate authority" and provide their employer with at least three days' notice.

Statutory Sick Pay

Reforms here include:

  • permitting UK-based employers who employ fewer than 250 employees to reclaim up to two weeks' statutory sick pay for each eligible employee who has been on sick leave due to coronavirus;
  • making SSP available immediately rather than after a waiting period;
  • providing that employees who are now in self-isolation due to coronavirus in accordance with guidance produced by Public Health England, NHS National Services Scotland, or Public Health Wales in place on 12 March 2020, will be deemed incapable of work and will be eligible for SSP; and
  • employees in isolation and who cannot work due to coronavirus will no longer need a GP's fit note in order to claim SSP. Instead, they can apply on-line for "an isolation note" from NHS 111 to support their application.

The issue of whether employers can compel reluctant employees, who fear contracting or inadvertently spreading the virus, to come to work remains a hotly debated topic. This will involve considerations of whether the work is classed as critical, whether it can be performed from home, and whether the employee is vulnerable. However, any employer thinking of requiring employees to come into work needs to carefully consider their duties of health and safety to their staff and their responsibility to wider society.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

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