What happens after the Retention Scheme ends?


Chancellor Rishi Sunak confirmed in early June that the Treasury will gradually withdraw its job retention scheme which pays employees 80% of their usual wage. The recent announcement from Mr. Sunak provides that from August 2020, businesses must pay employer national insurance and pension contributions for staff they continue to keep on furlough, adding that by October 2020, they must pay 20% of employees’ wage.

As the lockdown is eased, with more non-essential shops and places for worship opening, employers will be faced with decisions to make. Many of which will be dependent upon the ability, and financial status to keep upright of the business.  Unfortunately, for a lot of businesses, these times will be telling and will force many employers to close, leaving a fair share of redundant employees. I sat down with Law Simplified to answer some key questions that employees and employers will have in mind, as we approach the end of Job Retention Scheme.

Can employees remain on furlough leave even when the government scheme has ended?

In theory, yes. The CJRS created a form of lay-off where there was no contractual lay-off provision. As a result, provided employees continue to agree to being furloughed, it would be possible to extend the period for which employees are furloughed. However, employers will no longer be able to reclaim salary or other wage costs from the scheme after it has ended, which will limit its viability.

Can employers keep employees on furlough with reduced terms when the government scheme ends?

Yes, provided employees agree. You would need a new or extended furlough agreement with employees (depending on how the terms of the existing agreement have been framed). This could reduce pay below 80%, or even implement furlough on no pay. Employees may be willing to agree to this as an alternative to redundancy.

If you have a contractual right to lay off without pay, this could be relied on (although such clauses in contracts are quite rare in practice). Lay-off provisions are subject to the implied term of trust and confidence which means, for example, that employers should consult with employees first and give reasonable notice of any lay off to avoid being in breach of contract.

There are also specific statutory provisions which provide a right for employees who have been laid off for four or more consecutive weeks, or six weeks in any 13-week period, to claim a statutory redundancy payment in certain circumstances. However, the scheme does require employees to resign in order to receive their redundancy payment.

The government has extended the scheme in its current form until 31 July 2020. From 1 July, employers will be able to bring employees who have been on furlough back on a part-time basis. From August onwards they will be expected to pay all pension contributions and employer NICs, and from September contribute towards employees’ wages with an increased employer contribution each month. The scheme is due to end altogether at the end of October

What if employees do not agree to an extended furlough period?

Employers may need to look at other options depending on your workforce requirements, as explained below.

Can employees withdraw their consent to being furloughed?

No, not if they have agreed in writing to a specific period of furlough. Employees could refuse to agree to furlough being extended after the initially agreed period has expired.

Can employers reduce hours and pay for employees?

Yes, but ONLY with employee agreement.

If you recognise a trade union for collective bargaining purposes, you may be able to agree the change with the union – depending on the terms of any collective agreement, this may either be binding on all employees or may at least facilitate individual agreement. If there is no union, individual employee consent should be obtained and evidenced in writing (absent clauses permitting you to impose unilateral reductions, which are extremely rare).

If you are seeking agreement before you have formulated any proposal to dismiss 20 or more employees, collective consultation will not be triggered. This means that you must not have formulated a definite plan that is likely to result in dismissals if employees do not agree to the proposed change. If a proposal has already been formulated to dismiss anyone who does not agree, or to force the change through by dismissing and re-engaging if necessary, then collective consultation will arguably be triggered.

Alternatively, if there is a contractual right to impose short-time working this could be used (subject to consultation and notice).

Can employers reduce pay for employees but require them to work the same hours?

Yes – the process is as set out above. It may be more difficult to persuade employees to agree to this. You will need to ensure you explain the rationale, reasons and business cost in detail to minimise employee discontentment.

Not providing enough notice and springing this on to employees may lead to a tribunal claim. Legal proceedings in this area have been piling up ever since the removal of the issue fee for Claimants, however, it seems that the COVID-19 patch will undoubtedly add to the already vast number of employment claims as many employers will assume they know the law and take actions to favour their company, giving rise to an imminent and inevitable Tribunal claim.

What if the employee refuses to agree to the proposed change?

You will need to consult individually with the employee and attempt to explain the reasons and necessity for the proposed change. If the employee still refuses after additional time and further discussion, you may have the option to impose the change by dismissal and re-engagement on the new terms.

A fair procedure must be followed when carrying out the dismissal, and employers should be aware of the risk of unfair dismissal claims, even if the employee accepts re-engagement on the new terms. Dismissal and re-engagement in this way will trigger collective consultation’ requirements where 20 or more dismissals are proposed.

Challenging few months lie ahead for both employees and employers, and it is inevitable that employers will have to make some difficult decisions about their workforce. Tribunals are said to be preparing for a surge in redundancy claims following the end of this scheme. For more about redundancy during and after Furlough, please see here.

Disclaimer: This is a blogging forum tasked with the responsibility of simplifying law, it does not intend for its content to constitute or be used as legal advice.

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