UK Coronavirus Update: Seven Points about the Third Direction
On 26 June 2020 the Government published the Third Treasury Direction. This contains the legislative provisions governing the Coronavirus Job Retention Scheme (‘CJRS’). In particular, it implements the flexible working arrangements which are permitted from 1 July 2020 under the Furlough Scheme.
One point to make is that the Treasury Direction is very densely drafted with a significant number of terms, which are defined terms but which are not capitalised as such in the text, a lot of cross references to other provisions of the Direction and with different parts of the Direction applying at different periods. It is not an easy read. Additionally, the Third Treasury Direction uses the term "flexibly furloughed employee" in respect of all employees who are on furlough after 1 July 2020. In other words, it does not matter whether the employee is fully furloughed, or is part working and part furloughed. It is helpful to realise this, both if you have to read the Direction but also in connection with making any claim under the Scheme.
Fortunately, for the most part, the Guidance Notes which were issued before the Direction came out, on 12 June 2020, do a pretty good job of outlining the new flexible arrangements. However, as one would expect, there are a number of points where the Third Treasury Direction approaches matters in a way which is not entirely consistent with the Guidance Notes. Since the Direction is, of course, the primary legislative vehicle, it is important that employers are aware of these points.
1. The purpose of the CJRS and redundancies
New wording has been added to confirm the purpose of the CJRS. Section 2.2 of the Direction now provides "Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made whose employment activities have been adversely affected by the Coronavirus and Coronavirus disease or the measures taken to prevent or limit its further transmission.” There has been commentary as to whether employers could use the furlough grant to run down the employee's notice period, by keeping the employee on furlough whilst the notice period is operative. Our view had been that this was permitted under the Scheme. Although the new wording is concerning at first blush, we do not think that this wording changes that approach. After all, an employee under notice is continuing in employment. However, employers may find that they are criticised if they are making redundancies of employees on furlough, as it is at least arguable that the employer is not really in the spirit of "continuing the employment" of furloughed staff if they are under notice. Crucially, the Guidance Note of 19 June entitled “Can my employer make a claim under the Coronavirus Job Retention Scheme” still states explicitly that employers can make employees on furlough redundant. Accordingly we see this as an employee relations or a PR point for employers rather than a strict legal point but employers should be sensitive to the issue.
2. Employee must actually cease or reduce work to qualify for the Scheme
The Treasury Direction explains that an employer can only make a claim for the furlough grant after 1 July 2020 if it has previously made a "qualifying CJRS claim" on or before 31 July 2020. A qualifying CJRS claim is defined as being a claim made in accordance with the previous Treasury Direction (which applies to the period prior to 30 June 2020) and it is made "in respect of an employee who ceased all work (whether directly or indirectly) for the employer (or a person connected with the employer) for a period of 21 calendar days or more, beginning on or before 10 June 2020". It is now very clear that the test is whether the employee actually did cease all work. It is not enough simply to have instructed the employee not to work. This is echoed in the definition of an employee in respect of whom a furlough claim can be made. In order to make a claim in relation to a particular employee that employee has to both have been instructed by the employer not to work or not to do their full hours (depending on whether they are fully furloughed or flexibly furloughed) but also the employee must do no work or must not work their usual hours in relation to that CJRS claim period. To put this another way, if the employer and employee agree that the employee should not do any work during a period but, unknown to the employer and without the employer's approval, the employee does in fact do some work, that will take the employee outside the scope of eligibility for the furlough grant. Former iterations had raised the possibility that it would have been enough if the employer had instructed the employee not to work, (or the parties had agreed that the employee would do no work), but that door now seems to have been firmly closed.
3. Furloughing sick employees
The very odd provisions in the Second Direction in relation to employees on statutory sick leave have been taken out of the Third Direction. We wrote about the Second Direction in one of our earlier Guidance Notes, but in essence the previous Direction said that individuals on statutory sick pay could not be placed on furlough until the period of sick leave had ended but only where the ending was agreed with the employee. We thought on balance that meant that the employer and employee could agree that the individual would effectively waive their entitlement to statutory sick pay and would instead move to furlough leave. The provisions (originally in section 6.3 of the previous Direction) have been repealed, and have not been replaced with any specific provisions relating to employees in receipt of or entitled to receive statutory sick pay. As such, we think the interpretation we suggested in the earlier Guidance Notes is correct and employees on sick leave can be placed on furlough, but it probably requires their agreement to do so.
4. Employer needs to have submitted a furlough claim to continue after 1 July 2020
The ongoing access to the Furlough Grant Scheme is dependent on the employer having previously made a claim under the Scheme or having at least made one by 31 July 2020 in respect of a period prior to 1 July 2020. Whilst one of the Guidance Notes indicated that the employer had to have "successfully" made a claim before that earlier period in order to be able to claim, the Direction merely references the employer having made a claim in respect of the previous period. This is important because there is, inevitably, a time lag between making a claim and receiving the monies.
5. Employees who can still be furloughed for the first time
Employers have not been able to furlough new employees since 10 June 2020. However, there are two exceptions, one of which we knew about previously from the Guidance Note and one of which is new. An individual who is a family leave returner after 10 June 2020 can be furloughed for the first time. For these purposes a family leave returner is any individual returning from maternity leave, adoption leave, shared parental leave, paternity leave or parental bereavement leave. The new addition is that the employer may also furlough an armed forces reservist employee who is returning to work after 10 June 2020.
6. Consent or legitimate management instruction
We have written before about the issue of whether the employee's consent to being furloughed still raises points. Our last update on the Guidance Notes on 12 June 2020 concluded that the position seemed to have been clarified. The Guidance Note entitled "Check if you can Claim for your Employee's Wages through the Coronavirus Job Retention Scheme" stated "To be eligible for the grant employers must have confirmed to their employee (or reached collective agreement with the Trade Union), in writing that they have been furloughed”, but, in relation to flexible furloughing, the equivalent section provided "If you flexibly furlough employees you’ll need to agree this with the employee (or reach collective agreement with the Trade Union) and keep a new written agreement that confirms the furlough arrangement". The Guidance Note on 12 June 2020 therefore seems to be drawing a clear distinction between flexible furloughing (where you do require specific consent by the employee) and ordinary furloughing (where you did not).
Unhelpfully, the Direction does not take the same approach. First, the Direction just uses the term "flexibly furloughed employee" to cover all employees who are on furlough after 1 July 2020. Secondly, section 13, which defines the agreement that must be in place, does not make any distinction between employees furloughed for their full hours and part-time furloughed employees. Section 13 provides that:
An agreement is in accordance with this paragraph if:
- the employer and employee have agreed (such agreement may be made by means of a collective agreement between the employer and a Trade Union) that:
- the employee will do no work in relation to their employment; or
- the employee will not work the full amount of the employee's usual hours in relation to their employment.
- the agreement (including a collective agreement) specifies the main terms and conditions upon which the employee:
- will do no work in relation to their employment; or
- will not work the full amount of the employee's usual hours in relation to their employment.
An agreement needs to be incorporated into the employee's contract either expressly or implicitly and it must be made or confirmed in writing by the employer.
This is, frankly, rather unhelpful. The Guidance Note of 12 June 2020 clearly indicates that there is a different approach for fully furloughed employees and flexibly furloughed employees. The Direction, since section 13 applies to both fully and partly furloughed employees, eradicates any such distinction. We still think that the employee's consent is not strictly necessary if the contract authorises the instruction to furlough but the position is a little less clear cut than it was originally. On the positive side, this does mean that an employer may be able to rely on section 13 to assert that the employer has the right to furlough an employee flexibly, i.e. to move them from fully furloughed to partly furloughed. As we pointed out in our last update, there seems to be no logical justification for requiring employers to get employee consent for being partly furloughed but not for being fully furloughed.
7. Retrospective consent for furloughing
The other point to mention is that for the first time the Direction addresses when an agreement (including a collective agreement) must be reached. There must be an agreement in place before the beginning of the period to which the CJRS claim relates (section 13(c)). It is expressly stated however, that it is possible to vary an existing agreement during a furlough period. We certainly had experience of employers who had furloughed initially without consent looking to confirm that consent in writing subsequently. It is important to recognise that the guidance on the timing of any agreement to furlough is contained in part 2 of the Third Treasury Direction, and as such only applies to the CJRS in respect of furlough claims for the period after 1 July 2020. Therefore, if an employer originally furloughed employees in March, and then looked to regularise the position during, say, April, by getting express consent from the employee, the new Treasury Direction would not necessarily mean that that exercise of getting consent was invalid.
