This is a truly exceptional and unprecedented time for all organisations, and you will already be thinking about the measures that you may need to implement in order to safeguard the future of your business. Taking steps now, even as a contingency, could be crucial in getting through this challenging period.

We have outlined below some of the options that exist in a situation of this nature:

GOVERNMENT SUPPORT – announcements are being made daily about various financial measures introduced by the Government, whether it be an opportunity to recover Statutory Sick Pay or grants and loans to help businesses during this critical period (Government link here). Utilise these to the fullest extent and communicate any impact on your business, with your staff.

LAY OFF – not to be confused with redundancies but lay off refers to a situation where an employer provides employees with no work (and no pay) for a period while retaining them as employees. They are effectively on unpaid leave for a temporary period. This is a measure often used when the downturn in work is expected to be short-term. Ideally the right to lay off is set out in the contract of employment and if it isn’t, generally speaking you would need the consent of the employees concerned. There are significant legal implications if you impose this measure without consent. Note also that after 4 weeks, an employee has the right to seek a redundancy payment, with the effect of bringing their employment to an end.

SHORT TIME WORKING – is where you ask an employee to reduce their contractual hours, again for a temporary period of time, with a corresponding reduction in pay. For example, asking somebody to work 3 days a week, instead of 5, and reducing their salary accordingly. The same principle as above applies here in respect of having the contractual right to do so and needing consent in the absence of that.

TEMPORARY SALARY REDUCTIONS – it is open for you to ask employees to consider a temporary reduction of pay to help the business navigate through the next few months. This would clearly need the consent of the employees concerned and would be open to discretion as to the amount of the reduction, and for how long. For example, the top earners could take a pay reduction of 20% and the lower earners, 10%. You also have the option to offer to make up the shortfall at a later point.

COLLECTIVE REDUNDANCIES – if you are proposing to make 20 or more employees in the same establishment redundant, within a 90-day period, it will trigger collective consultation obligations which has additional legal implications. In particular, there is a minimum period of consultation that ordinarily must be observed and a financial penalty if this is not met. Likewise, there will be consultation obligations if you are proposing to change terms of employment. This is a complicated and very technical area and one where legal advice should definitely be sought.

REDUNDANCIES – it is obviously open to a business in these times to consider making employees redundant. The difficulty with a situation like this is that it could be a hasty and premature step if this turns out to be a short-term crisis. The problem is that these truly are unchartered territories for businesses in the UK and indeed, around the world. From a legal perspective, employees with less than 2 years’ service have no entitlement to a statutory redundancy payment and provided their dismissals take effect at least a week before they accrue 2 years’ service and are due to redundancy, they will have no right to claim unfair dismissal. For employees with over 2 years’ service, they have a right to claim unfair dismissal which means that you will generally need to consult and comply with the legal requirements of carrying out a fair redundancy.

SICK PAY – there is currently ambiguity about whether employees who are self-isolating are entitled to paid sick leave. If an employee is unwell, then the situation is relatively straightforward – your normal sick pay rules should apply. If somebody is self-isolating on the basis that they have chosen to do so, but are fit and able to work, then it is arguable that they are not entitled to sick pay. The Government has however indicated that employees who are isolating as a result of adhering to their advice, or advice from a GP / NHS 111, will be eligible for Statutory Sick Pay. For some businesses, Statutory Sick Pay can be recovered for up to 14 days where covid19 related. Further details are pending. This may also be a time to review your occupational sick pay scheme and how that might apply in the context of this situation.

HOLIDAY – as a means by which to mitigate the financial impact this situation will have on your employees, there is the option to ask employees to consider utilising some of their holiday entitlement during periods when they might otherwise be laid off without pay. You would need to consider what accrued entitlement exists and again ideally obtain the agreement of the employees concerned.

OFFERS OF EMPLOYMENT – in addition to a recruitment freeze, you may also want to consider whether to withdraw offers of employment or alternatively defer the start date. This is important in the context of redundancy, as a business is under a duty to consider whether it has any suitable alternative employment. If offers have been made, but not accepted, these can be withdrawn with minimal implications. If offers have been made and accepted, they can still be rescinded albeit with the potential for a damages claim, arguably limited to the period of notice that would have applied once their employment had commenced.

In our experience, a key issue in respect of the above is regularly communicating with your employees and being open about the reason for the measures you are introducing.

As you will appreciate, whilst we have outlined options and some of the legal implications, this note does not constitute legal advice as each situation will be different and commercial considerations will no doubt dictate what you as a business ultimately decide to do.

Sherrards is here to support you should you need specific assistance.

Click here to contact Mark Fellows, to find out more. 

As of 4 April, the Government issued some further guidance regarding the Job Retention Scheme and whilst it has provided welcome clarification on a number of matters, it has still not addressed the issue of how annual leave will be treated in respect of those employees on furlough leave. As we approach Easter, where holiday is regularly taken (including 2 bank holidays), the need for confirmation is becoming more pressing.

We consider the main queries being raised below.

Does annual leave entitlement continue to accrue during furlough leave?

Furlough leave is an entirely new concept to UK employment law. However, the prevailing view appears to be that it is highly likely that annual leave will continue to accrue during any period of furlough leave. This makes a lot of sense, since the Government guidance is that an employee on furlough leave remains employed and the contract of employment remains in force.

Can an employee actually be on annual leave during a period of furlough?

Currently it is unclear from Government guidance whether an employee can be on both annual leave and furlough leave simultaneously. If furlough leave was viewed in the same way as statutory maternity leave, for example, then the answer would be no! However, whilst the Government have clarified certain other matters relating to the correlation between furlough leave and other statutory leave, they have not explicitly indicated that annual leave cannot be taken during a period of furlough.

If employees can be both furloughed and on annual leave at the same time, the next question for employers will be, what rate of pay will apply during this period of leave? Is it 80% of an employee’s earnings (subject to the cap applicable under the furlough scheme) or is the employer required to top this up to 100%? Further, can the employer still claim 80% under the retention scheme for any period of annual leave taken during furlough leave, or does it have to account for the full amount?

The answer is that we just don’t know, but we do expect the Government to confirm this shortly.

If an employee can be on annual leave during a period of furlough, can an employer force an employee to take annual leave during this period?

Technically, it is open to an employer to give notice to an employee requiring them to take statutory holiday on specified dates under the Working Time Regulations 1998. However, an employer should be aware that any such notice must be at least twice the length of the period of leave that the employee is being ordered to take i.e. if an employer would like their employee to take 2 weeks annual leave, they would need to give them at least 4 weeks’ notice.

Despite the above, there is also the ethical issue associated with forcing an employee to take annual leave during a period of furlough. Furloughed employees are prohibited from working anyway, and given the current lockdown restrictions, few employees will be enamoured about being forced to take annual leave from their entitlement and this may cause unrest.

What happens if the employee asks to take annual leave during a period of furlough leave?

It is difficult to imagine why a furloughed employee would want to take annual leave during the furlough given they are not working anyway and cannot travel. However, it is possible that some employees will seek to use annual leave as a basis to increase their income for the period of annual leave, on the assumption that they would be entitled to full pay for this period.

Interestingly, Acas guidance published on 2 April 2020 suggests that furloughed employees can still request and take holiday in the usual way but does not state whether they should be paid their normal remuneration or the furlough rate.

Recent legislative developments

The Government have clearly recognised the practical impact that annual leave accrual will have on a business once we come through this crisis. If an employee continues to accrue their annual leave entitlement during any period of furlough leave, and annual leave is not being taken during a period of furlough (or by employees who are still working for their employer),  the likelihood is that employers will be inundated with holiday requests from employees who are all seeking to take their unused holiday entitlement before the end of the holiday year. In these circumstances, it is easy to see how this could cause serious concerns for an employer, who is trying to kick-start its operations post the COVID-19 pandemic.

The Government has attempted to deal with some of these concerns already by passing emergency legislation, which relaxes the current restriction on carrying over annual leave into the next leave year, with immediate effect.

The Working Time (Coronavirus) Amendment Regulations 2020 permit the carry-over of up to four weeks untaken statutory leave where it was not reasonably practicable to take it in the leave year “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”. Such leave may now be carried over into the next two leave years.

This legislative change should provide reassurance to employers that they will not be inundated with holiday requests once any period of furlough leave comes to an end. It should also allow employers to feel slightly more relaxed about employees continuing to accrue holiday entitlement during furlough leave, as employees will now be able to spread this entitlement over the next two leave years.

However, some uncertainty remains and further clarity from the Government is currently awaited in respect of whether employees can be both furloughed and on leave at the same time and if so, what rate of pay will apply.

To find out more, please contact Mark Fellows. 

Until a few weeks ago, the concept of “furloughing” staff was a foreign one for UK employers. Now, however, it’s the hot topic on everyone’s lips. As you are probably aware, the furlough provisions are part of a range of measures introduced by the Government to help businesses cope with the impact of the COVID-19 pandemic, and allow employers to temporarily suspend staff and reclaim some of their pay from HMRC.

Unfortunately, employers and lawyers alike are having to deal with an ever-changing playing field, as they attempt to digest and interpret various iterations of guidance from the Government and HMRC – some of which even appears to directly contradict itself.

We are now in mid-April and the Guidance on the furlough scheme has had its fifth update. We also now have a Treasury Direction which sets out the legal basis of the scheme. Many of us are not used to interpreting legislation in this format – however, this is likely to be the only legislative provision we have.

There are a couple of key points arising from the Directive and latest Guidance:

• The furlough scheme (known as the Coronavirus Job Retention Scheme, or CJRS) has been extended to the end of June. The scheme was initially due to run until the end of May (with the possibility of an extension) but it is likely that the early extension has come about because of concerns that, if the scheme ended on 31 May as indicated, employers who are proposing to make more than 100 redundancies after the protection of the scheme had been removed would need to start a 45 day collective consultation period no later than 18 April. This extension buys everybody a little bit more time before such decisions have to be made.
• The CJRS scheme has also been extended so that employees who were on an employer’s payroll on 19 March 2020 (previously 28 February) can be considered for the furlough scheme. This might, however, not be quite the good news that it appears to be as the Guidance also talks about the fact that the employer must have notified HMRC of their payroll on an “RTI” (real time information system) on or before 19 March. For employers who run a monthly payroll towards the end of the month, employees who were not in the February payroll would likely not be on the RTI report until after the 19 March cut off point.
• HMRC have announced that the portal to lodge claims for reimbursement will be opened on Monday, 20 April 2020. They have produced a step-by-step guide for claiming on the portal, including all the information employers will need to have to hand, (www.gov.uk/government/publications/coronavirus-job-retention-scheme-step-by-step-guide-for-employers), as well as a guide on how to work out 80% of an employee’s wages (www.gov.uk/guidance/work-out-80-of-your-employees-wages-to-claim-through-the-coronavirus-job-retention-scheme).
• Some confusion has arisen following the publication of the Directive, which states that, in order to be furloughed, the employer and employee must “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”. This seems to be at odds with the previous Guidance which stated that the employer merely needed to write to the employee “notifying them” that they had been furloughed. The concept of “agreement” is therefore a new one. This confusion has been further compounded by the most recent iteration of the Government’s Guidance, which post-dates the publication of the Direction, which states: “employers must confirm in writing to their employee confirming that they have been furloughed… There needs to be a written record, but the employee does not have to provide a written response.” Employers who have relied on implied consent may, therefore, need to consider whether they now seek express agreement in light of the Direction. We will consider this further in a separate Q&A article, and set out the employer’s options in this scenario.
• The vexed question of annual leave while on furlough has also been addressed in the Employees’ Guidance (but not in either the Employers’ Guidance or the Directive). The Guidance confirms (unsurprisingly) that furloughed employees will continue to accrue annual leave. It also states that holiday can be taken while on furlough, although it goes on to say that the employer should pay the employee their usual holiday pay in accordance with the Working Time Regulations. This means that employers are obliged to “top up” the 80%/£2,500 furlough pay in order that the employee receives their proper holiday pay. The Guidance also confirms that employers are able to restrict when leave can be taken (or, presumably, by extension that they can insist on leave being taken). Interestingly, the section of the Guidance concludes by saying that, “During this unprecedented time, we are keeping the policy on holiday pay during furlough under review,” meaning that the position could change yet again (and more uncertainty may arise from employers/employees relying on guidance which is subsequently changed).

To find out more, please contact Mark Fellows. 

What is clear from the Government’s latest furlough announcement is that from August 2020 they will be asking employers to start to share the burden of paying furloughed employees on a staggered basis.

What this means in practice is:

• Up until the end of the July 2020: The Government will continue to pay 80% of wages up to a cap of £2,500, as well as employer National Insurance and pension contributions.
• From August 2020: The Government will pay 80% of wages up to a cap of £2,500. Employers will be required to pay employer National Insurance and pension contributions.
• From September 2020: The Government will pay 70% of wages up to a cap of £2,187.50. Employers will pay employer National Insurance and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
• From October 2020: The Government will pay 60% of wages up to a cap of £1,875. Employers will pay employer National Insurance and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.

What is “flexible furloughing”

From 1 July 2020, businesses will be given the flexibility to bring furloughed employees back into the workplace on a part time basis.

Up until now, employees had to be furloughed for a minimum of 3 consecutive weeks. However, from 1 July, employers will only need to report and claim for a minimum period of one week. This is different to the previous position under the scheme, as whilst the minimum claim period is now 1 week, the employee does not appear to have to be furloughed for that entire week.

The aim is to help bring people back into the workplace on a flexible basis, with businesses able to decide the hours and shift patterns their employees will work on their return. Broadly, it appears that from 1 July, employers will be able to claim a pro rata’d amount of salary, based on the proportion of the employee’s normal working hours which are spent on furlough during that period.

Of course, employers will also be responsible for paying their employees’ wages while they are in work and not on furlough leave and so this strategy ultimately depends on whether the business has enough work for its employees to do, in order to justify bringing them back into the workplace.

Important dates and points to note:

• The job retention scheme will close to new entrants from 30 June. From this point onwards, employers will only be able to furlough employees that they have furloughed for a full 3 week period prior to 30 June.
• What this means in practice is that the final date by which an employer can furlough an employee for the first time will be 10 June, in order for the current 3 week furlough period to be completed by 30 June.
• Employers will have until 31 July to make any claims in respect of the period to 30 June.
• Further guidance is said to be expected from the Government on the 12 June 2020.

To find out more, please contact Mark Fellows. 

With the Coronavirus Job Retention Scheme (the Furlough scheme to you and me) coming to an end on 30^th September 2021 (*as it stands…Rishi, any update?), the vaccination program in full flow, the children happily returning to school (absent the dreaded ‘bubbles’) and staff going back to work, you would be forgiven for thinking that normality beckons.

Whilst this is all a positive step forward for the economy, and frankly much needed, it will inevitably open up a number of additional considerations for employers given what is still a challenging period. We outline below some things to consider:

• The End of Furlough – decisions will need to be made about those employees on furlough. If the employer can bring them back, then those conversations should be happening imminently. If sadly there is a need to consider making redundancies, again the process should be instigated now to allow for the necessary period of consultation. A common misconception at the moment is that the redundancy is a given because the employee has been on furlough – that does not follow, and it is still necessary to meet the legal test that the role is no longer required.

• Risk Assessment – for the workplace, it is hugely important that existing risk assessments are revisited, and new assessments undertaken considering the guidance, particularly in respect of social distancing and the new isolation rules. What the risk assessment should cover will vary depending on the nature of your work and work environment. The HSE have a handy template and guidance for Covid risk assessments, click here for the template. Employers can also use the Governments online tool, click here  for more information.

• Don’t mention the…Vaccination – well, you can, because of course the new isolation rules take into account whether somebody has been vaccinated. However, just be wary that this is likely to be a sensitive and potentially controversial issue. There is already a challenge to new legislation making the vaccination compulsory for those who work in care homes and in other sectors, some employers are applying their own conditions and requirements about staff being double jabbed. For us employment lawyers this whole area makes us twitch, considering the potential for discrimination claims right through to GDPR compliance. It is an entire topic in itself and is one to discuss with your twitchy employment lawyer.

• It is good to talk – the need for communication has never been more important, as we enter a new phase of safe working practices, hybrid working and that awkward moment when you don’t know if to shake a hand, fist pump, elbow bash or even go completely off piste and embrace. Keep staff in the loop not just about the changes being implemented within the workplace, but why they are being implemented.

There is no “one size fits all” solution to these matters and that is not us simply rolling out that old legal cliché. It is without doubt a matter for each employer to consider, in the context of their business and the staff they employ.

To find out more, please contact Mark Fellows. 

Temporary Suspension of Wrongful Trading until 31 May 2020: a limited breather for directors of UK companies

In response to the COVID-19 crisis, the UK Government announced on 28 March 2020 that it intends to amend insolvency law to suspend the offence of wrongful trading by directors of UK companies. At the time of drafting this article, we are still waiting for the exact terms of the proposed new regulations.

The suspension of the offence of wrongful trading is intended to ensure that, in the current uncertain COVID-19 environment where many businesses may be nearing insolvency, directors are able to take decisions to continue to trade and incur additional debt, including under the new government funding initiatives, without the threat of potential personal liability in respect of wrongful trading should the company ultimately fall into insolvency.

Directors have become increasingly concerned about the risk of personal liability that can arise in respect of wrongful trading. Under current legislation a director can be liable if they are found to have continued trading a business and did not minimise losses to creditors at a time when they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation or administration.

The measure is aimed at giving companies a breathing space and avoiding premature insolvencies by allowing directors to keep businesses going without the threat of personal liability.

What is the current legislation?

The current insolvency rules provide that if directors allow their limited liability company to continue to trade while insolvent or where liquidation becomes unavoidable, then they can become personally liable for business debts.

Under the wrongful trading provisions, a company director has a duty to take every step to minimise potential loss to the company’s creditors upon concluding that there is no reasonable prospect of the company avoiding insolvent liquidation or administration.

The court may order a director that is found liable of wrongful trading to make a personal contribution to the company’s assets in the amount the court thinks proper in light of the loss suffered by the company’s creditors. Any award is compensatory in nature and only arises if the company is worse off as a result of the continuation of trading.

These rules are often the trigger for directors claiming formal insolvency proceedings, in order to minimise the risk of incurring personal liability. Click here for the latest guidance.

What is being changed

In response to the COVID-19 crisis, the UK Government announced that the wrongful trading provisions would be temporarily suspended for three months with retrospective effect beginning from 1 March 2020 until 31 May 2020; and that the end date could also be reviewed thereafter.

The new measures do not modify the existing regime on directors’ duties. When taking on new debt whether under the government schemes or otherwise, directors should ensure that they meet their general duty to act in the way they consider, in good faith, to be most likely to benefit the company members as a whole, or, when there is a heightened risk of insolvency, to instead act in the interests of the company’s creditors.

Once a company enters formal insolvency proceedings, the directors’ duties will be owed to the company’s creditors instead. It is at this point that the suspension of the wrongful trading provisions will have a practical effect by removing the threat of personal liability where company directors elected to continue to trade in good faith using their best endeavours despite the company facing a high risk of entering insolvent liquidation.

The limitations to the change

However, this change will not affect the directors’ duties regime and other insolvency law offences such as fraudulent trading, transactions defrauding creditors and misfeasance. These rules remain in force to deter directors from misconduct.

In addition, a director may still be disqualified for wrongful trading under the Company Directors Disqualification Act 1986. The minimum period of a disqualification order is two years and the maximum is 15 years.

The proposal will therefore provide a limited “breathing space” for directors of UK Companies. It is still important for them not to overlook the need to comply with existing laws and mitigate the risk of breaching their duties when exploring options for corporate rescue. Directors still need to ensure that they obtain professional advice and not breach their duties.

To find out more, please contact Paul Marmor.