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In brief

The UK’s Coronavirus Job Retention Scheme (CJRS) has entered its second week of operation, its first week having seen the release of yet more updated guidance. Anecdotally, HMRC’s online portal appears to be bearing up, although some problems have been reported, such as calculations for variable pay. Nevertheless, there remain critical uncertainties within the scheme, which could lead to claims being rejected or (more likely) susceptible to retrospective audit and a demand for reimbursement. Whether you have already furloughed employees or are considering doing so, there are steps to take to mitigate risk, tailored to your organisation’s key objectives.


The CJRS: guidance overload?

The government announced the creation of the CJRS on 20 March 2020. HMRC published guidance on the scheme on 26 March, which it then updated on 4, 9, 15, 17 and, lastly, 23 April.  The Chancellor of the Exchequer also issued an HM Treasury Direction on 15 April, which is the legislative basis for the CJRS. Whilst the guidance has clarified some of the grey areas in the CJRS, the Treasury Direction raised some new issues. Regrettably, the guidance and the Direction contradict each other in several key aspects. In principle, the Direction takes precedence, but there are strong reasons to suspect that HMRC will apply the guidance, not least because there have been two updates to the guidance since the Direction was published and one would assume the guidance represents HMRC’s current approach to the scheme. Nevertheless, choosing which of the two documents to follow will be determined by an organisations’ particular circumstances and risk appetite.

What has changed in the 23 April update to the guidance?

The 23 April update has added information to the sections on employee agreement and clarified issues on the ability to re-hire former employees who had worked under fixed-term contracts. It also explains more the eligibility dates requirements. We give more information in the relevant sections below.

Is consent required, and does it have to be in writing?

Departing from the first four iterations of the guidance, the Treasury Direction provides that employees can only be furloughed under the CJRS where they have given their written agreement to cease all work in relation to their employment.

The latest iterations of the guidance require the employee to have been furloughed in accordance with employment law, but does not require the employee to confirm consent in writing. The only written requirement is a notification to the employee that they have been furloughed. This leaves the door open to alternative methods of agreement such as, reliance on a contractual right to lay off, oral agreement or implied consent. In addition, the last version of the guidance (23 April) has confirmed that a collective agreement with a trade union would be sufficient.

Practically, at the very least, employers should provide a written notification of furlough, and the safest approach is to obtain employees’ written consent. Employers who have already furloughed their staff and not sought written consent in reliance on the wording of the CJRS guidance should consider whether to contact employees now to obtain their written consent, given the wording of the Direction.  This may not be practicable in all cases and employers will need to evaluate the risks and options based on their individual circumstances.

What salary that can be recovered from the CJRS?

The Treasury Direction and CJRS guidance remain inconsistent in their approach to calculating how much salary can be reclaimed under the CJRS, particularly on whether variable elements such as commission, overtime, shift premia etc. are recoverable. This is a very complicated area and the consequences of getting that calculation wrong is that the employer’s ability to obtain, or retain, a CJRS grant may be jeopardised. Employers that have variable compensation packages are strongly advised to seek legal advice.

How does sickness absence affect a CJRS claim?

The latest iterations of the CJRS guidance state that becoming sick while on furlough does not automatically end the furlough period for the purposes of the CJRS grant; an employee can remain classified as being on furlough and receive CJRS-subsidised furlough pay. What is not permitted, however, is the payment of both furlough pay and statutory sick pay (SSP). The employer must elect which one to pay. However, the Treasury Direction states that the furlough period cannot begin where SSP is payable or liable to be payable in respect of an employee. This would suggest that an employer cannot furlough an employee until they are better or in a position when they no longer qualify for SSP. This would generally also be applicable to employees on company sick pay because it is likely that they would qualify for SSP during the same period. Given the inconsistency between the Treasury Direction and CJRS guidance, the safer option would be for employers to furlough employees once they are better or they no longer qualify for SSP, pending any amendments to the Treasury Direction.

An additional complication in this area is the position of shielding employees. Legislation was implemented on 16 April 2020 to extend SSP eligibility to shielding employees. This is a group of about 1.5 million “extremely vulnerable” individuals who the government has written to and advised that they should self-isolate for 12 weeks. The extension of SSP eligibility to them would suggest that they cannot be furloughed whilst they are shielding following the wording in the Treasury Direction, although this is in direct contrast to the CJRS guidance and the explanatory memorandum to the Regulations, and may be unintentional.

By way of reminder, small employers that are paying SSP might be able to claim back some of those costs separately to the CJRS process. Organisations that employ less than 250 employees are entitled to claim back from HMRC up to two weeks’ SSP for employees who are suffering from Covid-19 or who are self-isolating in accordance with Public Health England’s advice. HMRC guidance on the claim back process states, among other things, that employers should retain SSP documentation for at least 3 years following a claim. It is not yet clear when the scheme will open.

Can employee take annual leave while on furlough?

There are two issues here: (1) If an employee chooses or is required to take annual leave while on furlough, does that affect entitlement to the CJRS grant? (2) How do the normal principles governing holiday entitlement and holiday pay apply? Is it conceptually possible to be on holiday and furlough at the same time?

The Treasury Direction and the guidance can only answer question 1. The Direction is silent on the point. However, the more recent guidance does now deal with it in part. It confirms that an employee can choose to take their holiday during furlough without jeopardising the CJRS grant (although it also says the position on holiday pay will be kept under review, leaving open the possibility of future changes). However, it is silent on whether the employer can require the employee to take holiday. On the second question, there are similarly no certain answers on whether the employer can require holiday to be taken.

Employers need to make risk-informed decisions, balancing the risks of claims that holiday on furlough does not count towards statutory entitlement against the potential business disruption of large accrued amounts of untaken holiday entitlement. Where an employee does take statutory holiday entitlement on furlough, they are entitled to full pay.

How is furlough pay for maternity leave returners calculated?

The CJRS guidance clarifies that where an employee is furloughed following a return from maternity leave, their furlough pay is based on their pre-maternity leave pay. However, we do not consider that the Treasury Direction mirrors this position, as drafted. Employers intending to furlough maternity leave returners should seek legal advice before doing so.

Who is now covered by the CJRS?

Eligibility to the CJRS has been widened to employees who have been furloughed and were on the employer’s PAYE payroll on or before 19 March 2020 and which were notified to HMRC on a real time information submission on or before 19 March 2020. HMRC had previously received a lot of criticism for setting the cut-off point at 28 February as that prevented employees who had changed jobs since then from being able to be furloughed by their new employer. The change to 19 March 2020 has also been adopted in relation to employees that have been re-hired by their former employer and those that have transferred to a new employer under the Transfer of Undertakings (Protection of Employment) Regulations (“TUPE”).

What is the position in relation to fixed-term contracts?

The 17 April update to the guidance strangely appeared to introduce a rule that fixed-term employees whose contracts were not renewed before 19 March 2020 could not be re-employed for the purposes of placing them on furlough, contrary to the position for permanent members of staff who left before 19 March (assuming they were still employed on 28 February). However, the 23 April update has confirmed that fixed-term employees can be re-hired, provided they were on the payroll on or before either 28 February or 19 March 2020. The only exception is employees who started and ended the same contract in the period between 28 February and 19 March.


Rachel Farr is a Knowledge Lawyer in Baker McKenzie's London office.


Mandy Li is a Knowledge Lawyer in Baker McKenzie London office.


James Brown is a Knowledge Lawyer in Baker McKenzie's London office.