FURLOUGH GUIDANCE CLARIFIES USE OF FURLOUGH DURING NOTICE PERIODS 

For those of you who have been keeping an eye on the recent uncertainties as a consequence of the Third Treasury Direction which was published on 26 June 2020, we have some welcome clarification and certainty following an update to the furlough guidance which was published on Friday 10 July 2020.

Why was there any uncertainty?

There has been some criticism of employers using the furlough scheme to effectively subsidise the cost of making redundancies by issuing notice, retaining employees in employment during their notice period and then terminating their employment at the end of that period.  

Whilst this approach has been criticised by some (including the Aviation Minister, Kelly Tolhurst and the Secretary of State for Work and Pensions, Thérèse Coffey) there was nothing in any issue of the guidance or the Treasury Directions which govern the operation of the CJRS to prevent this.  

Paragraph 2.2

That was until 26 June 2020 the HM Treasury published the Third Treasury Direction governing the scheme.  In it, a new rule was introduced at paragraph 2.2 which appeared to suggest that a claim under the CJRS should only be made where the payment will be used to continue employment. Did this mean that it would be contrary to the purpose of the scheme to use the funds where employment has been issued with notice of termination?  

We say "appeared to suggest" because the wording of para 2.2 was sufficiently vague to make interpretation of its meaning a little tricky.

Clarification issued

Following much debate about the meaning of para 2.2 over the past fortnight and the effect that this may have on a number of redundancy and restructuring processes, the HMRC issued a welcome clarification of para 2.2 in a further update to guidance  on Friday 10 July.  

The guidance clarifies that you can continue to claim furlough payments during the period under which an employee is under notice of termination.  However, you are limited to claiming for the statutory notice period only - not the contractual notice period.  

Let's have a look at a couple of examples.

Employee A

* 1 month's contractual notice period.

* 3 years service.

* You have to give the employee 1 month's notice in accordance with the contract of employment. 

* You therefore issue notice of termination on 1 August 2020.

* The termination date is 1 September 2020.

During their notice period they are entitled to receive their normal contractual pay.  The employer can continue to claim furlough payments for 3 weeks only during the period 1 Aug - 1 Sep.

Employee B

* 1 month's contractual notice period.

* 7 years service.

* You have to give the employee 7 weeks' notice in accordance with the contract of employment and statute. 

* You therefore issue notice of termination on 1 August 2020.

* The termination date is 19 September 2020.

During their notice period they are entitled to receive their normal contractual pay. The employer can continue to claim furlough payments for all 7 weeks  during the period 1 Aug - 19 Sep.

Did you miss our employment law update last week?

You can now access the entire content of our employment law update session using the following links:

Part 1: The Flexible Furlough Scheme in detail

Part 2: Homeworkers, data protection and enabling a safe return to work

Part 3: Case Law Update

Please note that the content of the sessions is as at 8 July 2020.  Specifically, the reference to notice pay and furlough in Part 1 has now been updated as a consequence of the updated guidance issued by the HMRC on 10 July 2020.