Where next for furlough: Coronavirus Job Retention Scheme issues

Where next for furlough: Coronavirus Job Retention Scheme issues


CategoryNews, Articles Author Katherine Apps Date

The scale of the government’s furlough scheme (“CJRS”), announced on 20 March 2020, has been enormous. As of 14 June 2020, approximately 9.1 million jobs from 1.1 million employers were furloughed in the UK.

This note discusses some of the topical legal issues which arise under this scheme.

Basis of the Scheme

Most unusually, the CJRS is a scheme of entitlement where the announcements have usually significantly pre-dated the enactment of the legal basis for the scheme itself.  The statutory underpinning for the scheme is found in sections 71 and 76 of the Coronavirus Act 2020 and two published Treasury Directions (of 15 April 2020 and 20 May 2020).

The Treasury Directions tack the CJRS onto the existing mechanics of the PAYE scheme, enabling it to be administered by HMRC directly into employer’s payroll systems. This necessarily meant that the mechanics utilised the taxation concept of “employment” rather than the broader definition of a statutory worker used in employment law for rights such as the national minimum wage, holiday pay and working time.  This led to the first judicial review challenge to the CJRS, as discussed below.

Tapering

On 29 May 2020 the Chancellor announced the tapering of this scheme. There is, as yet, no updated Treasury Direction.

The announcement gave the following timetable.

  • June and July: The government will pay 80% of wages up to a cap of £2,500 as well as employer National Insurance (ER NICS) and pension contributions. Employers are not required to pay anything.
  • August: The government will pay 80% of wages up to a cap of £2,500. Employers will pay ER NICs and pension contributions – for the average claim, this represents 5% of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • September: The government will pay 70% of wages up to a cap of £2,187.50. Employers will pay ER NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 14% of the gross employment costs the employer would have incurred had the employee not been furloughed.
  • October: The government will pay 60% of wages up to a cap of £1,875. Employers will pay ER NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500. For the average claim, this represents 23% of the gross employment costs the employer would have incurred had the employee not been furloughed.”

The August deadline is, therefore, the date on which businesses will begin to need to pay staff. The announcement has triggered the commencement of redundancy consultations in many businesses. Those who will be covered by the collective redundancy consultation regime under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, the window potentially poses a tight deadline (30 days for those dismissing between 20-99, and 45 days for those dismissing 100 or more in a 90 day period).

Insolvency and administration

One of the early issues to emerge was the question of whether administrators of a company which has entered administration could put staff on “furlough” without adopting their contracts of employment.

The Court of Appeal in Debenhams Retail Ltd [2020] EWCA Civ 600 held that they could, thus saving the jobs of many thousands of workers whose employers entered administration during the Covid-19 lockdown.

The tapering of the scheme will pose a practical dilemma for the administrators. Although enrolling in the furlough scheme was not adoption, paying employees wages is much more likely to be. It introduces a short “crunch time”:

  • Do the administrators adopt contracts of employment?
  • Is a rescue of all of part of the business possible, effecting a TUPE transfer with modified rights under regulation 8(6) of TUPE possible for all or part of the business as to whether to adopt contracts of employment ?
  • Will there be a need collectively to consult on redundancies?

One of the questions left undecided following Debenhams, and the decision of Snowdon J in Re Carluccio’s Limited [2020] EWHC 886 (Ch) was the basis on which administrators paid out the funds provided by HMRC through the CJRS to employees.

  • Snowden J (at [55] and [112] suggested that paragraph 66 of Schedule B1 to the Insolvency Act 1986 could be used
  • In Debenhams it was also suggested that para 99(5) of Schedule B1 of Insolvency Act 1986 applies, but Richards LJ suggested paragraph 66 would be the “most appropriate.”

The basis for the payment could have important consequences for the rights that transfer (and those which do not) were there to be a rescue transfer. Would they be “wages” or not under Part XII of the Employment Rights Act 1996? (see Graysons Restaurants [2019] EWCA Civ 725).

The first CJRS Judicial Review

A Divisional Court of the Administrative Court gave judgment in the case of R(Adiatu) v HM Treasury  [2020] EWHC 1554 (Admin) on 15 June 2020, rejecting the first judicial review claim to the CJRS.

The challenge had been brought by a driver for cab app Uber and the Independent Workers Union of Great Britiain. Mr Adiatu is not eligible to apply for Universal Credit due to his immigration status.  He is a “worker” for the purposes of the Employment Rights Act 1996 definition (and minimum wage and holiday pay) but is not an employee for the purposes of taxation.  He cannot access the alterations to statutory sick pay, or benefit from the Self Employed assistance program, SEISS, either. He challenged the lawfulness of:

  • His exclusion from the CJRS and Statutory Sick Pay;
  • The CJRS scheme under the Human Rights Act 1998;
  • The government’s compliance with the public sector equality duty under Section 149 of the Equality Act 2010.

In the course of a 266 paragraph judgment, each of his grounds failed.

The judgment provides an in depth description of the operation of the scheme and also the manner in which challenges to Covid-19 measures will fall to be determined.

The following principles are highlighted:

  • Standing/ alternative remedy: The potential for Mr Adiatu to bring an Employment Tribunal discrimination claim did not give rise to any lack of standing for the judicial review [136]-[138]. It would not have been an alternative remedy.
  • Human rights margin: The human rights challenge fell to be determined against manifestly without reasonable foundation standard. The CJRS challenge could not meet that standard, or even a stricter standard wide margin because “The essential feature of the JRS is that it is a payment to employers to support continued employment. We accept that its scope involved very difficult decisions as to the balance between the interests of maintaining employer/employee links and supporting employees on the one hand; and the need to encourage people back to work, not to prop up unviable businesses and not to create unsustainable public debt on the other” (at [77])
  • EU equality law/ EA 2010 margin: The government in designing the CJRS scheme was entitled to a wide margin of appreciation in EU equality law (at [175]- [179], [189]). This requires only that the aims be “at least rational” and “it must be reasonable to take the view that the means adopted may be appropriate to achieve the aims.”
  • PSED: Under the public sector equality duty:
    • It is possible to bring a PSED challenge to decisions preparatory to laying delegated legislation but not primary legislation (at [229] and [236]);
    • The public authority need only have regard to the equality implications of the steps it intends to take, not the steps it does not intend to take (at [242]).

Further legal challenges?

The Adiatu case says nothing about the decision to taper the scheme. Given the business critical nature of this scheme to many businesses it is possible that others might seek to challenge any new Treasury Direction, once published. There will be lots of eyes “watching this space” and wondering how wide that margin of discretion is when applied to a wind down of Covid-19 protective measures, rather than their introduction.


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