Status of furloughed workers

Part of the government's response to the Covid-19 situation has been to introduce the Coronavirus Job Retention Scheme, commonly referred to as the 'furlough' scheme. Broadly, the scheme allowed employers to place their employees on furlough on the basis that the government would meet the wages of the furloughed employees up to a cap of £2,500 per month. Originally, employees were not permitted to work at all whilst at home on furlough, but this is being altered effectively on a sliding scale to enable employers to bring furloughed employees back into the workplace from 1 July 2020. From 1 August 2020 the level of grant which employers receive will be reduced each month.

The original idea of the furlough scheme was to give employers who had been seriously financially affected by the Covid-19 lockdown some breathing space. This meant that the employer could retain the employee on the books in the hopes of being able to bring employees back to work as and when business improved. The government has announced that the scheme will close on 31 October 2020.

Employers should all be aware that HM Revenue and Customs (HMRC) is intending to crack down on abuse of the scheme. There have been widespread reports of employees who were on furlough being required to work. However even if firms have not blatantly abused the scheme, HMRC will still look carefully over the coming months at claims to ensure that appropriate amounts have been claimed by employers.

The woes of the department store Debenhams have been widely reported and recently they came before the Court of Appeal which had to decide on the status of some 13,000 furloughed Debenhams employees. An administrator had been appointed to manage the business of the company and the employees were placed on furlough. They accepted that they would receive 80% of their salary (to a maximum of £2,500 per month) and that their income would not be topped up by the administrators.

The Court of Appeal had to decide whether the administrators had adopted the workers employment contracts. This is significant because such adoption would result in the administrator taking on responsibility for payment of sickness and holiday pay which would take priority over unsecured creditors and many other administration costs.

The Court of Appeal concluded that the administrators had adopted the contracts of the furloughed employees.

It is important for any business to ensure that the status of furloughed employees is properly understood, particularly if that business is facing financial difficulties.

To discuss this or any other employment matter, contact us.