What is the future for the furlough scheme?

Richard Yeomans, a partner at London law firm Addleshaw Goddard, discusses what the future might hold for furloughed workers and businesses, as the economy attempts to pick things back up from the coronavirus outbreak.

The Government’s Coronavirus Job Retention Scheme was an emergency response to an immediate problem. 

Something had to be done, fast, to avert the mass redundancies threatened by the lockdown measures – which would have been disastrous not just for the economy, but also politically and socially.

But the scale of take-up has been above all estimates. Some 140,000 companies applied on the first day, it’s estimated up to half of all UK companies have applied, or will do and four million workers are furloughed. 

This is far higher than Treasury estimates. So what does the future hold? 

What should employers be doing? Are there alternatives to furlough? And what happens next?

Was furlough the right thing for businesses?

Furlough was a lifeline for many companies. It bought them breathing space or even survival – in the short term. But it may not be a good fit for some businesses. 

Furlough is conditional on an employee doing no work for at least three consecutive weeks and that may not work for businesses which still need employees to perform some work.

Some organisations may have the option of furloughing only some staff but then they face questions about how they select staff for furlough and they will have to be particularly careful to avoid discrimination. 

Even when employers try hard to do the right thing, they could run into problems; for example, ‘topping up’ the salaries of furloughed workers to full salary might cause resentment amongst those employees still working.

Another option is to choose a ‘rotational’ model; three weeks on furlough followed by three weeks’ work, with different groups switching – this may be seen as fairer as furlough and work is evenly shared. But not all workers are interchangeable in this way. 

In many cases companies really need specific staff to do some work, but on reduced hours. Where this is the case, a move to part-time working is likely to be a better option. But this means no CJRS subsidy which also increases the likelihood of reducing pay.

Can companies force these changes through?

No – not unless they already have a contractual right to reduce hours and pay. Employee consent is therefore usually needed. But we have seen during the last financial crisis – and so far during this lockdown – that employees usually do give consent as long as changes are clearly and openly communicated. 

Generally speaking, employees prefer a cut in salary to the risk of being made redundant, especially in the middle of a crisis.

Should companies be preparing for a return to work?

Definitely. We don’t know when lockdown measures will be lifted, but it looks likely there will be gradual easing rather than a ‘national go-back-to-work day’. So employers should be thinking about what measures they need in place to ensure staff and customers can stay both healthy and productive. 

This forward planning will include issues such as phased returns to work (e.g. which employees are needed back in the office from day one and which can return later), rotational working (i.e. some working from home and some from the office), social distancing at work and staggered start/finish times to avoid peak commuting times.

It will look different across businesses. Some businesses are likely to see an immediate spike in demand (e.g. businesses with pent-up demand – dentists and hairdressers spring to mind) and others will see a more gradual increase in business. Some may find the way they do business, or even their business model, has changed for good.

Companies will also need to be aware of discrimination issues around returning to work. Some groups, like parents with childcare responsibilities, may be unable to return, or return full time, whilst others who belong to vulnerable groups may need to remain in lockdown for longer.

What if business doesn’t pick up again or the company can’t afford to take staff back?

Employers can still make workers redundant during furlough or afterwards. But they need to follow the fair redundancy process or risk unfair dismissal proceedings. If they propose 20 or more redundancies at an establishment, they will also need to collectively consult to avoid further compensation claims. 

HMRC has warned that CJRS grants cannot be used to substitute redundancy payments and that this will be monitoring this closely.

What if companies apply in error?

It is important to read the Government guidance carefully. Whilst initially dealing with huge volumes of claims, HMRC are likely to rely on employers being truthful about complying with the eligibility requirements. 

However, over time, it is likely that HMRC will audit the applications and payments that have been made – and those employers who have not fully satisfied the tests will be required to repay the grant and potentially face penalties. 

Some of the eligibility requirements are not straightforward and there are contradictions between the HMRC Guidance and the underlying legislation – employers should therefore take care when making applications.

What are the longer term implications?

Apart from the broader impact to the economy, it is very likely we will never fully return to ‘business as usual’. For a start we are bound to see greater demands around employee rights, especially areas like flexible and remote working. 

In the past these were often seen as difficult – there has been a cultural shift towards flexible working and the Covid-19 crisis will have magnified that shift as employers and employees have been forced to embrace remote working. 

Both the Conservative manifesto and the draft Employment Bill 2020 pledged to make flexible working easier and it will be harder for employers to insist on traditional working practices when employees have demonstrated that they can work during the lockdown. 

And, going forward, many employers may actively promote such changes, given the opportunity for reduced office space and associated costs.

It is highly likely we will see tensions on employee rights becoming a renewed political battleground. At the same time as disrupting ways of working, the Covid-19 crisis may lead employers to look for a different kind of flexibility; for example, the greater use of zero hours contracts and/or amending contracts to allow them to reduce hours or pay when necessary. 

But this is likely to face resistance from employees (who will value security after the uncertainty of this crisis). It would also conflict with a longstanding agenda across all the main political parties to regularise the treatment of atypical workers – in other words to give them more employment rights. 

If the current Government intends to continue that, it will have to find a way of promoting employee rights that does not place greater burdens – and costs – on businesses, as they try to recover from this crisis.