What is a “furloughed employee”?

The short answer, in relation to the current COVID-19 crisis, is an employees that would otherwise have been laid off due to the virus-related economic downturn but is retained by the employer. Although the term is in fairly common usage in the US, albeit in a slightly different context, it has been brought to prominence in the UK as part of the Chancellor’s package of measures to try to ensure the stability of the UK economy in the face of the disruption caused by the virus. The Scheme is designed to reward employers who keep their employees on the books during the COVID-19 crisis by offering a significant wage subsidy.

The term applies to those who are not working but are “furloughed” and kept on payroll, rather than being dismissed. In such a situation, the employee will perform less or no work for the employer.

Under the Coronavirus Job Retention Scheme, the government will underwrite 80% of the salaries of workers employed by all UK entities if those have to be temporarily laid off. This applies for a period of up to 3 months, starting from 1 March 2020, up to a cap of £2,500 per month per individual. It is not clear whether directors and shareholders of owner-managed companies can put themselves ‘on furlough’, or how it affects zero hours workers, although the government is currently indicating this scheme will cover as broad a group as possible. Workers and self-employed individuals (independent contractors) are not covered by the Scheme. It is only intended to cover employees registered for PAYE purposes. Additionally, further guidance is required on which elements of an employees’ “salaries” are covered – whether it is just “basic pay” or includes allowances and bonuses paid in a prior reference period, and whether it includes employer pension and national insurance contributions.

An employer will need to designate affected employees as ‘furloughed workers’, and notify them of this change. The government has not informed employers how the new measures will interact with existing employment law, but at the minimum, it will require that the status of the employee is changed.

An employee who is not “furloughed” will, in the absence of a contractual provision which allows their employer to stop or reduce their pay, be entitled to be paid their normal contractual pay. The new provision does not create a legal right to place employees on furlough leave. An employee’s status will be subject to employment law, and what is set out in their contract of employment. If an employer does not have a contractual right to enforce temporary leave, it will need consent to place an employee on furlough leave. If an employer unilaterally places an employee on furlough leave, it runs the risk of a constructive dismissal claim.

It is clearly financially advantageous for an employer to put more employees on furlough leave than it genuinely has to, as it is compensated for 80% of each of their salaries. However, such an act comes with hazards. For instance, if an employer had a team of two, for instance, and placed one on furlough leave with the sole intention of recouping 80% of their salary, and retained them after the expiry of the  Coronavirus Job Retention Scheme, it would be expected that the employee would infer that they were the less valuable to the firm than the other team member. When economic good times come around again, the furloughed employee may feel less beholden to the employer than they would if they had not been placed on furlough leave, and seek to leave when they would otherwise have not. It is a difficult balancing act for an employer, which is likely to be primarily a short versus long term financial one.

The coronavirus is throwing up many unanticipated events, many of which are complex. If you require advice on any aspect of employment law or related issues, including the above, please contact Chris Marshall (cmarshall@meaby.co.uk) on 0207 703 5034.