It is trite to say that the current lockdown is both unexpected and unprecedented; whatever the rights and wrongs of the situation, employers have been facing some difficult and painful decisions without the benefit of clear and comprehensive regulation.

Obviously, any guidance given here is based on the legal position as it is understood at the time of writing, and that is subject to change, amendment and clarification. In addition, we will need to make some assumptions but, where that is the case, it is clearly indicated.

The contract of employment

The legal position in relation to pay in the average contract of employment is straightforward:

  •  It is an unlawful deduction of pay to reduce an employees’ contractual pay, and possibly even to furlough them on full pay, unless you have either a short-time working or lay-off clause in the contract, which is quite rare.
  • The breach of contract could also justify a claim for constructive dismissal in normal times.
  • Thus, if you wish to change the terms of the contract, and in particular to reduce pay, you will need the employee’s consent.
  • Having said that, it is difficult to justify a claim if an employee is sent home on full pay, but if they are missing bonuses and commission, this should be considered as potential loss.
  • It is lawful for the employer to reduce pay if the employee consents, and this will be the way ahead for most employers.
  • This will be particularly important where elements of the contract provide for other benefits that the employee will not now be receiving, such as commission or bonuses, or some non-cash benefits (although it is assumed that most non-cash benefits such as the company car, and medical insurance or life assurance will continue during the furlough).
  • Even without consent, there is a body of law that allows employers to change terms for all or most of their employees. This is usually used where the business is in financial difficulties and the employer needs to reduce costs across the board. It is not going to be difficult for the employer to prove hardship at the moment. If the employer cannot obtain the individual consent of all their employees to the proposed change, it will need to go through a consultation procedure, which is laid out below.
  • There may be other elements of remuneration that are discretionary, such as bonuses and commission that have not yet been declared, and which the employer may be able to remove or reduce without breaking the employment contract.
  • It is, of course, lawful to make redundancies where the business can show that there is a reduction in the need for employees going forward, subject to a consultation procedure and to the payment of redundancy compensation, where the employee qualifies for it. The employee may argue that they ought to be furloughed, but ultimately the decision is for the employer.
  • Most commentators seem to be of the opinion that employers would have to be careful about making redundancies in situations where it was costing them little or nothing to retain staff because of the furlough scheme. The employees’ argument would be that since there is an easily accessible alternative, they cannot be fairly dismissed until the situation changes. This phenomenon is likely to lead to so-called ‘zombie’ jobs, which will disappear as soon as the scheme is modified or ends.
  • However, the guidance clearly states that you do not need to retain all your staff to qualify for furlough – you can make some redundant and place some on furlough – so all this is to be determined.
  • The employer might also consider other cost-saving measures such as reducing pay across the board while retaining staff and/or removing some benefits.

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The Coronavirus Job Retention Scheme (JRS)

  • The new legislation, which are regulations under the Coronavirus Act 2020, introduces the concept of ‘furlough’ into the UK. It is a US term and involves the employer putting the employee on a specific period of paid leave. The contract of employment continues, and the employee is paid, but is not required to attend work or provide work while the furlough continues. It cannot be used at the moment where workers have had their hours of work reduced rather not being required to work at all.
  • The furlough scheme went live on 20 April and, at the time of writing, was operating well with a very large take-up. It will remain effective until 31 July 2020, at which point it will be modified.
  • It applies where a person is paid through PAYE and the employer notified HMRC of an RTI payment in respect of them on or before 19 March 2020.
  • It applies to all UK employers, regardless of business type or size, as long as they have a UK bank account and operate a UK payroll as of 28 February 2020.
  • It applies to any entity with a UK payroll, including charities, businesses, recruitment agencies and public authorities.
  • It will apply to employees furloughed since 28 February. They have to be designated as furloughed by the employer; it is not an option to insist on being furloughed.
  • Also, employees made redundant since 28 February could be reinstated, and the employer could recoup income, although there is no obligation to reinstate them, and this applies even if they were not reinstated until after 19 March.
  • A new online portal has been set up on HMRC's website to receive employer's applications.

The essence of the scheme is that:

  • HMRC rwill eimburse up to 80% of 'furloughed' employees’ pay, in respect of their usual monthly pay or £2,500pcm (£576.92p pw) per employee, whichever is the lesser. Fees, commission and bonuses and overtime should be included where they are non-discretionary, but discretionary bonuses, commission and non-cash payments will not be included.
  • HMRC also reimburses 80% of Employer NI and automatic enrolment pension contributions on top of that.
  • Employers can choose to top up the additional 20%, but do not have to.
  • The furlough is payable from the date that the worker was sent home, not from the date they were notified or agreed to the scheme.
  • In relation to salary sacrifice, HMRC has confirmed that it regards the current crisis as a ‘life event’ and will allow employers and employees to agree to reverse these agreements provided this is done in accordance with their contract. However, subject to further guidance being given, as the salary for the purpose of furloughing is as at 28 February 2020, then unless HMRC will allow any salary sacrifice to be backdated, the employer will only be able to recover 80% of the reduced salary before the sacrifice was reversed. HMRC has updated its salary sacrifice guidance
  • The scheme applies to full- and part-time employees, employees on agency contracts and zero hours workers (the guidance specifically states that limb (b) workers – ie those providing their services personally in the intermediate stage between employee and self-employed – should be covered), and also potentially contractors on payroll as a result of the new IR35 reforms (presumably even if they are in the private sector and have been required to go on payroll in anticipation of the changes that were to take place in April 2020). The scheme also applies to salaried members of LLPs.
  • Employees on unpaid leave at the time the scheme commenced cannot be furloughed until their agreed date of return. Those who are absent from work because of shielding or because they have caring responsibilities can be furloughed.
  • For those whose pay varies it is the earnings in the same pay period in the previous year, or the average earnings in the 2019-20 tax year (or fewer if they have worked for less time than this, including a part-month calculation if they were taken in February), whichever is the higher. This will be subject to deductions for income tax and employee NICs in the usual way.
  • In its guide to calculating the grant, HMRC says that employers will not be penalised for using the wrong method of calculation provided there is ‘a reasonable choice of approach’.
  • It does not matter if the 80% takes the worker below the national minimum wage (NMW) as the requirement to pay it only applies to hours worked (but see the reference to training below).
  • It applies to apprentices, who may continue to train during furlough, but they must be paid at least the minimum wage, so the employer will have to make up any difference between what can be claimed on the furlough scheme and NMW.
  • It applies to directors of companies, regardless of their size or type, but only extends to the part of their pay that is salary subject to PAYE and NI. They are permitted to carry out their statutory duties as directors during furlough, but not to do any of their normal work for the company which is aimed at generating revenue.
  • The underlying principle is that repayment is only made in respect of payments made via payroll.
  • Within the public sector, employees whose pay is financed by public funding will not be entitled to use the scheme, neither will any organisations that are publicly funded in order to respond to Covid-19.
  • The CJRS is available to all UK employers with a UK bank account for each furloughed employee on a PAYE payroll scheme as at 19 March 2020 (to exclude potentially
    fraudulent claims such as subsequent employment of family to increase household income).
  • The minimum period of furlough is three weeks, and employers cannot claim more frequently than every three weeks.
  • A new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
  • While on furlough, the worker cannot provide any work at all for their employer, although they are able to undertake volunteer work and also training. Where they are engaged in training at their employer’s request, they must be paid at least the minimum wage for this period. A furloughed employee is able to work for another employer, if they are contractually allowed to do so.

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I want to furlough employees – how do I do it?

If you look at the combination of the two sections above, the safest way ahead legally becomes reasonably clear:

  • The employer will write to the employee, stating that it intends to place them on furlough and ask for their consent
  • It may be possible to get the consent of all staff to the furlough proposed, in which case the employer should retain evidence of that consent, eg ask employees to sign a letter or a furlough agreement, or send an email confirming their consent.
  • There is no standard template, but at the very least the letter/agreement should record the length of the furlough, any review period and the details of the variation of contract.
  • A record of the agreement must be kept by the employer for at least five years.
  • Consent is needed because otherwise the employer is technically in breach of contract and if pay is not being made up, is liable for an unlawful deduction from wages. This would be a continuing loss if the employee then carried on working under protest.
  • Where fewer than 20 employees refuse to accept the change, the employer should take a week or so to consult with them on the reasons for their refusal.
  • In situations where the employer has 20 or more employees who do not accept the furlough, they will need to carry out collective consultation with those employees, asking them to elect two or more representatives (depending on the size of the employer) to discuss matters with the employer. The normal consultation period for 20-plus employees is 30 days and 45 days for more than 100 employees. Full details of the collective consultation process can be seen here. The penalty for failing to consult is considerable: a protective award of up to 90 days’ gross pay for each affected employee.
  • The argument that the employer is reacting to a sudden steep drop in demand, the need to close premises and so on is likely to justify the decision to furlough in most cases, and the tribunals are likely to regard this as a justifiable and proportionate response to an unexpected emergency.

In the face of an employee’s intransigent refusal to accept furlough, there would then seem to be three options for an employer:

  • to impose furlough, on the basis that there is no feasible alternative, there is no work to do and that other staff have accepted it. This runs the risk of a later unlawful deduction from wages claim
  • to place the employee on furlough and start consultation for redundancy, giving notice at the end of consultation and making the employee redundant
  • to dismiss the employee for refusing to agree to a reasonable request for flexibility. This has traditionally been used where companies have been in serious economic difficulties and have sought pay and/or benefit reductions across the board. Tribunals have been prepared to see this as a fair dismissal, where they have felt that the employer has consulted and where most employees have been prepared to agree to the change (under the umbrella ‘some other substantial reason’ laid out in the Employment Relations Act 1996). This runs a risk of an unfair dismissal claim, but it is suggested it is the fairest way to proceed since it minimises the time that the employee continues on full pay, which would seem unfair when their colleagues are at home on furlough.

Notice period on furlough is a tricky and technical issue. The basic problem we have to deal with is at what level notice should be paid:  at normal pay or the 80% furlough rate? The position appears to be:

  • If the employee is only entitled to the statutory minimum notice of one week per complete year worked, up to a maximum of 12 weeks, then the employer is entitled to base the calculation of a week’s pay on the Employment Rights Act, which means it is likely the employee should be paid at 100% ie their normal wage or salary.
  • If the employee is entitled to up to a week more than the statutory minimum, the same applies.
  • However, if the employee is contractually entitled to at least one more week’s notice in excess of the statutory minimum, then they can be paid at the 80% furlough.

Where an employer is choosing some staff to go on furlough and others to continue to work, there is no particular method by which this must be done, other than to ensure that selection is not unlawful in terms of discrimination, eg choosing people on the basis of sex, race, disability etc.

It seems clear that employers may rotate staff on furlough but it is suggested that the minimum rotation period should be three weeks.

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What happens during furlough?

The employee cannot work at all for their employer while in receipt of pay from their employer.

It seems likely that they can take on work at times they would not be working for their employer, provided they are doing nothing for them, eg an office worker takes an evening job picking in a supermarket.

Employees on furlough can certainly volunteer or take part in training. If they are undergoing training at their employer’s direction, they should be on full pay.

Employees continue to accrue annual holiday. There is some ambiguity about holiday during furlough. The better view seems to be that the employer can require the employee to take holiday during furlough, but if this constitutes any part of the minimum 20-day European entitlement, they should receive full pay during that period. The situation is less clear if the employee is being required to take only the additional portion, ie bank holiday and/or paid annual leave granted by the employer additional to the basic statutory minimum, but the safest option is probably to pay it in full.

It is not clear whether the employer can require the employee to take some or all of their holiday during furlough, but the view has developed that the employer can do so, and many are.

The government has relaxed the rules preventing carry over to the next holiday year in response to the crisis, and holiday can now be carried over for up to two years.

If a worker falls sick, they will be entitled to statutory sick pay rather than continue to receive their furlough pay (making it very unlikely that most workers will report any sickness).

Employees on maternity/paternity pay continue to be entitled to those benefits, but presumably not if the employer is making up any of those sums to eg half or full pay. It may be possible to place them on furlough but since they are already on eg maternity leave; this seems unlikely, and they will be placed on furlough only on their return.

Indeed, employees on any kind of family-friendly leave can be furloughed once they come back.

Many employees are now working from home, and employers must not neglect their duty to take reasonable care of their health and safety. Employers with employees who are working from home should carry out a risk assessment of the work activities and take appropriate measures to reduce any associated risks.

The employer does not have to attend at each employee's home to carry out the initial risk assessment and any follow-up risk assessment required. Instead, the risk assessment can be conducted by the employee from home. Law firm Gowlings has created a useful checklist for employers.

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Changes to the scheme

A key takeaway from the Chancellor’s announcement is that, from 1 July onwards, employers will only be able to furlough employees whom they have previously furloughed for a full three-week period prior to 30 June. Accordingly, any employer who had not already done so but wishes to place an employee on the CJRS must have done so by 10 June 2020. Employers will have until 31 July to make any claims in respect of the period to 30 June.

Further, from 1 July claim periods will no longer be able to overlap months: employers who previously had submitted claims that had periods which overlapped calendar months will no longer be able to do this going forward.

Employer costs going forward

The level of grant available to employers under CJRS will be slowly tapered to reflect the fact that people will be returning to work from August 2020.







Responsibility for employer NICs and pensions contributions





Responsibility for wages

Government (80% up to £2,500)

Employer – N/A

Government (80% up to £2,500)

Employer – N/A

Government (70% up to £2,187.50)

Employer (10% up to £312.50)

Government (60% up to £1,875)

Employer (20% up to £625)

Employee receives

80% up to £2,500 per month

80% up to £2,500 per month

80% up to £2,500 per month

80% up to £2,500 per month

At present, employees on furlough are not permitted to do any work for their employer’s business. However, from 1 July 2020 businesses will be given the flexibility to bring furloughed employees back to work part-time. Employers can agree with their employees the hours and shifts their employees will work on their return. There is no requirement to adopt a flexible furlough – the employer can retain the employee on full furlough if there is no work to do.How will flexible furlough work?

How are employees paid for the hours they work?

Employers will pay full wages for the hours when the employee is working but can claim under the scheme in respect of that part of their normal working hours on which the employee is not working. Employers will need to submit information on the usual versus actual hours worked by an employee in a claim period. The cap will be proportional to the hours not worked.

Further detailed guidance on how to calculate claims following the introduction of flexible furlough will be released on 12 June.

How is agreement reached?

Employers will have to agree any new flexible furloughing arrangement with their employees and confirm that agreement in writing.

A well-drafted furlough agreement should currently prohibit employees from carrying out any work for the employer during their furlough period. Hence, it may be necessary for any furlough agreement to be amended by a side letter, or for a fresh furlough agreement to be entered into, which permits an employee to work during the furlough period commencing 1 July.

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What will happen after this is all over?

That is anyone’s guess, but there are a number of issues that are likely to arise and which are interesting to consider:

  • What will happen once the CJRS is over? Will employers try to argue that they cannot restore the old wage rates and that employees will have to stay on reduced rates or face redundancy?
  • How will the crisis impact on the tribunals’ approach to enforcing the law on matters such as collective consultation?
  • Will the changed work environment persuade more employers to allow greater use of technology/home working?
  • In relation to that, is physical office space going to become less and less important, even in businesses that had not previously embraced this?
  • What will happen within the retail sector? It was already suffering; will this prove to be the death knell for much of the high street?
  • Will the fallout include an impact on corporate governance? Will the public expect more ethical behaviour from the large companies that have been in receipt of public funds? Will this be translated into regulation?

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