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As set out in our previous articles (see them here), the Coronavirus Job Retention Scheme (CJRS) allows employers to apply to HMRC for financial support in respect of those employees who have been “furloughed” as a result of the Covid-19 pandemic.

Even though the CJRS was only announced by the Chancellor on 20 March 2020 and the published guidance notes still leaving many questions unanswered, remarkably, the first legal consideration of the Scheme has already been heard in the High Court.  Whilst the facts of the case are very specific (hence the urgent need for the matter to be heard by the High Court) some extremely important principles have emerged that all employers who intend to take advantage of the Scheme should consider.

The Case

Carluccio’s closed its doors to customers on 16 March 2020 in accordance with the Government’s measures to combat the Covid-19 crisis. Days later, on 30 March 2020, the company went into administration. In an attempt to implement a ‘mothball’ strategy and seek a sale of the business further down the line, administrators sought to retain employees under the CJRS by placing them on furlough leave (issuing a variation letter or a ‘Furlough Leave’ letter as many are calling it).

However, the company’s administration cast doubt over the eligibility of its 2,000 employees to be furloughed and, in particular, the administrators were concerned that if it received the HMRC grants – applying usual insolvency laws – those monies would have to be retained for certain creditors and not paid out to employees.   

In summary, providing declarations to the administrators, the Court concluded that:

• The variation letter validly amended the contracts of employment of those employees who expressly agreed to it, and as a result they are entitled to wages in the sum of the grants to be paid to the company under the CJRS;
• For those employees who objected to the variation letter, their contracts of employment are not varied; and
• The contracts of employment of those employees who did not respond to the variation letter are also not varied (and the Court considered whether acceptance could be implied by way of conduct), however, they will be put in the same position as those who consented to the variation if they subsequently confirm their agreement.

What does this mean for an employer?

The clarification the Court has given about whether a contract of employment has been varied is important. The CJRS remains subject to existing employment law obligations that employers need to be aware of when making decisions in these uncertain times. If an employer proposes to reduce the pay of a furloughed employee to 80% in line with the HMRC grant, it will need the employee’s consent to do so. Where employees do not consent to being placed on furlough leave, there may be a risk of an unlawful deduction of wages and / or breach of contract claim arising further down the line.

When considering whether the conduct of an employee (in not expressly objecting to being furloughed or the terms of it) could amount to acceptance, the Court took the view that as only a matter of days had passed since the variation letters were sent, it was not possible to sustain such an argument. Room was left, though, for employers to be able to argue that the implied acceptance of contract variations by way of the conduct of their employees has taken place. In any event, employers need to tread carefully when furloughing their employees and ensure that they take bespoke advice. As this Court decision makes clear, each case is going to be fact specific.

We have been helping many clients in relation to furlough leave and the employment law implications and should your business need help and assistance, our team of expert employment lawyers can help guide you through the minefield of documentation and detail of the CJRS. If you need assistance then please get in contact with our Employment Team by email or by calling 01603 610911.