By Lauren Wilson
In order to formalise the changes to the Coronavirus Job Retention Scheme (the CJRS) taking effect from 1 July 2020, including the introduction of the ability to flexibly furlough staff, a new Treasury Direction was issued on 25 June 2020.
This is the third Treasury Direction which has been issued in relation to the CJRS. These Directions set out the rules to be followed by HMRC when administering the CJRS grants.
Amongst other things, the latest Treasury Direction included a different, more specific purpose of the CJRS. This was stated to be as follows:
“Integral to the purpose of CJRS is that the amounts paid to an employer pursuant to a CJRS claim are used by the employer to continue the employment of employees in respect of whom the CJRS claim is made…”
Since this Direction was issued, there has been speculation about whether the section in bold above may imply that employers cannot use the CJRS to claim for wages which are paid during an employee’s notice period, where the employer has given notice of termination. A more extreme interpretation could even be that employers cannot claim for wages under the CJRS beyond the point that an employee is placed at risk of redundancy.
The guidance on the CJRS for employees clearly states: “Your employer can still make you redundant while you’re on furlough or afterwards.” The guidance for employers also clearly states “Grants cannot be used to substitute redundancy payments.”. However, neither is explicitly clear on the ability of employers to reclaim furlough payments for periods of notice.
Our view remains that, in the absence of any explicit guidance to say that employers cannot keep an employee furloughed during redundancy consultation and their notice period, and claim via the CJRS for their wages, employers can continue to do so. This view has been formed based on the totality of the formal guidance and Directions released thus far.
We have also been made aware that HMRC have informed the law firm Lewis Silkin via their Customer Helpline that employers can claim furlough payments in respect of employees serving out their notice. While the statement of a Customer Helpline operative is not legally binding, it does provide a degree of comfort and support for our view as outlined above.
We therefore believe that if an employee who is already on furlough is given notice of redundancy before the CJRS comes to an end on 31 October, it should still be possible for the employer to claim back furlough pay from HMRC for the period of notice served while on furlough. Please note that this is where notice is being served on furlough; an employer would not be able to claim reimbursement for a payment in lieu of notice where the employment has ended.
Ultimately, HMRC has the power to seek reimbursement by an employer of any furlough grants paid out if, on further investigation, they consider the claim to have been “abusive or otherwise contrary to the exceptional purpose of CJRS”. HMRC intends to audit an unknown proportion of employers who have claimed under the CJRS and will have some discretion when interpreting whether any claim was abusive or contrary to the purpose of the CJRS. However, they have publicly stated that employers who follow the CJRS published guidance should have nothing to fear. That guidance does not in any way expressly prohibit employers from making claims in respect of employees serving out their notice periods on furlough.
In summary, our best assessment of the new Treasury Direction is that it does not change the position regarding serving notice while on furlough. We remain optimistic that claims of this type by employers will not be routinely challenged upon audit. However, as our guidance to clients on this issue has consistently pointed out, it would be advisable for businesses who are considering asking a significant number of employees to serve out periods of notice of termination while on furlough to take specialist legal advice before doing so. We will be pleased to help clients assess these risks on an individual basis.
If you would like to discuss the above, or you require support or advice on any other employment law matters, please do not hesitate to contact the team on 0141 331 5150.