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 are 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 which the employee will not now be receiving, such as commission or bonuses, or 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 which 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 of their employees to the proposed change, it will need to go through a formal collective procedure, which is laid out below.

There may be other elements of remuneration that are discretionary, such as bonuses and commission which 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.

The guidance clearly states you do not need to retain all your staff to qualify for furlough, you can make some redundant and place some on furlough. The employer might also consider other cost saving measures such as reducing pay across the board while retaining staff and/or removing some benefits.

The new legislation 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.

‘I want to furlough employees – how do I do it?’
The employer will write to the employee, stating that it intends to place him or her 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 e-mail 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.
 
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.
 
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+ employees is 30 days and 45 days for more than 100 employees – it is not clear whether these will be relaxed but it seems likely.

Louise is available to deliver a range of employment and business law training to firms.

Such training can be organised via PTP Limited - info@ptptraining.com