8 July 2020
The law is constantly changing and the position set out in this paper may not be current. You should not rely on this or other ELA papers as a comprehensive statement of the law but should always seek advice if you require it from a qualified lawyer. ELA does not give legal advice.
Introduction
The Employment Lawyers Association’s ("ELA") Legislative and Policy Committee has set up a standing working party to respond and make recommendations on measures relevant to employment law during the current coronavirus crisis.
ELA is a non-political group of specialists in the field of employment law and includes those who represent claimants and respondents in courts and employment tribunals. It is not ELA's role to comment on the political or policy merits or otherwise of proposed legislation or regulation, rather it is to make observations from a legal standpoint. ELA's Legislative and Policy Committee consists of experienced solicitors and barristers who meet regularly for a number of purposes including to consider and respond to proposed legislation and regulations.
This note was prepared by Clare Fletcher, Slaughter & May and member of the ELA Covid-19 Working Party.
The third Treasury Direction for the CJRS was made on 25 June (see the ELA update on 26 June 2020 for an overview of the changes made by the third Direction).
The purpose of this note is to highlight a number of issues and concerns the ELA Covid-19 standing working party has identified with the third Direction, and with the operation of the CJRS more generally. The working party’s view is that these issues, if not addressed, may mean that fewer employers use the CJRS, and fewer employees benefit from it, than could otherwise be the case.
Mistakes in claiming CJRS grants: As with the first and second Directions, the drafting of the third Direction is fairly convoluted and difficult to follow. This is of concern for employers and their advisers, who will want to ensure so far as possible that claims are accurate. This is particularly important in light of the Finance Bill, which is due to introduce a regime whereby employers may face an additional income tax liability if they make mistakes in claiming CJRS grants (the tax liability will be equal to the amount to which the employer is not entitled, less any amount already repaid to HMRC). The Bill will also create the power for HMRC to impose financial penalties on employers who make an incorrect claim for a CJRS grant, if they fail to notify HMRC of the mistake within a prescribed self-reporting period. Although recent amendments to the Bill in Report stage extend the employers’ self-reporting period from 30 to 90 days, the complexity of the regime makes it difficult for employers to know if they have made a mistake, and therefore avoid these additional liabilities.
Purpose of CJRS: The third Direction makes a change to the stated purpose of the CJRS. Clause 2.2 now states that: “Integral to the purpose of the 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 whose employment activities have been adversely affected by the coronavirus and coronavirus disease, or the measures taken to prevent or limit its further transmission” (changes underlined).
The requirement that the CJRS grants must be used by the employer to “continue the employment of employees” has given rise to speculation about whether employers can use the CJRS in respect of employees who they are likely to make redundant, or for employees who are on notice. It has created concern amongst employers and their advisers about the risk of claiming CJRS grants for employees who may be at risk of being made redundant, particularly if redundancy consultation starts when they are furloughed and/or they serve part of their notice period on furlough. The employee guidance states that “your employer can still make you redundant while you’re on furlough or afterwards”, and although this statement is not repeated in the employer 'check if you can claim' guidance, it does state that employees still have the same rights at work while they are furloughed, including redundancy payments (although grants cannot be used to substitute redundancy payments). We have seen reports on social media that HMRC have confirmed that employers can claim CJRS grants for employees during their notice period, but no official view has yet been published. It would be helpful if HMRC could amend their guidance to clarify these issues.
TUPE transfers: As with the previous Treasury Direction, it remains unclear whether service provision changes (SPCs) are covered by the rules on TUPE transfers, since the previous drafting in the second Direction referring to “the transfer of the business or undertaking” has been retained. Again, there has been some suggestion on social media that HMRC have confirmed that SPCs are covered, but there has been no official confirmation of this.
There is also an apparent inconsistency with the guidance on who can be furloughed, in relation to the maximum number of employees that the new employer can claim for. The guidance suggests that this will be the total of both:
(i) the maximum number of employees the new employer claimed for in any one claim ending on or before 30 June, and
(ii) the number of transferring employees who have previously been furloughed before 30 June.
The third Treasury Direction does not include the underlined wording above about the transferor’s maximum cap. The approach taken in the Direction would make the situation more straightforward for transferees, as they would not then need to check this cap as part of any due diligence exercise and ensure they adhere to it. Transferees would simply be able to add the transferred (and previously furloughed) employees to their maximum claim for their pre-existing furloughed employees. This is essentially the same mechanism that the third Direction allows for family leave returners. However, it would be useful if the guidance could be amended to remove the inconsistency (as well as addressing the SPC point mentioned above).
Updates to HMRC guidance: As noted above, on a number of occasions further clarification from HMRC about the operation of the CJRS has come via social media, in response to employers' or law firms' questions. In some instances the official guidance is subsequently updated to reflect these clarifications, but in other cases it is not. We suggest that the most useful approach would be for all subsequent clarifications to be reflected in the official guidance. However, as an alternative it would be helpful if HMRC could provide either a schedule with all the questions that they have answered online, or a link to a searchable website containing these Q&A.
Local lockdowns: Finally, the prospect of local lockdowns, as we have seen in Leicester (and may well see elsewhere in the coming weeks) has created a need for further guidance and possible further amendments to the CJRS. Although the government has confirmed that businesses in Leicester can re-furlough employees during the lockdown, there have as yet been no amendments to the guidance to take account of the possibility of local lockdowns, and how the CJRS can be utilised in these circumstances.
We will be raising these issues with our contacts at BEIS, and would encourage our members to do the same if they have the opportunity.
Members of ELA Covid-19 Working Party
Co-chairs: Paul McFarlane, Capsticks; Kiran Daurka, Leigh Day
Shubha Banerjee, Leigh Day
Emma Burrows, Trowers & Hamlins
Sarah Chilton, CM Murray
Shantha David, Unison
Peter Edwards, Devereux Chambers
Clare Fletcher, Slaughter & May
Beth Hale, CM Murray
Howard Hymanson, Harbottle & Lewis
Nadia Motraghi, Old Square Chambers
Louise Skinner, Louise Skinner, Morgan Lewis & Bockius UK
Catrina Smith, Norton Rose Fulbright
Caroline Stroud, Freshfields Bruckhaus Deringer
David Widdowson, Abbiss Cadres