The Coronavirus Job Retention Scheme (CJRS) was created at such speed that it created many unanswered questions. The government has addressed many of these each time it releases a new iteration of the guidance. But, as Daniel Barnett examines, there is still an unclear issue.
From the past six versions of the government’s CJRS guidance for employers, we now know that TUPE applies, that employees can take holiday pay, how the training provisions work, and what the position is of company directors.
But what about notice pay? If an employee has agreed to accept 80% of their salary while on furlough, is their notice pay also paid at 80%, or does it revert by operation of law to 100%?
We know that over 4 million employees were reported as furloughed in the first week of HMRC’s online portal being open. If one tenth of those are made redundant when the scheme ends, that is 400,000 employees on furlough receiving notice payments. On an average salary of £30,000pa, and (say) an average notice period of four weeks, the difference between 80% and 100% is £461 per employee – or £184 million among 400,000 employees.
The technical legal position
The first question is: how much notice is the employee entitled to receive under their contract?
If they are entitled no more than one week’s greater notice under their contract than the statutory minimum notice period, then s87(4) of the Employment Rights Act 1996 gives them rights to minimum pay during their notice period. That is a “week’s pay” for every week of notice. Even that is not straightforward. The Employment Rights Act 1996 sets out several methods for calculating it, depending on whether the employee has normal working hours, and whether their pay varies with the amount of work done. Depending on the situation, the minimum guaranteed notice rights could be anything between 80% and 100% of normal.
If they do not qualify for minimum guaranteed notice rights, then their pay during a furloughed notice period will be whatever they have agreed to receive while on furlough – often 80% of normal salary subject to a £2,500 per month cap.
Kate has worked for her employer for 2½ years. Her contract says she is entitled to receive one month’s notice. She has agreed to accept 80% of normal pay while on furlough. Because she has worked for 2½ years, her statutory minimum notice period is two weeks. Her contractual notice period, one month, is at least one week more than the statutory minimum. Accordingly, s87(4) results in her not being entitled to statutory minimum notice rights, and her notice entitlement while on furlough is one month at her current contractual entitlement, i.e. 80% of normal salary.
Dave has worked for his employer for 15 years. His contract says he is entitled to three months’ notice. His statutory minimum notice is 12 weeks. He is given three months’ notice on 27 February 2020, which expires on 26 May 2020. That is a contractual notice period of 12 weeks and 6 days. 12 weeks and 6 days is not at least one week more than his statutory minimum notice (12 weeks), and so he is entitled to statutory minimum notice pay, which may be a figure between 80% and 100% of normal salary depending on the method of calculation.
Will tribunals follow that approach?
It is counterintuitive to allow employers to “get away” with paying less than normal notice pay during a notice period, because an employee was willing to forego part of their normal salary in an attempt to help their employer remain solvent and save their jobs.
There are a number of ways that a tribunal might (and probably will) ensure that employees receive 100% of their notice pay even if furloughed.
First, if an employee has a garden leave clause in their contract, and they are under notice, they could argue (with some force) that they are entitled to their normal garden leave pay, typically 100%. After all, they are on notice and being told not to do any work for their employer, which is exactly what garden leave is. This will be quite a compelling argument where a garden leave clause exists, but that will not be the case for many or most employees.
Second, a tribunal could imply a term that the employee’s agreement to reduce salary to 80% was only while they were not under notice, perhaps because the Coronavirus Job Retention Scheme is there to preserve, not remove, jobs.
The flaws in this argument are that (i) such an implied term would be inconsistent with the expressly agreed term to reduce salary to 80% during furlough; and (ii) that the CJRS does, in places, contemplate jobs ending due to redundancy while somebody is on furlough.
Third, for some (not all) employees who (i) are entitled to guaranteed minimum notice pay; and (ii) work normal working hours and their remuneration does not vary with the amount of work done, they can rely on a section in the calculation of a ‘week’s pay’ which refers to calculating pay as ‘if the employee works throughout his normal working hours in a week’, to mean they should get the amount they would normally get if they were not on furlough.
In my view, tribunals are likely to use one of these routes to ensure employees receive 100% of pay during notice, notwithstanding the very real problems with each of the first two.
What if employers get it wrong?
If employers pay 100% when the employee is strictly only entitled to 80% of salary while under notice, the employee is unlikely to complain. In theory, if the employer subsequently ceases to trade, an administrator or liquidator might seek to set those overpayments off against any other liabilities to the employee – but that is unlikely.
If employers pay 80% (or between 80% and 100%), as the orthodox view suggests, and a tribunal or court later rules that full salary ought to have been paid during notice, the employee will have a claim in the tribunal or civil courts for the shortfall. An employer which wants to rely on a post-termination restrictive covenant will find itself unable to do so, if it has dismissed the employee in breach of contract by underpaying notice pay.