Not Legislating in a Crisis? The Coronavirus Job Retention Scheme, Part 2

At the moment a week is a very long time in labour law. Since the Chancellor’s announcement on 20 March that he would take the unprecedented step of funding a Coronavirus Job Retention Scheme (discussed in our previous post), we have seen: the publication of further guidance on the Scheme; the announcement of a new parallel but different scheme in respect of the self-employed; amendments to the Working Time Regulations 1998 to permit the carrying forward of annual leave which could not be taken owing to the virus; and the introduction of legislation, the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020, SI 2020/350, which require the closure of many businesses and prohibit individuals from leaving their home without reasonable excuse, an exception to which is ‘to travel for the purpose of work… where it is not reasonably possible for that person to work’ at home. No wonder Twitter has been in a frenzied state.

The focus of this post is on the clarifications of the Scheme set out in two items of guidance (the ‘Guidance’), both published on 26 March, in which the government has gone a considerable way towards clarifying the scope, meaning and effect of the Scheme: the Claim For Wage Costs Through the Coronavirus Job Retention Scheme, aimed at employers; and the guidance for employees, Check if Your Employer Can Use the Coronavirus Job Retention Scheme. Once more, we recognise the circumstances of extreme urgency in which the government is acting and the fundamental importance of the Scheme to businesses, workers and society. Nor can the formulation of guidance on public websites match the measured clarity of precise statutory wording. Nonetheless, there remain serious problems with the practical operation of the Scheme, which risk undermining the Chancellor’s declared objective to ‘protect  peoples’ jobs.’

Three problems with the Job Retention Scheme

Here we look at three problems.

Atypical workers

First, the Scheme does not fit well with the circumstances of those workers, once described as ‘atypical’ but nowadays anything but, who aren’t direct, permanent employees working on fixed hours and wages.  The Scheme mirrors the existing insecurities of those who deviate from the ‘standard’ employment relationship on which it is predicated. Contrary to the political objective of almost universal coverage behind the Scheme, vulnerable groups such as agency workers and those engaged on zero-hours contracts risk falling into the gap between this Scheme and the related scheme for the self-employed, a problem which could be resolved by some small adjustments. This would ensure that the Scheme operates in line with the protective goals of its architects.

Poor foundations

Secondly, as we indicated in our earlier post, the Scheme continues to fit badly with existing employment law provisions. As a result, it may fail to meet some of its intended aims: in particular, it produces no real incentive on the part of an employer to re-engage workers already dismissed. To that end, legislation should be enacted urgently to avoid placing concurrent, overlapping liabilities on employers.

Power lies solely with the employer

Thirdly, the Scheme leaves to the employer the exclusive powers to decide who is to be ‘furloughed’, giving no role to workers or unions in the process, with detrimental consequences for collective solutions to the crisis.

The combination of these factors poses serious questions about the ultimate effectiveness of the Scheme. While for the present the Scheme may have helped businesses pause for breath before dismissing workers, the risk is that it will not sufficiently incentivise the re-engagement of workers or deter decisions to shed labour. Redundancies may be inevitable over the next 18 months in light of the expected deep global recession, but it is imperative that job losses are minimised or delayed for as long as possible through the operation of the Scheme.

Incentives not to re-engage or to dismiss: the intersection with existing duties

In our earlier post, we drew attention to the difficulties for employers in making a decision to ‘furlough’ where existing employment duties were unaffected. In the absence of any legislation giving effect to the Scheme, those problems remain acute. The Guidance makes clear that existing contractual and statutory duties apply ‘in the usual way’. Some of these potentially conflict with the aims of the Scheme. Here, in contrast to the above suggestions, legislation would be necessary because changes are needed to rights and duties conferred by primary legislation.

Take the case of a decent employer who, following the publication of the Scheme, re-engages its workers. According to the Guidance, the Scheme applies to those made redundant after 28 February 2020 if they are now rehired. Despite the fact of re-engagement within a short time, the employees will be worse off because they will return to work with their continuity of employment re-set to zero. The employer will also be worse off because it will remain liable to pay the employees statutory redundancy payments in relation to the earlier dismissals: the provisions on re-engagement in Sections 141-2 of ERA only apply where an offer of renewal or re-engagement is made before the end of employment (even if the actual re-engagement takes place within four weeks after its termination). The employer may also be liable for breach of Section 188 Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) and for unfair dismissal awards. If it re-engages the workers, it will only get reimbursement of 80% of their wages and, in the absence of an agreed variation, it will still owe a contractual duty to pay the remaining 20%. Now it is the turn of the employer to hope the employees will be kind to it. The real problem, though, is that without an adjustment to its statutory liabilities the employer has no incentive to re-engage the workers.

Similar issues will arise in relation to employees who haven’t already been dismissed. If the employer complies with the necessary condition of the Scheme and sends them home without any work, it will most likely be in breach of contract, so that its contractual liability for the remaining 20% continues to accrue. Where, on the other hand, pay is a function of work done and the employer furloughs the workforce (so it has no subsisting contractual liabilities to pay), the workers potentially have the right to redundancy payments under Sections 147-154. These, and other liabilities, act as strong disincentives to furloughing.

Contemplating the likelihood of a recession over the longer term, the uncertain length of the Scheme (currently set to run for at least three months) and on-going duplicate liabilities if it does decide to ‘furlough’, the employer may well decide it is best to bite the bullet of shedding workers now. Canny solicitors have already been highlighting this possibility. If the Scheme is to operate to improve the chances of retaining employees, legislation should quickly be passed to remove these dysfunctional effects, as discussed in our earlier post.

Who pulls the trigger for implementing the Scheme?

But what about where the employer selects only some employees for furloughing or does proceed to make redundancies? As noted in our previous post, the Scheme sits on top of the existing panoply of contractual and statutory duties. In theory, absent an express power to reduce work, the employment contract gives the employee a right to refuse furloughing. In Devonald v Rosser [1906] 2 KB 728 for example, the court rejected the idea of an implied contractual right to suspend the wage-work bargain where there was an economic downturn. If an employer purports to ‘furlough’ without the employee’s consent, this is likely to be a breach of contract by the employer, particularly where it involves a reduction in pay. In practice, however, an employee’s refusal of this option is unlikely to make sense, particularly where the alternative is redundancy. A far likelier scenario is that the employer decides to proceed quickly to redundancies and declines to use the Scheme. This is already happening in some workplaces. Where no formal decisions have yet been taken, employees will be keen to influence the choices that employers make about their future employment. The feelings of powerlessness in the face of an invisible threat cannot be eradicated, but a measure of democratic control over their employment can restore some sense of dignity.

We have mentioned above how the Scheme could be quickly amended to permit workless employees to trigger it where an employer does not issue a positive decision to ‘furlough’. Although falling short of such a trigger, the statutory right to request flexible working under Section 80F ERA could also provide a conduit for employees to prompt an individualised discussion about the application of the Scheme. This mechanism is ill-suited to the matter at hand, however, and the individualisation of the negotiation process under Section 80F is not an efficient process for addressing the collective dimensions of furloughing in a fair and coordinated way.

Other provisions give some limited control over this process. The Equality Act 2010 will apply to the decision as to whom to ‘furlough’, as the Guidance makes clear. An employee who was or wasn’t furloughed could argue she was subjected to a detriment within the meaning of Section 39 of that Act where the decision is tainted by discrimination. In addition, the implied term of mutual trust and confidence may give some control. In Visa International Service Association v Paul [2004] IRLR 42, for example, the employer was held to be in breach of the implied term where it failed to notify an employee on maternity leave of a job vacancy. It may be that a failure to notify employees of the existence of the Scheme or select them fairly could be a breach of the implied term. But it is very unlikely that the implied term goes further than this. In Crossley v. Faithful & Gould Holdings Ltd [2004] EWCA Civ 293, for example, the Court did not accept that the implied term encompassed a duty to safeguard the financial interests of the employee. In this case, the employer had failed to alert the employee to some negative financial consequences of pursuing early retirement and withdrawing from the disability insurance scheme.

There are also two legal means by which employees could influence the worst case scenario of employers proceeding to redundancies. We already mentioned in our earlier post the possibility of adjusting unfair dismissal laws. Even in the absence of a change in the legislative wording, we envisage that an employer who dismissed employees rather than ‘furlough’ them might face difficulties in demonstrating it acted fairly.

First, where the employer is ‘proposing to dismiss as redundant 20 or more employees at one establishment’ within 90 days, TULRCA specifies duties of consultation with relevant employee representatives. Section 188 (2) (a)-(b) provides that the consultation must include ‘ways of—(a) avoiding the dismissals, (b) reducing the numbers of employees to be dismissed’. The existence of the Scheme provides an important context to Coronavirus-related redundancies. Employee representatives could seek a reasoned explanation as to why the employer declined to opt for a Government Scheme to save jobs as a way of ‘avoiding’ or ‘reducing’ the dismissals. This consultation must be meaningful, conducted in good faith, and ‘with a view to reaching agreement’. The risk of a ‘protective award’ is likely to concentrate the employer’s mind on pursuing alternatives to redundancy. We would also expect the existence of the Scheme to cut back the scope of the ‘special circumstances’ defence to vanishing point at the current time. Given the availability of public economic support for employers, it should not be open to an employer to proceed to rapid dismissals without taking the appropriate procedural steps.

Secondly, it might be possible to shape decision-making at a point in time earlier than the ‘contemplation’ of redundancies. This would enable decisions on organisational responses to be influenced at an earlier point in time. Once redundancies are ‘contemplated’, employee representatives may feel that the horse has already bolted from the stable. The provisions under the Information and Consultation of Employees Regulations 2004 (ICER) provide a mechanism that could give employee representatives such an opportunity. Under regulation 20, there must be meaningful information and consultation on ‘the situation, structure and probable development of employment within the undertaking and on any anticipatory measures envisaged, in particular, where there is a threat to employment within the undertaking’; and ‘decisions likely to lead to substantial changes in work organisation or in contractual relations’ (emphasis added). The employer’s consideration of the Scheme surely falls within the scope of these provisions. The weakness of the ICER option has less to with its formal specification of legal rights and duties, and more to do with the low coverage of consultation mechanisms implemented under the Regulations. Nevertheless, where Regulation 20 is applicable, it provides a tool for employees and their representatives proactively to exert some collective democratic influence over the employer’s decisions.

The impulse for workers to regain a sense of democratic agency is very understandable at the current time. Yet none of the regulatory possibilities canvassed here is attractive. Indeed, they may be counterproductive in engendering delays and further weakening the employer’s economic position. It would be far better for primary legislation to make provision for binding collective solutions that can be negotiated quickly on a workforce basis, just as we proposed in our earlier post.

Here, the UK stands in contrast to the social model adopted in some other European countries. After the crisis, we must take stock. The government had no choice but to build its scheme on the existing bedrock of UK labour law. It is little surprise that the existing flaws and weaknesses in the foundation have resurfaced in the Scheme itself: the erosion of the ‘standard employment relationship’; the fragmentation of ‘work’ and ‘pay’ from simple unitary categories into an array of complex permutations; the growth of precarious work, including the precarious self-employed; and the individualisation of worker voice in the private sector. For now, we are engaged in the urgent task of salvaging a workable Scheme in the face of those profound challenges. When the crisis is over, we must return to those foundations and rebuild the edifice brick by brick.

This article was originally published on the UK Labour Law Blog