In order to bring things to life, and help you work out how to deal with the people issues that you face as a result of COVID-19, we have produced the following case study with suggested answers. Please note that we have applied the current government guidance (available as at 3 April 2020) alongside already existing employment laws. Where the position is not 100% clear, we have applied a common sense approach and have taken into account the insight that we have gleaned from speaking to over 250 businesses during the course of the last few weeks. We understand that additional guidance is due from the government any day now and so the position may change once that is published.
Getting to know the company
Paper & Stuff Limited’s Head Office is in leafy Wilmslow, Cheshire. It is a family business and was established in 1759 and has 300 employees. It produces and sells fancy notepads, pencil cases, lunch boxes, cool backpacks and stationery aimed at the teenage market, alongside colouring books, stickers, glitter pens and crayons for younger children. It has a series of small retail outlets across the North of England (in Chester, York, Manchester and Leeds), a factory in Stoke where it manufactures all the products, and it also supplies supermarkets in the Midlands and down South (in Birmingham, Nottingham, Derby, Leicester, Oxford, Cheltenham and Kent).
All of its retail units have been forced to close following recent government instructions. As the schools have closed (and probably won’t re-open properly until September now), the demand for the teenage products has decreased massively and is unlikely to pick up anytime soon. However, it has seen an increase in demand for the products aimed at younger children (probably because parents are trying to find something to keep them occupied at home whilst they are working) which are largely sold in the supermarkets. As a result, it needs the factory to keep running but on limited capacity. It has calculated that it only needs 25% of the people in the Head Office and 50% of its people in the factory. From a financial perspective, revenue was down 76% in March.
Meet its key workers
The CEO is called Tessa. She works in the Head Office alongside 50 other people. She is the great-great-great granddaughter of the original founder. She has grown up in the business and is not only a strong leader but very personable too. Everyone loves her. Most recently, she has been the main person holding the business (and employees) together.
Martin is Head of Legal and he has 3 lawyers in his team, two of which, Carly and Rachel, are on maternity leave. Carly was pregnant when she started at the company and so she does not qualify for maternity pay but Rachel has worked for the company for 4 years and so gets the benefit of the enhanced maternity pay. Martin used to work at a magic circle firm in the City. He was brought in to help with a recent acquisition but is very expensive for the “business as usual” work.
Ed is the General Manager at the factory and manages a workforce of about 250 people. Whilst there are some long servers, about a quarter of the factory workforce have less than 2 years’ service. Ed enjoys travelling the world with his two boys and has two holidays booked either side of Easter- but, sadly, he has had to cancel his trips to Rome and Madrid given the ban on travel at the moment.
Josie works in the sales team and is responsible for the retail outlets. Most of her time is spent on the road travelling between stores. She started on 1 March 2020 (having been made redundant from her previous employer on 29 February) and works on a part-time basis as she is a yoga teacher for the rest of her time.
Dan is a statutory director and on the Board. He has worked at the company for 55 years. He is due to celebrate his 75th birthday at the end of April. He has made his millions and so only pays himself a small salary these days (although he still does well out of decent dividends).
His son, Dan Junior, is a professional runner but since his knee injury in January 2019, he has been helping out in the business and has been happy to work on a zero-hours contract.
Didi used to head up a different business which Paper & Stuff Limited acquired on 29 February 2020 which meant she TUPE transferred across that day.
Tom is a trainee solicitor and helps Martin in the Legal team but has not been in the office for 7 days because his girlfriend has had a fever and a cough. Tom has been working hard on the recent acquisition and has not managed to take even a single day’s holiday this year. He has a good package at the company, though, and is one of a few to have a decent car allowance built into his wages (the legal team, even the trainees, all negotiated a good package when they joined!).
Carly 2 (can you believe there are 2 Carlys in one business) is an agency worker (employed by the agency and on their PAYE payroll) but works for the company on their new range. She barely comes to the Head Office as she has a 2-year old son and so has always done most of her work from home.
Sally was due to join on 6 April as a BD Manager but given the drop in sales, the company have decided they don’t need her any more. She resigned from her previous business before Christmas 2019 and has already worked her 3 month notice period.
Malcolm works for himself but provides consultancy services to the business from time to time- his trading profits each year tend to be about £50k from the company (they were in 2018/19 anyway). This is only a small project for him as he makes most of his income (c£600k) from being on the Board at one of the big national clothing retailers.
The company has been severely affected by the Coronavirus. Tessa and her management team are desperately trying to save the business. It would be sad to see it collapse after so many years
a) Carly: remember, she is currently on maternity leave and not receiving any money, and so she is looking forward to receiving 80% of her wages (up to a cap of £2,500 per month) again- and is it the same for Rachel?
Probably no for Carly but yes for Rachel.
Government guidance suggests that women can be on furlough and maternity leave but only in order for employers to recoup the costs of occupational maternity pay. So, if Carly had qualified for company maternity pay (which is a top up of statutory maternity pay to full pay for 6 months and then half pay for 6 months), it seems like she could have been furloughed- although this is not very clear. However, because she is not receiving any money at the moment, it seems like she cannot be furloughed (since it is not right for her to, essentially, ask the government to pay her more than she would have received otherwise). If Carly wants to end her maternity leave (by providing the company with the requisite 8 weeks’ notice) she can do that, and move onto furlough, but she needs to be aware that she would then have to return to work after the end of the furlough period. At the moment, the furlough period is due to end on 30 May 2020 and so once her 8 weeks’ notice has expired, it would hardly be worth it. At the moment, we do not know if the government furlough period will be extended. It may be extended but it may not. Tessa will need to discuss things with Carly and see what she wants to do. She was not due to return from maternity leave until the end of September and so, once she hears this news, she is likely to choose to remain on maternity leave.
Rachel, however, has been receiving enhanced maternity pay and so it would seem she can be furloughed, if she wanted to be, and the company can include her maternity pay in any application for her wage costs. However, like for Carly, she may not want to come back to work after the furlough period has ended. She was thinking of staying off with her little one until at least the end of the year.
b) Didi: she was furloughed when she worked for her old company (and was fine with that) and so this would not require any change in status and so Tessa thinks this is a dead cert.
It is questionable whether Didi can be furloughed. The position when someone has been on furlough at one company and then has TUPE transferred across after 28 February 2020 to another company has led some legal commentators (e.g. barrister, Daniel Barnett: https://www.danielbarnett.co.uk/) to form the view that they are not eligible for furlough. Daniel’s view is based on his understanding that TUPE only transfers across all “rights, duties, powers and liabilities” under the employment contract between employer and employee- and not third parties (such as between HMRC and the company, as here). However, others disagree and point to the fact that TUPE also transfers obligations under or “in connection with” the contract of employment e.g. 3rd party insurance rights (Martin v Lancashire CC; Bernadone v Pall Mall  IRLR 487). Jeffrey Jupp (http://tupe.uk.net/miscellaneous/tupe-coronavirus-job-retention-scheme/) believes that the issue of whether an employee is or is not covered by the CJRS is primarily an issue between the employer and HMRC and will, ultimately, in cases of dispute, be a matter that is resolved in a tax tribunal and not an employment tribunal. There, we suspect, “payroll” would be interpreted quite broadly.
Given these contrary views and some disquiet from businesses on social media, we are awaiting some clearer guidance and so Tessa will need to either furlough Didi and hope the grant will cover her (and, in case it doesn’t, accept that she will have to pay the 80% of wages capped at £2,500 pm herself) or wait and see if the position is clarified. Not ideal we know.
c) Dan: he is in the over 70s bracket and is also of poor health. Tessa is worried about him catching the virus and so really wants him to stay away from the rest of the workforce. She is, therefore, happy for him to be furloughed, although she would still like him to help with the end of year company accounts and discuss strategic decisions with him.
Dan is a statutory director and statutory directors can be furloughed (so long as the grant is only used to subsidise their salary- not the dividends- which may mean the grant is very low). There is no day-to-day work for him to do (he has been easing off for a few years now anyway). Dan can still undertake his statutory duties whilst furloughed (as that does not count as doing work). Tessa must make it clear that he is not to do any other work to risk the grant for Dan’s wages during furlough. Whilst he is in the over 70s bracket, which the government has acknowledged are at an increased risk, he can comply with the social distancing guidelines whilst undertaking those duties at home.
d) Dan Junior: he doesn’t need the money (because of his healthy allowance from his dad) but is keen to know if he can be furloughed. Tessa doesn’t need him at the moment, although she is unsure how his wage would be calculated if he was furloughed and even if he is eligible as he is on a zero-hours contract.
Even though Dan Junior is on a zero-hours contract, he can still be furloughed. He was on the company’s PAYE payroll as at 28 February 2020 which is one of the key requirements. There is currently no work for him to do but there may be when the business picks up again and so Tessa is happy to keep him on the books for the time being and use the grant from the CJRS to pay him (she also doesn’t want to face telling Dan that she is making his son redundant!). To calculate his wage costs, she will need to work out the higher of (a) the amount he earned in the same month last year or (b) an average of his monthly earnings from the last year. Any bonuses or commissions he has earned are not included.
NB: The original employers’ guidance stated that the furlough scheme was an alternative to redundancy but there is no explicit requirement in the latest guidance for employers to show that redundancy was the alternative. It seems that HMRC may have accepted that putting employees on furlough (which means they are not working) is enough to show that they would otherwise have been made redundant. The guidance does, however, state that the scheme is “designed to support employers whose operations have been severely affected by coronavirus”, which Paper & Stuff Limited does seem to be. That said, the employee guidance still says that, “if you and your employer both agree, your employer might be able to keep you on the payroll if they’re unable to operate or have no work for you to do because of the coronavirus”. It is important to note that HMRC retains the right to retrospectively audit employers with scope to claw back fraudulent or erroneous claims.
e) Josie: as she only started on 1 March 2020, she hasn’t really got going yet and now all the retail stores are closed so there is nothing for her to do.
The fact that Josie is a part-time employee does not disqualify her from furlough. However, she was not on the company’s payroll on 28 February 2020 and so she is not eligible for furlough. There is currently no work for her to do (as all the retail stores are closed) and so Tessa needs to decide whether to make her redundant. Josie does not have 2 years’ service and so she would not be entitled to a redundancy payment but she would be entitled to notice pay. Unfortunately, that is only 1 week’s pay as she is still in her probationary period. Josie would be able to make a claim for Universal Credit and/or find a new job (e.g. in a supermarket or anywhere else that is currently hiring). Alternatively, Tessa can retain her as an employee but on no pay (although would still need her consent to lay-off in this way as there is no such clause in her contract). Question whether Josie would want to do this. As Josie was made redundant from her previous employer and was on their payroll still as at 28 February 2020, she can always ask them if they would rehire her and then furlough her. She could then get the benefit of the grant. It all depends if the old employer wants to do that, though- there is no obligation for them to do so. Failing that, she could start a new on-line yoga business and stream yoga sessions for everyone whilst they are at home and make some money from that instead.
f) Tom: since his girlfriend has been sick, Tom has not been allowed to work but he is not impressed as he is only on SSP. Tessa would like to find a way to increase his wage if she can. Tessa is worried, however, if she furloughs him he will have a huge backlog of holiday to take later in the year.
Tom cannot be furloughed whilst he is self-isolating. He has been self-isolating for 7 days and so needs to self-isolate for 7 more days. After that, he can be furloughed, so long as there is no work for him to do. At least he can get Statutory Sick Pay (SSP) from day 1 now since the government amended those rules- that means he does not need to have the 3 waiting days anymore. SSP is only c£95 a week but every little helps.
Plus, whilst he is on furlough, Tessa has been advised that whilst his basic wage as a trainee is quite low, as the company pay him a decent car allowance and add that on to his wages, she should be able to include that in his wages costs- she might just need to check that as it is not covered anywhere in the guidance. If so, it is helpful that he chose the car allowance over the company car itself as she couldn’t claim for that.
As for his holiday leave, Tessa can require him to take holiday and make use of the Working Time Regulations rules that allow employers to require employees to take holiday so long as the notice they give is twice as long as the holiday they want him to take- so she would have to give him 4 weeks’ notice if she wanted him to take a 2 week holiday. Alternatively, she could build into the letter she sends him asking for his consent to be furloughed, a clause that says she may require him to use up his holiday whilst he is furloughed and not working. She appreciates that he can’t actually go anywhere but thinks it is still ok to do that. Although, can he be on two kinds of leave at once- furlough and holiday leave? She is not sure so she will need to keep an eye on any future government guidance regarding this. She is just concerned that he will have a backlog to take when he returns to work after furlough- at a time when she may need him to get his head down and work hard again. That said, she has recently read about the government amending the holiday rules to allow workers who have not been able to take their holidays due to the coronavirus to carry over up to 4 weeks’ leave for 2 years- so all is not lost. However, isn’t the reason that he hasn’t been able to take them acquisition-related and not coronavirus-related? She is a little confused so she plans to call her lawyers to see what they think.
g) Carly 2: she works for an agency and so Tessa does not know if that makes her ineligible for furlough- she is sure she has read the furlough scheme catches agency workers but needs to check
Carly 2 cannot be furloughed by the company but could, technically, be furloughed by the agency as she is on their PAYE payroll and was as at 28 February 2020 (which means she is eligible). However, there is still work for her to do which she can do from home, as she always has and so is still needed.
However, Tessa knows that Carly has been finding it difficult to work from home now that her 2-year old son’s nursery has closed because of the coronavirus pandemic and so she will tell the agency to keep an eye on government guidance to see if she can be furloughed because she can’t actually work, as it is impossible to juggle childcare at the same time. The only alternative is that Carly 2 takes unpaid dependant leave, which is far from ideal. Or, perhaps, she could use up some of her accrued annual leave. The agency can discuss that with her.
Tessa can tell Sally that, due to an unprecedented and unexpected situation, the company no longer need to recruit her. However, Tessa will need to give Sally notice of that in accordance with the notice clause in her contract (unless the offer was conditional on anything and some/all of those conditions have not been met). It may be that Tessa can give Sally the shorter notice that is due in her probationary period (that may be the best starting point) but there is a strong argument that her probationary period has not yet commenced as she has not started work yet and so the longer notice period that applies outside of her probationary period applies. So long as there is no discriminatory aspect to Tessa’s decision, there should be no risk of Sally claiming for future losses.
Even though Sally left her old job and has already worked her notice, she could speak to them to see if they would take her back. Unfortunately, as she was not made redundant from her previous company, based on current government guidance, they would not be able to rehire her and then furlough her (so she at least had some income). She also wasn’t on her previous employer’s payroll as at 28 February 2020 as she left before Christmas 2019 and so that would not work anyway, since that is one of the rules of the re-hiring then furloughing provisions. It would, therefore, be their choice as to whether they wanted her back.
However, there is a strong rumour that the government is looking to amend that part of the guidance so that previous employers can choose to re-hire people and then furlough them even if they voluntarily resigned (Tessa has been following Martin Lewis on Twitter and she has seen him talking about it!). But, the rumour also suggests that not everyone will benefit as the key issue still needs to be that the issue was caused by coronavirus. For example, if Sally left her previous employer as she wanted to take a few months off, she wouldn’t be eligible to be rehired as her unemployment was not related to coronavirus. Plus, again, she would fall foul of the requirement to be on their payroll as of 28 February 2020. Oh dear- poor Sally! She will have to look for work elsewhere or maybe do some volunteering instead.
If Tessa has worked out that she only needs 125 out of the 250 workers in the factory then she can choose to remove the remaining 125 people from the business, either temporarily (by putting them on furlough) or permanently (through a redundancy dismissal process).
However, to put someone on furlough, Tessa would need Ed to get the employees’ consent / agreement to do that. That is not only expressly stated in the government guidance but is also a matter of employment law.
Even if they had a contractual lay off clause in their contracts, that would still not suffice as furlough is a different concept (albeit the lay-off clause can be referred to in discussions with them and hopefully will make it more likely they will agree to furlough as lay off would be without pay, other than the £29 a day guarantee payment (which is increasing only to £30 a day this month- and only that is for a maximum of 5 days)). If Ed asks for people’s consent and 20 or more people refuse, then Ed should have further meetings with them over the following days to try and win their “hearts and minds” and emphasise that furlough is likely to be the best of all options right now- especially because the factory workers are on salaries around the NMW/NLW and so they would not be on a great deal less whilst on furlough. The idea of furlough is, primarily, to retain people so that they can be used again when business picks up, and avoid redundancies. If Ed’s further discussions still result in some people refusing to go on furlough then Tessa can choose to unilaterally impose furlough anyway (but risk breach of contract and constructive unfair dismissal claims) or she can commence a consultation exercise with them to consider the change to their contracts.
If there is 20 or more refusing then this would need to be a collective consultation exercise. Before Tessa and Ed get to requesting consent to furlough, they will need to decide which 25 out of the group of 125 they want to furlough (in addition to working out which 125 out of 250 didn’t need to work in the first place). Whilst an objective selection process should take place, this does not need to be as full as a redundancy selection exercise- the main requirement is that it is not discriminatory. However, Tessa has heard from her friends in other businesses that they are prioritising those over 70, in vulnerable categories and those who are pregnant and so she will have a think about doing that too.
If, having undertaken an analysis of how many people need to be kept on the books for when business picks up again, Tessa and Ed decide that the remaining group of 100 people are not going to be needed in the long-term (e.g. because business is not going to pick up any time soon and maybe will never reach previous levels) then those people can be made redundant, after a proper redundancy exercise. Given there are 100 people, a 45 day collective consultation exercise should be untaken, as a minimum, to avoid any protective awards (which can be up to 90 days’ gross pay per person). Remember that only those with 2+ years’ service have the right to a redundancy payment (subject to any contractual scheme that says otherwise) and have the right to bring an unfair dismissal claim. However, it is important to be aware that there is no service requirement to bring a protective award claim.
Note: it is possible to rotate people on furlough and so Tessa could choose a group of 50 to furlough (rather than just a group of 25) and rotate them 3 weeks on furlough and 3 weeks in work etc. Note also: From the guidance, it also seems possible to work for another business whilst you are on furlough and so she would be happy for those furloughed to work at a local supermarket whilst they were not working for the company to top their pay up. However, maybe that is only where you already had a second job, and does not allow you to take up a new job now. She doesn’t want to get it wrong and have to repay any of the CJRS grant back, for example if they ended up better off with the supermarket income plus the furlough pay than they otherwise would have been - she will need to check that with her lawyers.
It is up to Tessa whether she will let Ed cancel his Easter trips and then use those holidays later in the year. Ed is still needed to run the factory, and get them through this crisis, so he is needed more than ever. However, Ed is owed a duty of care to ensure that he does not work too hard and is encouraged to take holiday to rest and relax and recharge his batteries. If Ed does not have any other holidays booked then Tessa may decide to reject his request to cancel his holidays. That said, she recalls that the government changed the rules about carry over and she is confident she can show that Ed was unable to take these holidays due to the coronavirus and so they should be ok if Ed wanted to use his Easter leave to go to Australia at Christmas and carry over to use over New Year too.
No. Malcolm is not an employee and so cannot be furloughed under the CJRS by Paper & Stuff Limited. The government has introduced a package to help the self-employed but, unfortunately, Malcolm makes too much trading profit to qualify (the limit is £50k). Also, another requirement of the Self-Employment Income Support Scheme is that more than half the individual’s income must come from self-employment. As Malcolm is employed by another company (where he makes most of his money), that condition would not be met either. However, all may not be lost as that other company may agree to furlough him especially given all retail outlets are currently closed- and he is a very expensive resource, although unless they top up his wages, he will be subject to the £2,500 per month cap.
Any reduction in hours and pay would be a variation to contract and so Martin would need to consent to that change. If Tessa made the change anyway (i.e. unilaterally) then Martin could bring a claim for breach of contract and/or unlawful deduction from wages. He may also decide to resign and claim constructive dismissal on the basis of a breach of contract (he has more than 2 years’ service). Tessa should speak to him about the reasons for the change and seek his support and agreement. She should focus on the long-term benefits of saving such a large amount of money and how that might mean they can survive in the long term and retain as many jobs as possible. Tessa can also emphasise the importance of setting a good example from the most senior members of the company. Hopefully, she will also be able to assure him that the change is only temporary and that his hours and pay will return to normal when as/when the business picks up again (although if he is too expensive for a “business as usual” lawyer, she may need to think carefully about that and decide if, in due course, his role as a “Head of Legal/ a Senior Lawyer” is redundant). She needs to remember that if she outsources this work to an external law firm this may well create a TUPE transfer.
If Martin does agree to reduce his hours and pay and then the legal work dries up completely, Tessa could then put him on furlough (if he consents). However, it would seem to be that his furlough pay would be based on his already reduced wages from his agreed short-time working (so he would, effectively, be hit twice- albeit his wages would still be subject to the £2,500 per month cap and so, in reality, would it really make any difference).
Tessa is pretty exhausted by all of this but at least she doesn’t need to go into the Head Office to sort all of this out. She has daily 9am calls with her management team and she is making the most of Zoom. She has also realised how easy, given their investment in IT, it is to keep the business going from afar and so she is thinking of revising the working from home policy after all this has ended. Plus, she is getting used to her run across the fields at lunchtime and quite fancies keeping that going!
This case study is not intended to be legal advice and should not be relied on as such. If you would like advice on your specific situation, please get in touch with one of the Knights Employment team.