Calculating notice pay for employees on furlough

The Coronavirus Job Retention Scheme (CJRS) was introduced by the UK government to help employers pay their staff during the Covid-19 crisis. Under the scheme the government will pay 80% of those workers’ salary up to £2,500 per employee per month.  We have written further guidance on furlough and the future of furlough here.

Due to the speed the scheme was created, it has undoubtably raised many unanswered questions, most of which have been addressed over time, in a rather reactive fashion where questions are raised and then answered in due course by HMRC as the announcement of changes arise and the guidance follows often weeks later.

The main question yet to be addressed in the guidance is what notice pay an employee should receive who have agreed to accept 80% of their salary under the furlough scheme. What seems like such a simple question has triggered quite complex analysis and even then, the answer is not as  straightforward as many business owners would have hoped.

 

How much notice is the employee entitled to receive under their contract?

Upon a termination of a contract there are two types of notice, statutory and contractual notice. Statutory notice is the minimum required by law, as an employer you cannot give any less than that, but you can choose to give more notice above the statutory amount.  This applies if the employee’s contract is terminated by way of redundancy.

The length of statutory notice is dependent on the employee’s length of service;

  • If the employee has worked for less than a month, they are not entitled to any notice period.
  • If the employee has worked for more than a month but less than 2 years, then they are entitled to one week’s notice.
  • If the employee has worked continuously for over 2 years, they are entitled to 1 week per each year they have worked up to maximum of 12 weeks.

Contractual notice is the notice you agree and is usually set out in a written contract of employment, if might be the same rate as statutory notice or it might be more, but it cannot be less.

 

What is the legal position?

If an employee is entitled to at least one-week greater notice in their contract than the statutory minimum as stated above, then there is no right to minimum pay during statutory notice when they are not working. This means that, it would likely be concluded that the employee is only entitled to 80% pay during their notice period up to £2,500 a month.

 

For example:

Sarah has been employed for 2.5 years and she is entitled to 1 months’ notice. She has agreed to receive 80% of her wage whilst on furlough. Her statutory minimum notice is 2 weeks, her contractual notice is one month, at least one week more than the statutory minimum. Therefore, she is not 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.

If an employee is entitled to no more than one-week 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. Which is one week’s pay for every week of notice. 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. Therefore, dependant on the situation, the minimum guaranteed notice rights could be anything between 80% and 100% of their normal pay.

 

For example:

Graham has been employed 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. However, this is not so straightforward.

 

The Tribunal’s approach

The exception to not receiving statutory minimum payment during notice period is if an employee is either;

  1. incapable of working during notice, due to sickness or injury; or
  2. “ready and willing to work” but the employer is not supplying work (the latter will always apply during furlough leave).

If the above are satisfied, then the employee is entitled to a statutory minimum payment during their notice period. To fall within criteria A, the employee must actually be ‘incapable of work’ because of sickness or injury. Shielding, or living with someone who is shielding or unwell, is not enough. The second, could depend on the reason for furlough.

 

Example 1; The employee is on furlough due to lack of work available, he could be seen as ready and willing to work, despite agreeing to be furloughed, they could be eligible for minimum guaranteed notice rights.

Example 2: The employee has asked to be furloughed due to shielding, this is less clear. With the sympathy of the tribunal its likely they are ready and willing to work but unable to due to government advice therefore could be eligible for minimum guaranteed notice rights.

Example 3: If employee has asked to be furloughed as they do not want to work, due to fear say, they are not willing to work and likely to not qualify for minimum guaranteed notice rights.

Tribunal’s arguments for employees to receive 100% of their wage

It is counter intuitive and perhaps unfair to allow employers to pay 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.

The tribunal are likely to prefer the following arguments to ensure that employees receive 100% of their wage.

  1. If the employees have a garden leave clause as part of their contract, it could be argued that they are entitled to normal pay at 100%.
  2. The Tribunal could imply the term that employees agreed to 80% of their wages whilst they are not on a period of leave as the scheme is there to preserve jobs not remove them. Although, the problem is that the scheme does contemplate some jobs ending during furlough due to redundancy they are likely to look at the furlough agreement and what changes were agreed.
  3. For some employees who are entitled to guaranteed minimum notice pay; and 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.

It is likely that the tribunals will use one of the above routes to ensure employees receive 100% of their notice pay for fairness coming out of the pandemic. For this reason, we would advise that all employees are paid 100% of their notice, regardless of their furloughed status.

Our FREE coronavirus helpline remains open at coronavirus@thrivelaw.co.uk. If we can be of any assistance, please do not hesitate to reach out.

 

Written by the Thrive Tribe

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