Do furlough agreements with my staff need to be in writing?

Do furlough agreements with my staff need to be in writing?

Many businesses have used written agreements in advance of furloughing their staff in order to claim furlough payments under the government’s Coronavirus Job Retention Scheme (“the Scheme”).  A basic template is available from the ACAS website.

As a result of social distancing, where wet signatures to agreements could not easily be obtained, many have accepted response emails as consent to the terms of furlough which for most employees will act as a valid consent to a variation to their terms and conditions of employment.

This type of approach was recently approved in the case of Re: Carluccio’s Limited (2020) EWHC 886 (CH) where it was found that employees who had responded to a written furlough letter had consented to the terms of the furlough whilst those that had not responded or had objected had not.  Consent could not be implied by conduct as the employees were not all working and as actions were intended to be taken to the employees detriment, therefore, acceptance had to be unequivocal.

Some employers have not entered into formal written furlough agreements especially when the business has closed down quickly and, in such circumstances, rely upon the employee’s consent to furlough being implied.

What are the risks when there is no written furlough agreement?

By not having written furlough agreements, there is a risk that that businesses may be opening themselves up to future claims for breach of contract and/or unlawful deduction of wages claims under Part 2 of the Employment Rights Act 1996.  Businesses would be able to defend such claims with a properly drafted and accepted furlough agreement.  

There is a risk of misunderstanding or lack of clarity if businesses are not using a written agreement to set out all applicable terms of furlough.  Businesses will want to clarify such matters as when payments to employees will be made; the position on voluntary work/training and/or whether employees are permitted to work elsewhere either on a self-employed or paid basis.  

Businesses can also use furlough agreements to add further contractual variations which may protect their businesses such as the right to shorter hours or lay off after furlough and possibly a specific indemnity/deductions from wages clause in case payments are made mistakenly under the Scheme.

Without a written furlough agreement will payments still be made under the Scheme?

In terms of obtaining payments under the Scheme, the position is not settled.

The Treasury Direction dated 15 April 2020 suggests that for an employer to make a valid claim under the Scheme there must be a written agreement.  This would indicate that there must be a valid furlough agreement which has been accepted by an employee.

However, HMRC guidance last updated on 20 April 2020 states there only needs to be a written record:

“to be eligible for the grant employers must confirm in writing to their employee confirming that they have been furloughed.  If this is done in a way that is consistent with employment law, that consent is valid for the purposes of claiming the CJRS. There needs to be a written record, but the employee does not have to provide a response. A record of this communication must be kept for 5 years.”

Thus, at the very least HMRC will upon any future audit want to see a written record of furlough.

In all of the circumstances and for the reasons set out above, the safest and best course of action is to have a written furlough agreement with affected staff.

Should you require a template furlough agreement or any further information regarding Employment and Business Law, please do not hesitate to contact our Mr Bill Dhariwal, Managing Director, Lawcomm Solicitors, DDI: 01489 864 117 E: bill.dhariwal@lawcomm.co.uk

Please note: The above article was produced on 29 April 2020 and does not constitute specific legal advice.