Law Firms and Furlough

Firms are more than a month into a new normal, with lawyers and staff operating on a remote basis and working hard to keep business going as usual.

Other parts of the legal profession are still trying to adapt and it’s proving messy. The courts, for instance, are trying to keep going as best they can with the technology available to them, and with the help of ongoing guidance from HM Courts and Tribunal and the senior judiciary. Unfortunately, it’s not all plain sailing and a side effect is that many firms cannot continue to pay all their staff during the height of the pandemic.

Given that the legal profession comprises firms ranging from the big City and international firms and mid-sized firms, to small boutique firms and sole practitioners, some firms will be impacted more than others. Those firms that have seen or expect to see a significant drop in instructions, such as residential conveyancing and commercial property; or other areas where litigation has been paused for the time being, will have chosen to furlough their staff under the government’s Coronavirus Job Retention Scheme (CJRS). The alternative – which the scheme was quickly introduced to avoid – would have been mass redundancies or firms going under.

Even with the CJRS, the reality of the situation is that some firms will not survive – and others will eventually have to make redundancies. Firms who feel they are on an even keel right now should not get too comfortable with this new norm – they could eventually be facing negative impacts of the covid-19 pandemic, for example, if part of their client base disappears under the radar, instructions in a particular area drop or suppliers hike up their prices.

The furlough scheme

The CJRS is a lifeline for many businesses and its staff, including law firms whose business operations have been severely affected by the lockdown measures. It enables employers to furlough employees and claim 80 per cent of a worker’s normal calendar pay up (to a ceiling of £2,500) from the government.

The government set out what workers are eligible and how the scheme works in practice.

The key date is 19 March 2020: the scheme is only open for UK employers who operated PAYE payroll on or before that date; and employees are only eligible if they were on the payroll on or before that date. When first announced, the payments are backdated from the 1 March to the end of May 2020, but this has been extended by a month to the end of June. The chancellor will, he said, continue to keep it under review.

Firms must apply the government guidance on CJRS carefully, or they risk potential legal action in future. The problem is, given the scheme was introduced at great speed – for obvious reasons – there is a lack of clarity on some of the issues. Remember that furlough does not end the employment relationship between firm and employee.

Firms may find a reminder of the headline issues useful, including:

• Individuals who are eligible for furlough include full time and part time workers, apprentices, agency workers, part time workers, and contract staff including those on zero hours contracts.

• It is for the firm itself to claim the wages from the government (there have been reports of one firm expecting its furloughed staff to apply direct).

• Once an employee is furloughed, a firm can’t then expect them to do any work for them (though they can still undertake training). Again, there have been reports in recent days of managers at two big name stores being expected to go in and stock take and prepare for reopening even though they have been furloughed.

• Once furloughed, the employee can theoretically undertake work for another business so long as it’s not connected to the original firm or business. In practice, doing so may be in breach of their employment terms; and firms may wish to impose a condition on furloughed staff restricting their ability to work elsewhere during their period of furlough.

Annual leave

This is more problematic at the moment because there is a lack of clarity about how annual leave works alongside furlough. What is clear at the moment is:

Staff who have annual leave already booked during their period of furlough (and they still take it), are entitled to full pay during that annual leave. This means firms will have to top up the 80 per cent from their own pockets.

Where furloughed workers do not book annual leave while on furlough, their statutory minimum entitlement (5.6 weeks a year) still accrues. However, those who are entitled under the employment terms and conditions to more than the statutory 5.6 weeks can be asked not to accrue that element while furloughed.

According to HMRC, up to four weeks’ annual leave can now be carried over to the next two holiday years. This will reduce the pressure on firms that could potentially be created where all staff return to work, and a significant number of them want to book annual leave around a similar time – the change will spread the holiday across two years instead and protect business operations.

Can firms insist on employees taking annual leave during furlough? This is one of the questions that has not yet been fully clarified, so the risk of ordering furloughed staff to take annual leave could risk an employment claim further down the line. Some say so long as the proper notice period is given, employees can be requested to take annual leave during their period on furlough. Firms must remember to factor in the added cost of topping up the pay of furloughed staff taking annual leave.

As always, firms need to consult with staff and make sure they are fair and non-discriminatory when selecting those to furlough. Note that firms can choose to rotate their staff on furlough – for instance, on a three-week rotation.

Sick or self-isolating employees

When it comes to furlough and sick leave, it is important to note that the CJRS is not to be used as an alternative to sick pay (at least, in the short term). Some firms may understandably be wary of being unintentionally discriminatory when considering whether to furlough sick employees. Thankfully, the guidance clarifies some of the pertinent issues thus:

• Employees on long-term sick leave can be furloughed.

• Employees who are in receipt of statutory sick pay cannot be furloughed unless there is a good business reason.

• Furloughed employees who become ill while on furlough can be kept on furlough or removed from furlough and placed on statutory sick pay. (There is a sick pay rebate scheme available to SMEs.)

The government has published its step by step guide for employers on the CJRS and how to apply for their furloughed staff wages.


Posted on 13.05.20