Furloughed employees are in a very unusual employment situation. Indeed, to use an oft- quoted word these days their situation is unprecedented. They have not been made redundant but they have effectively been largely moved off their employers' payroll in terms of receiving their salary. Effectively, the government has taken over responsibility for paying 80% of their monthly wage up to a limit of £2500 per month. This has never happened on such a scale in this country before and effectively creates a number of potentially complex employment law issues. These issues are of course vitally important to both employers and employees who are affected by the furlough scheme, which at the latest count had over 7 million employees on it.
Those potential complexities have recently been examined by the English Court of Appeals. Debenhams, the well-known High Street department store chain, has gone into administration. Whilst there were ongoing problems long before the pandemic hit, the onset of coronavirus has made the situation much worse. The specific point that the judges were ruling on concerned whether or not administrators have adopted contracts with specific regards to those employees who were furloughed. In normal circumstances, the decision of taking on employee contracts on the part of administrators comes into effect 14 days after their appointment. If employees continue to attend work in the usual way and carry on working beyond that 14 day period, then their contracts are deemed to have been adopted. This is very important. If an employee contract is adopted then staff on such contracts are deemed to have superior rights to access funds in the event of the company subsequently failing. In effect they become priority creditors.
The specific issue regarding furloughed employees is that they do not return to work and therefore no judgement may be made about whether contracts have been adopted or not. By definition furloughed employees are not expected to come into work – but the judges ruled that in their view in the case of furloughed employees their contracts were deemed to be adopted by administrators. This is an important test case which goes far beyond the application to this specific situation regarding Debenhams. It is likely that many other companies will be faced with the prospect of going into administration, and it will hopefully be a source of some solace to furloughed employees that they do retain employment rights in a way that is no different from those who carry on going into work. This is likely to bring a little relief to furloughed employees at a time when they very much need it.
Wayne Bartlett is an author for accountingcpd. To see his courses, click here.