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Furlough Scheme | Variation of Contracts

Posted on 8th October, 2020

As we all know, the Coronavirus Job Retention Scheme (aka the “furlough” scheme) ends on 31st October 2020. In its place, Rishi Sunak is introducing the Job Support Scheme with effect from 1st November 2020 to assist employees in “viable” jobs to return to work with government support. It will be interesting to see whether the new scheme avoids the anticipated tidal wave of redundancies at the end of October or whether employers may consider other ways of retaining staff.

Anecdotally, we have heard that some employers may be considering bringing employees back from furlough on reduced hours and pay. Employees may well be asking “can they do that?”

Is the change permitted by the employment contract?

Firstly, we need to consider whether the variation is already permitted by the terms of the contract? Flexibility to amend contractual terms may be found in either:

(a) a specific contractual term (e.g. a duties or hours clause – specifying hours or duties but stating that these are subject to change); or

(b) in a general flexibility clause that seeks to allow the employer to vary the contract without the employee’s consent. Such clauses must be unambiguous and expressed in clear terms. Any ambiguity is interpreted in favour of the employee.

It is highly unlikely that a Court or Employment Tribunal would imply a power to unilaterally vary the employment contract in the absence of a clear express term and for that reason an employer should not assume that it is safe to make unilateral variations to employees’ employment contracts.

Even if there is a specific or general flexibility clause, the employer must exercise the clause reasonably and not in such a way that would lead to a breach in the implied term of trust and confidence. In most instances this will at least require notice and/or consultation about the changed term(s). A unilateral reduction of hours or pay is likely to breach the implied term of trust and confidence and risks triggering to the employee’s resignation and a constructive dismissal claim.

Obtaining consent

If the contract does not contain a specific or general flexibility clause, the employer may seek the employee’s express consent to vary the contract where that consent is freely given, is free from duress and is supported by consideration (consideration can include the continued employment of the employee or the benefit of an annual pay rise). Written consent is preferable over verbal consent as there is then a permanent record for the future, should it ever be challenged whether consent was given.

Alternatively, if there is a collective agreement between an employer and a Trade Union, and the employee’s contract was one which was “collectively agreed”, the Trade Union and Employer may collectively change the contract without the employee’s express consent.

Returning to work on reduced hours

Many employees whose employers do not have enough work for them to return full time will take the view “some work is better than no work”, remaining hopeful that at some point in the future the workload will increase and they will be able to increase their hours and/or believing that it is easier to get a new job whilst still employed. An employee’s attitude to reduced hours will vary depending upon their financial security, the market in which they work and their transferable skills. Some may be able to take the risk, refuse to work reduced hours and seek redundancy (or resign and claim constructive dismissal). If, however, an employee feels that he has little choice in the matter and goes along with the reduction in hours and pay cut, he may be taken to have impliedly accepted the change in which case he would no longer have a claim for breach of contract (and constructive dismissal) and if he is subsequently made redundant, his notice pay and redundancy pay would be calculated on his new, reduced hours and pay. To avoid this the employee should make it clear to his employer in writing that he does not agree to the new terms and is working under protest. He may also seek to be released from any clause which requires him to devote his whole time and attention to his employer’s business so that he can seek alternative employment to make up the hours and pay he has lost.

Dismissal & Re-engagement on new terms

If an employer wishes to force through a change, it may seek to terminate the contracts of employees on notice and at the same time offer re-engagement on the new terms of employment. This however gives rise to a “dismissal” for the purposes of an unfair dismissal claim although an employer is likely to say that the dismissal is fair for “some other substantial reason of a kind to justify dismissal” (SOSR). Whether or not a SOSR reason is fair or unfair depends on many factors, not least consultation with those affected and whether the majority of those affected accepted the new contracts.

The Jobs Support Scheme

For the sake of completeness, it is worth mentioning that those employers taking advantage of the Jobs Support Scheme will have to expressly vary the employment contracts of the employees concerned, because their hours and pay will be reducing. A written record of the employees’ consent to the variation must be retained and be available for inspection by HMRC. The question remains, however, why would an employer wish to pay an employee for more hours than they work? Perhaps if the employer wishes to retain a particular skill set that the employee has which is not easy to find on the open market, or in circumstances where it is forecasted that the employer’s business will increase very quickly and the employee’s hours will return to normal in a relatively short space of time. As there will be some businesses which do not see the utility, it remains to be seen what the uptake will be.

I you would like any advice regarding the furlough scheme or any other employment law matter please contact a member of the employment team.

Sally Lomas Fletcher, Jacksons Law Firm, 02.10.2020

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