Employers are still entitled to give notice of termination (whether on grounds of redundancy, or otherwise) to employees who are on furlough leave. What about their notice pay?

There shouldn’t  be any issue about what an employee is entitled to receive in notice pay if they are being paid 100% of their salary when on furlough… but what if they have agreed to accept 80% of their salary? Is their notice also paid at 80% or does it revert back to 100%?

The solution is not so straightforward. It depends on the answer to a number of questions:

How much notice is the employee entitled to?

First, look at the employee’s contractual notice and compare it to their statutory minimum notice (one week for every complete year of service to a maximum of 12 weeks’ after 12 years’ service).

If the employee is entitled to at least one week’s greater notice under their contract than the statutory minimum notice period, then the right to minimum pay during statutory notice does not apply – they would usually receive notice pay at the 80% level.

If the employee’s contractual notice is the same as their statutory notice (or more generous by less than a week), they receive full pay – even if they had agreed to be furloughed at 80%. They benefit from having less generous contractual notice.

So far, so good…

Most employees will be entitled to statutory minimum notice.

Are those with statutory minimum notice sick or ready and willing to work?

If they are sick, they are entitled to a statutory minimum payment during their notice period – full pay.

Is a furloughed employee “ready and willing to work”? Working out the answer is not as easy as it sounds. You need to look at why they are on furlough leave.

If the employer has furloughed the employee because there is insufficient work available, then the employee will be ‘ready and willing’ to work, despite that they may have agreed (reluctantly) not to do so – in which case they do qualify for minimum guaranteed notice rights.

If the employee has asked to be furloughed because they are shielding, it is less clear. On balance, given they will have the Tribunal’s sympathy, a Tribunal will probably decide they are ready and willing to work (but unable to because of government shielding advice), and so they do qualify for minimum guaranteed notice rights.

However, if the employee has asked to be furloughed because they would prefer not to be at work – and they’re not shielding or otherwise unable to work – they are probably not willing to work, and so will not qualify for minimum guaranteed notice rights.

What will Tribunals do?

Nobody knows yet but it would be hard to imagine a Tribunal would allow employers to ‘get away’ with paying less than normal notice pay during a notice period simply because an employee was willing to sacrifice part of their normal pay in an attempt to help their employer remain solvent.

There are a number of ways  a Tribunal could justify a decision to award an employee 100% of their notice rather than 80%

  1. A Tribunal could find that the Job Retention Scheme only applies when an employee is not under notice.
  2. A Tribunal could imply a term that the employee’s agreement to reduce salary to 80% was only while they were not under notice, perhaps because the Job Retention Scheme is there to preserve, not remove, jobs.
  3. If an employee has a garden leave clause in their contract, and they are under notice, they could argue (with some force) that they are entitled to their normal garden leave pay, typically 100%.
  4. They may be able to rely on s221(2) of the Employment Rights Act 1996

“…if the employee’s remuneration for employment in normal working hours (whether by the hour or week or other period) does not vary with the amount of work done in the period, the amount of a week’s pay is the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week.”

If the employee is entitled to guaranteed minimum notice pay and work normal working hours and their pay does not vary with the amount of work they do, they should get the amount they would usually get if they were not on furlough.

What if employers get it wrong?

If employers pay 100% when the employee is strictly only entitled to 80% of salary while under notice, the employee is unlikely to complain. In theory, if the employer subsequently ceases to trade, an administrator or liquidator might seek to set those over payments off against any other liabilities to the employee – but that is unlikely.

If employers pay 80% , and a Tribunal later rules that full salary ought to have been paid during notice, the employee will have a claim in the Tribunal or county court for the shortfall. The employer will simply be ordered to pay what it ought to have paid anyway.

However, an employer which wants to rely on a post-termination restrictive covenant will find itself unable to do so, if it has dismissed the employee in breach of contract by underpaying notice pay.

Salary payments made by the employer during furlough can still be reclaimed from HMRC (subject to the limits of the Job Retention Scheme), despite the employee actually working out notice.

8th May 2020

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