Is it essential to have a written agreement between an employer and an employee explicitly stating that an employee will do no work under their employment contract before a valid claim can be made under the Coronavirus Job Retention Scheme?
Some say yes – why?
The Treasury’s Direction to HMRC (issued on 15th April 2020), which is the legislative source of HMRC’s power to make payments under the CJRS, says that a written agreement is needed. Paragraph 6.7 says that an employer can only reclaim the employee’s salary, amongst other things,:
“…if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment.”
Some say no – why?
There have now been six issues of the HMRC Guidance, four of which predated the Treasury Direction. The first iteration simply required the employer to notify the employee in writing that they had to stop work (but did not require the employee to agree anything, and certainly not in writing). The second to fifth iterations added a requirement that the employer keep a copy of that written notification for five years but, again, said nothing about written agreement.
The sixth iteration, issued on Monday 20th April 2020, states:-
“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 written response. A record of this communication must be kept for five years.” (emphasis added)
A letter issued by HMRC on 23 April 2020 confirms that:
“Employers should discuss with their staff and make any changes to the employment contract by agreement. 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 written response. A record of this communication must be kept for five years.
Put simply, the employer and the employee must reach an agreement and an auditable written record of this agreement must be retained. It does not necessarily follow that the employee will have provided written confirmation that such an agreement was reached in all cases.”
So, there are inconsistencies.
Which should you follow?
The safest option by far is to have a written agreement.
However, the Guidance and later confirmation letter shows the way that HMRC intends to interpret and apply the Direction. Significantly, this sixth iteration was published three days after the Direction was issued and the letter written by HMRC was sent as a result of the above confusion. The letter is a clear statement, intended for employers stating that HMRC will not require evidence of the employee agreeing in writing not to do any work in order to allow a claim under the CJRS.
Could HMRC renege on what it has said, and refuse to pay out to employers who cannot supply an employee’s written agreement to cease all work for the employer?
If it did, it would be extremely vulnerable to a judicial review claim. The re-issue of the Guidance, subsequent to the publication of the Direction, which flatly contradicts the Direction and then a further confirmation letter would make HMRC’s position very difficult if it subsequently sought to depart from its Guidance to Employers.
So, what’s the answer?
A written agreement complies with the legislation and avoids any doubt. Without one, there is still an argument to say that the money should be paid and not clawed back later by HMRC. Your approach depends largely on how risk averse you are. Nevertheless, there still needs to be some auditable written record of the agreement reached between the employer and the employee compliant with employment law.