Legal

What does the future look like for furlough?

24 Apr 2020 By Richard Yeomans

The government's coronavirus job retention scheme is a lifeline for many businesses, says Richard Yeomans – but what are the issues for employment in the longer term?

The government's coronavirus job retention scheme (JRS) was an important and swift reaction to an urgent problem. It was vital economically, politically and socially to avert the mass redundancies threatened by the Covid-19 lockdown. The British Chambers of Commerce and the CIPD estimate up to half of UK companies will take advantage of the JRS, with around 9 million employees ending up on furlough – far higher than the Treasury originally estimated. 

On 17 April, the government extended the JRS to four months (to 30 June) and it may be extended further. While the chancellor has stated there is “no upper limit” on funding, there are obviously questions around how long this is sustainable. The JRS alone is likely to cost around £40bn for the first three months – in context, this was the entire education budget for 2020.

The JRS brought many businesses breathing space which could help them survive, short term. However, furlough (which, under the JRS, means the employee must do no work for at least three consecutive weeks) is not a natural fit for some businesses. Many still need employees to perform some work. These employers might consider furloughing just some employees but may then face complaints around selecting who works and who's furloughed and must be particularly careful not to discriminate. 

Another option that  may appear fairer is to rotate staff – three weeks’ furlough followed by three weeks working, with groups switching. However, while this may work with groups of employees carrying out the same work, not all staff are interchangeable. For some employees, furlough simply won't work because the employer needs that employee to work, albeit on reduced hours. In these cases, moving to part-time working (and reduced pay without JRS subsidy) is a better fit. 

In all these cases, the employer will need employee consent, unless they are fortunate enough to have an existing contractual right to reduce hours and pay. But experience from the last financial crisis and (so far) in this Covid-19 lockdown, is that employees will give consent – particularly where changes are communicated openly and honestly. In general, employees prefer salary cuts to the risk of being made redundant amidst a crisis.

While furlough won't be right for all employers, it is a lifeline for many businesses in the short term. But what about the longer term? Of course, we hope that once the crisis passes, we can return to business as usual. But is this realistic? 

Aside from the broader economic impact, we may find the Covid-19 experience creates a tension and a crossroads in the labour market. On the one hand, we will have businesses facing urgent needs to cut costs and drive efficiencies – pointing to an increasingly flexible workforce (e.g., more use of zero hours contracts and/or amending employment terms so employers can reduce hours and pay when needed). On the other, employees may push for job and income security and, having proved that flexible and remote working has been effective during the lockdown, many may challenge employers who insist on traditional working practices – and those employers may struggle to justify rejecting such requests. 

On a more positive note, the Covid-19 experience may also lead employers and employees to agree on future changes – for example, some employers may embrace demands for remote working as they recognise the opportunity to reduce office space and associated costs.

Tensions on employment rights will doubtless become a hot political issue. There is a longstanding agenda across the main political parties to cut down on zero hours contracts and ‘regularise’ treatment of atypical workers – i.e. give them fuller employment rights. If the government continues such reforms, its challenge will be to in a way that doesn't impose higher burdens and costs on employers who are already struggling to recover from the Covid-19 crisis.

Richard Yeomans is a partner at Addleshaw Goddard

Deputy Director of People, Culture & Transformation

Deputy Director of People, Culture & Transformation

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Great Ormond Street Hospital Children's Charity

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