The Treasury Direction to HMRC relating to the Coronavirus Job Retention Scheme has now been out for just over 24 hours. So has the most recent version of the Guidance for Employers.
The first iteration of the Employer’s Guidance stated that an employer merely needs to write to the employee notifying them that they have been furloughed. The second, third and fourth iterations repeated this, and added that the employer needed to keep a copy of the written notification for five years. The language used suggested the letter could be sent at any time after the employee was furloughed, and did not have to be sent before or on the first day of furlough.
However, the Direction – which is the important document – says something very different. It provides that HMRC will only recognise furlough as valid “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” (emphasis added). That requires more than notification by the employer; it requires actual written agreement that the employee will cease all work. Agreement cannot be inferred from conduct, because it has to be in writing.
There are probably tens of thousands of employers who relied on the first three iterations of the Guidance and simply notified employees they were being furloughed – perhaps asking them to agree to accept 80% of salary, but not getting written agreement to them ceasing all work. What can they do if HMRC now refuse to meet the claims?
Employers can try asking the employees to now sign a document agreeing not to work. But that carries two problems. First, the language of para 6.1 and 6.7, read together, suggests the employee’s written agreement must be received before furlough starts. Second, it is not immediately apparent what the consideration for such an agreement would be (unless it is the employer agreeing not to make the employee redundant in anticipation of HMRC not paying out under the furlough scheme).
If the Direction is followed by HMRC (and it must be, or HMRC is acting outside its statutory powers and duties), employers who have furloughed staff and not obtained their written agreement not to work in reliance on earlier versions of the Guidance will have a credible judicial review claim against the Treasury and/or HMRC. Employers had a legitimate expectation that HMRC would act in a way consistent with its guidance, and the guidance was clear and unambiguous (at least, on this point).
I have co-authored an article, with Max Schofield of 3PB Barristers, setting out how to judicially review HMRC on this basis. Click to read the full article.