Coronavirus, and the illness it causes – Covid-19 – have got the world F’ing quite a lot.
We’ve been inundated with requests about both F’ing people and F’ing contracts. Ordinarily, our articles would be more prolix, but we’re all in the trenches – so this edition’s article is hopefully short, to the point and above all useful.
“Furlough”. Two months ago, this was a word unknown to many, including some of the UK’s most seasoned employment lawyers. Today, it’s common parlance in most employer’s daily conversation. Contrary to popular belief, it is not a noun to describe the deflated feeling one has after a day of home-schooling one’s children. Rather, it is the concept of giving an employee a leave of absence.
Many employers have been ‘furloughing’ employees in response to the announcement made by Rishi Sunak, Chancellor of the Exchequer, on 20th March 2020 i.e. the creation of the Coronavirus Job Retention Scheme (“the Scheme”). Since then there have been almost daily updates, variations and so-called clarifications of the rules of the Scheme from various Government departments and individuals.
There is no doubt that we will spend years litigating the various disputes arising from the application of the Scheme, and the claims for financial support made thereunder. For now, the headline points for all employers are:
- The Scheme allows employers to apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and (a limited amount of) pension contributions;
- The Scheme commenced on 1st March 2020 has been extended until the end of October 202. From August onwards employees will be able to work part-time whilst furloughed, and the Chancellor has mentioned that businesses will be asked to share the cost of the scheme. We await further details;
- Employers can claim for furloughed employees who were employed on 19th March 2020 and who were on their PAYE payroll on or before 19th March 2020, AND for certain employees who left their employment after 28th February 2020 but whom have returned to their employment in order to be placed on the Scheme;
- Any employer can claim for employees on any type of employment contract, including full-time, part-time, fixed-term, agency, flexible or zero-hour contracts, those with multiple contracts/employments and some other roles paid via PAYE;
- The Scheme rules generously allow swapping between unpaid leave, sick leave, ‘shielding’ and other forms of leave;
- Any employees placed on furlough must be furloughed for a minimum period of 3 consecutive weeks. They cannot currently do ANY work for the employer or an associated employer during the furlough, but they can do training or volunteering. This is likely to change in August;
- When the employees return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks;
- The Scheme does not alter the employment law obligations between employer and employee. Any furloughing must be done in a way which is “consistent with employment law”;
- Employers should keep up to date with and apply the Government’s Guidance issued from time to time. At the time of writing, the Guidance which was first published on 26th March 2020 is in its 8th revision. It can be found here – www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme
- Employers should keep careful written records of the decisions they take and the reasons for taking them. If they have relied on Government guidance, articles, advice (from any source – including lawyers, HR consultants, accountants) etc. in reaching those decisions, keep copies of that advice too;
- Employers should make claims for financial support pursuant to the Scheme here: www.gov.uk/guidance/claim-for-wages-through-the-coronavirus-job-retention-scheme
- Some of the guidance which has been issued has been contradicted by other statements. Any employer which believes it has been misled by guidance issued or advice given should seek legal advice promptly. Both are capable of remedy, but a challenge to Government guidance or decisions needs to be brought promptly and is likely to require a process known as ‘judicial review’.
“Force majeure”. Force majeure clauses are contractual clauses which alter parties’ obligations and/or liabilities when an extraordinary event or circumstance beyond their control prevents them from fulfilling those obligations. Depending on their drafting, such clauses may have a variety of consequences, ranging from excusing the affected party from performing the contract in part to giving that party a right to terminate altogether.
Force majeure in English law is a creature of contract law. Therefore, whether a particular clause might relieve a party of contractual liability will depend on the precise wording used in the clause.
Force majeure clauses will generally approach defining the type of force majeure event in one of two ways. The first is to list specific events such as “pandemic”. The second is to set out broad criteria to cover the types of situation which will qualify such as “biological contamination”. Where the relevant event is not specifically mentioned or covered, it is a question of interpretation of the clause whether the parties are to be taken as intending such an event to be covered in any event. Unless specific words are used to suggest that a list is non-exhaustive, however, it can be difficult to argue that parties who set out a list of specific events but did not include a particular event still intended that event to be covered.
The headline points are:
- Any business struggling to comply with its contractual obligations as a result of the pandemic should consider whether those contracts contain written force majeure provisions;
- Increased costs alone will rarely be sufficient. The focus is on whether the event hinders or prevents performance, not simply whether it makes performance more expensive;
- A party seeking to rely on a force majeure clause must also show that the force majeure event caused the inability to perform or delayed performance; was due to circumstances beyond their control; and that there were no reasonable steps that they could have taken to avoid or mitigate the event or its consequences;
- A party seeking to rely on a force majeure clause must also comply with any procedural requirements under the contract, such as a requirement to give notice of its intention to rely on the clause;
- Timely legal advice is important and meanwhile, good records should be kept of difficulties experienced, their causes, and any decisions taken including mitigating actions.
“Frustration”. If there is no force majeure clause in a contract or if the clause does not cover the situation, it may be possible to argue frustration instead. Both force majeure and frustration offer parties an escape from their contractual obligations, but there is an important difference: frustration results in automatic termination of the contract.
The bar to making out a case of frustration is very high and successful cases are rare. Frustration occurs where the contract has been rendered, by the event, impossible, illegal or radically different from that which was contemplated by the parties. Moreover, given that frustration automatically terminates the contract, a party needs to be very sure of its position before asserting it: get this wrong and an expensive damages claim may follow.
Nevertheless, both the spectre of force majeure and frustration may, in the current unprecedented circumstances, at least give a party enough of a platform for a sensible commercial negotiation about amending contractual terms, either for the period of the pandemic or generally.
For further advice on any of these issues, please do not hesitate to contact Paladin on 0345 222 0 111 or at email@example.com