We are aware that current challenging and unprecedented events are generating many urgent legal questions from our clients, and we are here to help.
PLANNING FOR THE END OF FURLOUGH/REDUNDANCIES
As we pass the peak of COVID cases, business is expecting restrictions to be eased.
Planning to bring staff back from furlough, or reducing homeworking, will need careful handling: -
- Public Health England guidance on providing safe working arrangements needs to be followed to avoid claims and absence.
- Some staff may resist coming back, especially before the end of the government furlough scheme. You need to be clear in advance about the circumstances which do and do not justify continued absence.
- Holidays booked during and after furlough are likely to be an issue.
Inevitably many employers will need to consider redundancies or changing employment terms. This is best considered well ahead of return dates, since much of the necessary consultation can be run during the furlough period and there may be a significant cost saving.
Particular care is needed in cases involving redundancy selection issues.
In tricky cases, settlement agreements are still a useful tool and can be put into place in advance.
GOVERNMENT SUPPORT FOR BUSINESS
Unprecedented government support packages completely change the landscape. The situation changes daily and we will try to keep this summary up to date. Contact us for the latest developments.
The most important proposals include these: -
Covid-19 Job Retention Scheme
This is potentially a “game changer” for employers considering reducing staff numbers or redundancies. The purpose is to maintain permanent jobs through the crisis.
All UK businesses are eligible.
Certain employees are designated as "furloughed workers” - effectively laid off - and the details submitted to HMRC.
The scheme originally applied for 3 months from 1 March 2020 and has subsequently been extended to 31 October.
HMRC currently reimburse 80% of those employees' wage costs, up to a limit of £2,500 per month. Employers can choose whether to make up the additional 20%.
The government subsidy is now scheduled to fall in stages from 1 August onwards, with employers expected to make increasing contributions.
Pay is made on normal payroll dates with normal deductions.
The scheme closes to new entrants on 30 June (and in practice employees must by then have been furloughed since at least 10 June). From 1 July there will be flexibility to bring employees back to work part-time.
The process for changing the status of employees still needs to be handled carefully and in most cases reached by agreement with the employees concerned.
Self Employed Income Support Scheme
The scheme will support self-employed individuals (including members of partnerships) whose income has been negatively impacted by Covid-19. It will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.
The scheme will be open to those who have annual profits of less than £50,000.
VAT and Income Tax Deferral
Again all UK businesses are eligible.
The current scheme proposes to defer VAT for the period from 20 March to 30 June 2020. Note that this is a deferral and not a release or grant.
The VAT scheme is automatic with no application required. Payment will need to be made up by April 2021.
Income Tax due on a self-assessment basis by 31 July 2020 will be deferred until 31 January 2021. Again this is automatic with no applications required.
Covid-19 Business Interruption Loan Scheme
A scheme to support small and medium sized businesses to access bank lending and overdrafts.
The government will provide lenders with a guarantee of 80% on loans.
Covid-19 Bounce Back Loan
A scheme for smaller businesses to obtain loans up to £50,000, guaranteed by the government and with no repayments or interest in the first 12 months.
A refund is available for smaller employers with less than 250 employees to reclaim SSP paid for sickness absence due to Covid-19, currently limited to 2 weeks.
Small Business Grant Scheme
This provides a one-off grant of £10,000 to businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) or tapered relief, to help meet ongoing business costs.
OTHER EMPLOYMENT ISSUES TO CONSIDER
Sick leave and self isolation
Payment implications for employees absent on sick leave or in "self isolation" depend on the exact circumstances.
Rights to time off
Greater numbers of employees are needing to make use of statutory rights such as time off to care for dependents and parental leave.
Holidays and carrying over
The government has changed the Working Time Regulations to allow employees to allow employees to carry over up to 4 weeks' paid holiday over a 2 year period, if they cannot take it due to Covid-19.
This might be due to periods of sickness, self-isolation, further periods or extra work demands, for example.
Issues are likely to arise over employees wishing to cancel or rearrange pre-booked holidays.
Closures, redundancies, reduced pay
Many businesses are having to make difficult decisions over closures or cost reductions, which will have a substantial impact on employees. The options available depend on circumstances but frequently require consideration of a proposal for voluntary reduction or temporary layoff, and voluntary or compulsory redundancies. This issue in particular is now heavily affected by the Job Retention Scheme.
In some cases, it will still be safest to conclude termination agreements in the form of binding settlement agreements.
Business tenants struggling to meet rent and other lease costs do not have the same protection as the government has introduced for residential tenants. The new protection from eviction up to 30 June does not prevent landlords from chasing payment in other ways.
Nonetheless many landlords will be receptive to reasonable proposals to defer, stagger or perhaps reduce payments on agreed terms, particularly where the alternative is the risk of losing a tenant and having a vacant property. It is important that such arrangements are recorded as proper lease variations, especially where some lease terms – such as break clauses – may lapse on a breach of lease.
It is much better to take the initiative here, rather than to default on payment in breach of the lease, which may result in various debt recovery actions.
Business landlords are increasingly faced with tenants in cashflow difficulties and with problems collecting rent. Again a proactive approach is best and there are still multiple options.
BUSINESS CONTRACTS – DEALING WITH CUSTOMERS AND SUPPLIERS
This will inevitably become more difficult as many businesses suffer cash flow issues.
The best chance of payment often comes to those creditors who take the most robust approach to chasing payment. Keeping on top of debt collection processes is more important than ever.
Negotiating payment holidays or suspensions
Particularly under larger contracts and potentially leases, this may increasingly be practicable, especially where the alternative is a payment default.
The most common issue here relates to difficulty in performing contracts, “force majeure” clauses and the implications of termination. Many of the consequences of the Covid-19 crisis will potentially fall within force majeure clauses, and permit the affected party to delay contract performance up to a point.
New contracts can be drafted with an express exception for COVID delays.
Many businesses are asking the question whether they might have some protection under their insurance terms. It is certainly worth checking insurance policies. A few business interruption cover clauses might extend to cover closures caused by a "notifiable disease", although we believe this will be fairly uncommon.
Give one of our specialists a call on 0121 777 0015 for an urgent discussion over any of these legal concerns.