During the coronavirus pandemic, the government introduced regulations whereby some employers could apply for funding for employees whom they wanted to furlough, as opposed to making them redundant.
In Mones v Lisa Franklin Ltd, the Employment Appeal Tribunal (EAT) held that employers were not under a legal obligation to calculate an employee’s furloughed salary according to the formula set down under the regulations.
Basic facts
Ms Mones started work as a part-time receptionist in November 2018 initially for nine hours per week as well as some “ad hoc” hours. In January 2020, the company agreed to reduce her working hours to six per week at her request.
At the end of March 2020, her employer informed her that she was to be furloughed and paid 80 per cent of her average monthly earnings from the time she started her new working pattern. Although she queried the company’s calculation on 1 April, she did not challenge the variation when it took effect on 3 April.
She resigned on 17 September 2020 and lodged tribunal claims for unlawful deduction from wages on the basis that her furlough pay had not been calculated in accordance with section 7.2 of the Coronavirus Job Retention Scheme (CJRS).
Relevant law
Section 7.2 states that the salary of a non-fixed rate employee is the greater of:
(a) the average monthly … amount paid to the employee for the period comprising the tax year 2019-20 … before the period of furlough began, and
(b) the actual amount paid to the employee in the corresponding calendar period in the previous year.
Tribunal decision
Dismissing her claim, the tribunal held that she could not import the formula into her contract because, as an employee, she had no connection with HMRC. Instead, the CJRS only applied to HMRC and those employers who were entitled to ask for funding for furloughed employees.
It followed that once she agreed to be furloughed, she had accepted the variation of her contract, which was to receive 80% of her normal salary from 3 April. There was no legal basis on which she could enforce the treasury direction against her employer where this differed from the terms of her agreed contractual variation.
Ms Mones appealed, arguing that if the government had intended to let employers deviate from the prescribed formula, it would have made that clear in the legislation.
EAT decision
The EAT disagreed, holding that the point of the CJRS was simply to provide qualifying employers with a grant with which to pay their furloughed employees during lockdown. It was not intended to impose an obligation on employers to adopt the CJRS or the formulae set out under the scheme.
So, although Ms Mones was a furloughed employee who did not receive a fixed rate, that did not mean that she was entitled, under her contract of employment, to be paid a minimum salary calculated in accordance with paragraph 7.2 during her furlough. None of the treasury directions or schedules created a statutory or contractual obligation between employer and employee. Instead, they created rights and obligations between the employer and HMRC.
The EAT added, however, that had there not been an express agreement between Ms Mones and her employer, she might well have been able to argue that there was an implied term that her furlough pay should be calculated in accordance with the formula. “That would not be because the CJRS itself conferred a statutory or contractual right upon the employee, but because, in default of the parties' agreement to an alternative sum or methodology, a court or tribunal might accept that there had been a mutual intention to adopt the formula set out in the CJRS, as revised from time to time”.
Comment
This is a reminder to practitioners of why it is so important to identify the contractual terms and where the asserted right derives from. It seems reasonable to assume that most people would think that what the employer was doing was wrong but what they were actually doing was just complying with the terms they agreed with Ms Mones (irrespective of whether they actually intended to pay her something different to the calculation of the CJRS).