Furlough - Beware the Legal Pitfalls

Posted on April 08, 2020

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A local employment lawyer has cautioned employers not to use the virus crisis as a convenient way of bypassing unfair dismissal laws.

Head of employment law at M&P Legal Advocate John Aycock has said that, while the current circumstances are extraordinary, contractual duties and statutory obligations still apply to the contract of employment. In particular, the rapid growth of the concept of furlough, where employees effectively take unpaid leave, needs careful planning to avoid falling foul of unfair dismissal laws.

In the UK the Government announced a Coronavirus job retention scheme whereby the state will underwrite 80% of wages of employees who are placed on furlough up to a limit of £2,500 per month. In the Isle of Man Tynwald announced the wage support scheme whereby in certain sectors a flat rate weekly contribution of £280 will be paid for twelve weeks to encourage employers to retain staff together with the Manx Earnings Replacement Allowance permitting eligible staff who are laid off to claim £200 weekly, again subject to conditions.

In the UK there has been a rush to “furlough” employees as soon as the job retention scheme was announced. The Isle of Man schemes are quite different from the UK’s. Mr Aycock stated that it was important for Manx employers not to conflate the Manx and UK schemes and to beware taking UK advice that might not apply here. He said that with the devastating and abrupt halt to daily life and business, many Manx employers will be needing to take drastic measures which might include furlough. But measures that might suit the UK scheme do not necessarily match with the Manx schemes.

Furlough is unpaid leave which effectively suspends some key parts of a contract of employment, namely an employer providing work, an employee conducting that work and salary being paid. However the furloughed employee remains employed in anticipation of all contractual obligations resuming at the end of the furlough period.

The Isle of Man already has provision for temporary layoff and short time working in the Redundancy Payments Act 1990. However the difference with furlough is that an employee who is laid off or asked to work short time can in certain circumstances claim a statutory redundancy payment but to do so has to serve notice to terminate the contract. Furlough on the other hand maintains the contract of employment so there is no dismissal and no redundancy payment.

Mr Aycock commented that employers had to be careful how they arrange any period of furlough for employees. He said: “Even though these are extraordinary times, an employer should generally seek the consent of an employee to being placed on furlough because doing so will very likely be a change to one of the fundamental terms of the contract of employment. Change of an important term in the contract of employment requires all party consent. If an employer recognises a trade union for pay bargaining then the union should be consulted in any furlough consultation.”

“An employer should not use this opportunity to deal with an unrelated issue thinking for instance that it might present a convenient opportunity to dismiss an employee based on the current crisis. Such employees retain their contractual and statutory rights in these circumstances. If they do not consent to the period of furlough then redundancy might well follow if the statutory definition of redundancy is genuinely met. An employer might fairly say to staff that consenting to hopefully a temporary period of furlough is better than being made redundant and having no job to return to at all.”

Mr Aycock therefore stated that Manx employers should certainly consider furlough as a realistic option to deal with this emergency and as a measure to avoid compulsory redundancies proceeding. He cautioned employers to take proper advice so that the process could be managed on a fair and lawful basis wherever possible.

Mr Aycock said: “This is a new area for many employers and there is bound to be a steep learning curve, with the emphasis being on business survival. For that reason M&P Legal has devised a special consultation package for local employers explaining Isle of Man furlough and setting out a template consent letter. We also have a furlough helpline to talk people through specific issues that may arise.”

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