Employment Cases Update

Notice Pay and the Coronavirus Job Retention Scheme

Date published: 29/04/2020

David Curwen, author of Employment Claims without a Lawyer, considers the effect of s87(4) ERA 1996 if employees are given notice of termination of their contract whilst on furlough.

David Curwen, Unity Street Chambers

In his recent article "Notice Pay while on Furlough" Daniel Barnett has highlighted some of the problems in relation to notice pay that might arise when an employee who has been furloughed under the Government's Coronavirus Job Retention Scheme is dismissed. Under CJRS the government will pay 80% of those workers' pay who have been put on furlough in accordance with the scheme. The question is - if the employee is dismissed will the employee only be allowed 80% of their notice pay? At first glance it should not be complex - if an employee is entitled to 100% of their pay as holiday pay while on furlough it would seem logical that they would be entitled to 100% of their notice pay if given notice by their employer whilst on furlough.

The difficulty arises because of the provisions of sections 86 to 89 of the Employment Rights Act 1996 and in particular section 87(4) of the ERA 1996. It might be the case that you, like myself, have not come across this provision before and the effect of this provision might be regarded as "curious" as HHJ Burke described it in the case of The Scotts Company Ltd v Budd [2003] IRLR 145.

Notice provisions in the Employment Rights Act 1996
To summarise the notice provisions in sections 86 to 88 of the Employment Rights Act 1996:

Under section 86 the minimum notice required to be given by an employer to an employee:

a) who has been continuously employed between 1 month and 2 years is one week;

b) who has been continuously employed between 2 years and 12 years is at least one week's notice for each year of service; and

c) for employees with over 12 years continuous service it is not less than 12 weeks' notice.

Section 88 makes provision for employees with normal working hours. It provides that, if during the notice period, the employee is:

a) ready and willing to work but no work is provided by the employer (N.B. this is furlough position under the Coronavirus Job Retention Scheme);

b) is incapable of work through injury or illness;

c) is absent from work because of pregnancy or childbirth;

d) is off work on holiday,

the employer is liable to pay the employee for that part of the normal working hours covered by this absence a sum not less than the remuneration for that part of normal working hours calculated at the average hourly rate of remuneration produced by dividing a week's pay by the number of normal working hours.

In essence this means that where the employee is off work during their notice period, for one of the stated reasons, they are entitled to their normal pay for that period.

Section 89 makes similar provisions in relation to employees whose employments do not have normal working hours. Section 90 deals with the position where the employee has been receiving sick pay and section 91 provides various supplementary provisions. 
Section 87 provides that where an employer gives notice to terminate, the provisions of sections 88 to 91 will have effect as respects the liability of the employer for the period of notice required - except that under s87(4) these provisions will not apply in relation to a notice given by the employer (or the employee) if the notice to be given by the employer to terminate the contract must be at least one week more than the notice required by section 86.

The Scotts Company v Budd
Section 87(4) was considered by HHJ Burke in the case of Scotts Company v Budd. Mr Budd, who had been employed for 19 years, had been off work with migraine and stress for 2 years when his employer terminated his contract of employment, giving him 13 weeks' notice of termination in accordance with his contract, which provided for the employment to be terminated by 3 months calendar notice. Mr Budd had exhausted his entitlement to sick pay and had not been paid by his employer for more than a year. The employer did not pay Mr Budd for this notice period.

Mr Budd brought a claim for unfair dismissal and for notice pay. The Employment Tribunal found that the dismissal was fair but awarded him £7,717.85 notice pay. The employers appealed this award.
In his judgment HHJ Burke said that it was common ground that at common law, if an employee is incapable of working during a period of notice because of sickness and is not in that period entitled to pay or sick pay, he is not entitled to any payment in respect of that period of notice.

It was also common ground that in a case to which section 87(1) and 88(1)(b) of the 1996 Act applied an employee who is unable to work due to illness during the notice period is nevertheless to be paid a week's pay for each week of his statutory period of notice.   
The question in this case was whether section 87(4) applied. The employer's argument on appeal was that Mr Budd was contractually entitled to 3 calendar months' notice i.e. 13 weeks. This was one week more than the statutory minimum period of 12 weeks required by section 86. In these circumstances section 87(1) did not apply because of section 87(4) and as a result section 88, which would normally have rendered the employer liable to provide his normal contractual pay during the notice period, would not apply.

HHJ Burke commented that the effect of sections 87(1) and 88(1)(b) might be thought odd (although HHJ Burke did not say this, presumably on the basis that an employee who had been off sick for 2 years and not receiving any pay for one year should be entitled to their full pay for the notice period), the effect of section 87(4) might be thought even more curious. He said if Parliament has decided that, whether working or contractually entitled to pay while not working or not contractually entitled to any pay, an employee is entitled to a week's pay for each week of his statutory minimum notice period, why should Parliament have decided to remove that entitlement if the employee is contractually entitled to a notice period which happens to be one week or more longer than the statutory period?

HHJ Burke agreed with the respondent's argument that where the contractual notice period is at least one week more than the statutory notice period then section 87(4) has the effect of disapplying section 87(1) and section 88.

Milson v Hope
The provisions of sections 86 to 88 were again considered by HHJ Burke in the case of Milson v Hope UKEAT/0391/12/RN. In this case the claimant worked for the respondent as a companion and domestic help. There was no written contract of employment. The respondent dismissed the claimant, who had worked for just less than 3 years, giving her one month's notice. The claimant was ill at this time and was off work.

The employment tribunal found that Ms Hope had been unfairly dismissed. It made a basic and a compensatory award and also awarded £1,010 for breach of contract, being four weeks' notice pay, referring to the provisions of section 88 that an employee who is incapable of work through ill health during her notice period is entitled to receive her normal pay.   

The respondent appealed, firstly on the basis that, pursuant to section 87(4), the implied contractual notice period of 1 month was as least a week longer than the statutory period (which was 2 weeks), therefore the provisions of section 88 did not apply. This argument failed on appeal because the Employment Tribunal had not made any finding as to a contractual notice period, whether express or implied.

The respondent was more successful with their second argument. The dismissal of Miss Hope fell within the provisions of section 87(1) as she had been employed for more than one month. The provisions of section 88 also applied "as respects the liability of the employer for the period of notice required by section 86(1)" (the period of notice required by section 86(1) was two weeks). The respondent's appeal succeeded in part and the claimant was only entitled to two weeks' notice pay.

Impact of the CJRS on Notice Pay
The two cases I have referred to relate to the situation where the employee was off sick when notice was given, where the relevant provision is section 88(1)(b). For furlough cases it would be section 88(1)(a) ERA 1996 that would apply – the employee is ready and willing to work but no work is provided for him provided by the employer.

I will consider some of the potential problems that might be thrown up – can an employer use section 87(4) to argue that they need not give a furloughed employee notice pay if their contractual notice period is at least a week more favourable that their statutory entitlement? The answer to this question is "No", because the employee has a contractual right to be paid as he is willing and ready to work during his notice period, unlike the claimant in the Budd case who had no contractual right to be paid as he was unable through illness to work during his notice period.

In what circumstances will an employee, given notice whilst on furlough, be entitled to 100% rather than 80% of their notice pay? Prior to going on furlough the employee will usually have agreed to vary the contract of employment in two respects; that the employer will no longer be legally obliged to provide the employee with work and that the employee will accept 80% of their contractual salary. If the employee agrees to these variations, is put on furlough on 80% of their normal pay, and they are then dismissed, the notice pay will depend on their contractual entitlement and whether this comes within the provisions of section 87(4). Thus if the employee is contractually entitled to at least one week's more notice than the statutory minimum section 87(4) would apply, section 88 would not apply and they would be only entitled to 80% of their pay. This is their contractual right under the furlough variation.

If the employee is not contractually entitled to at least one week's more notice than the statutory minimum then it is likely that the provision of section 88(1)(a) would apply. The employee is ready and willing to work but no work is provided for them by the employer. In those circumstances the employee would be entitled to the statutory minimum as calculated in accordance with section 88(1): "a sum not less than the amount of remuneration for that part of normal working hours calculated at the average hourly of remuneration…" This would be 100% of their normal pay and not 80%.

Mr Barnett in his article suggests a number of ways in which a tribunal might seek to ensure that employees receive 100% rather than 80% of their notice pay - these suggestions are given under the paragraph heading: Will tribunals follow the orthodox approach? I won't set these out here the article is available to view online.

Can an employer benefit from the CJRS scheme by dismissing an employer now and claim the notice pay back under the scheme rather than wait until the scheme has ended and deciding in the light of lost business to make the employee redundant and then have to pay notice pay?

The answer is "yes". An employer is entitled to give notice to an employee whilst on furlough and the notice pay, which is no more than the employee's salary for the notice period, can be reclaimed from HMRC under the CJRS provisions. Such an action would effectively undermine the purpose of the scheme, which is to encourage employers to retain employees until the lockdown ends and it might be that the government would try to prevent such an abuse by changing the terms of the scheme.

If the employer was to make a payment in lieu of notice, pursuant to a PILON clause in the contract of employment, it is difficult to see how the employer would be able to claim this sum back under the CJRS.