Furlough funds can be used for contractual notice periods

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Funds claimed from the government’s Coronavirus Job Retention Scheme can be used to pay for notice periods that go above and beyond the statutory minimum.

In an update to its furlough guidance today, HM Revenue & Customs clarified that contractual notice periods – for example, one that lasts three or six months rather the statutory amount – does qualify for a claim under the CJRS.

Alan Lewis, partner with Constantine Law, said: “There was uncertainty about full notice periods not being covered by the furlough scheme. This was caused by a sentence in the HMRC guidance which said that employers can use the coronavirus job retention scheme to pay statutory notice.

“This then begged the question as to whether or not longer contractual notice periods would be covered by the scheme. Thankfully, this morning, HMRC has updated its guidance to remove any uncertainty.”

The update guidance reads: “You can continue to claim for a furloughed employee who is serving a statutory or contractual notice period, however grants cannot be used to substitute redundancy payments.”

Last week, Daniel Barnett, barrister at Outer Temple Chambers, attempted to reassure employers and other employment lawyers that, because the Treasury Direction (TD) said nothing to suggest that statutory and enhanced contractual notice periods should be treated differently, there was nothing to worry about.

It doesn’t – but that’s kind of the point. Nothing in the TD suggests furlough can’t be paid during notice (apart from the unclear para 2.2 which everyone wrongly panicked over), and certainly nothing suggestes treating statutory notice differently from contractual notice

— Daniel Barnett (@daniel_barnett) July 11, 2020

Statutory minimum notice periods vary depending on the employee’s period of continuous employment. An employee with one to two years’ continuous employment has a minimum notice period of one week; two to three years’ service means two weeks’ notice; and so on up to a maximum of 12 weeks’ notice for 12 or more years’ service.

Contractual notice is usually agreed in the contract of employment or written statement of terms and conditions and is often used to give employers more time to recruit a replacement.

Lewis added: “[Today’s guidance] has neatly resolved an issue that employers have been grappling with over recent weeks and which will without doubt be more commonplace as the scheme is being wound down and redundancies happen.”