Furlough Pay – spotlight on express v implied contractual terms

The interaction between express and implied contractual terms has recently been highlighted in the case of Mones v Lisa Franklin Ltd which considered the appropriate calculation of furlough pay.

Background

Between 3 November 2018 and 17 September 2020, Ms Mones (the Claimant) was employed as a part-time receptionist for Lisa Franklin Ltd (the Respondent). From January 2020 onwards, the Claimant reduced her working hours by agreement with the Respondent, and at her own request. In March 2020, when the COVID-19 pandemic hit, the Respondent sent a letter to the Claimant notifying her that she was being placed on furlough leave and that HMRC would cover 80% of her regular wage she had received since January 2020. The Claimant was paid in accordance with the terms set out in the furlough letter from 3 April until 7 September 2020. Her last day of employment was 17 September 2020.

Amongst other claims set out in her ET1 claim form, the Claimant claimed unlawful deductions from her wages on the basis that her furlough pay should have been calculated according to the Coronavirus Job Retention Scheme (CJRS).

The Employment Tribunal (ET) dismissed her claim and the Claimant appealed.

The Law

Following the Government’s decision to impose a national lockdown on 23 March 2020 the CJRS was introduced. Under the scheme, until 1 August 2020, all UK employers, regardless of size or sector, could claim a grant from HMRC to cover 80% of an employee’s reference salary where the employee was not working but was being kept on the payroll. The ‘reference salary’ was 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.’

Decision

The Employment Appeal Tribunal (EAT) dismissed the Claimant’s appeal and found that there had been no unlawful deduction from wages. The EAT noted that nothing in any Treasury Direction (which set out the CJRS in a Schedule) imposed a requirement on employers to adopt the CJRS or its formulae when calculating furlough pay for employees. The EAT held that the CJRS neither affected existing employment law rights and obligations, nor created a statutory or contractual obligation between an employer and employee as to the calculation of furlough pay.

It followed therefore, that given that there was no statutory obligation to pay the Claimant in accordance with the CJRS, her contract of employment and the calculation of payments set out there, is what the Respondent was bound by. Her contract of employment had been varied to account for her reduced hours by the time she received the furlough letter which referred to furlough pay being calculated with reference to the pay she had received since that variation. Therefore, it would be inconsistent with the express terms of her contract for an implied term (that she should have been paid in accordance with the CJRS which would have taken account of pay she had received whilst working full time) to be applicable. The EAT made it clear that when there is an express term or agreement between the employee and the employer, that is to be followed and any implied terms must be consistent with, rather than contradictory to, those express terms.

Comment

Although on an increasingly less common subject point (furlough pay), this case highlights the importance of express contractual terms and how they form the contractual obligations between an employer and employee. It is relevant that in this case the tribunals indicated that in the absence of an express term on the matter of furlough pay, an implied term may have existed under which the Respondent would have calculated furlough pay in accordance with the CJRS.

Employers should therefore note that, depending on the facts, in the absence of express term on a matter or an express agreement to vary the contract of employment, an implied term may have effect. As such, it is a timely reminder of the importance of spending time when drafting contracts of employment to cover all salient points and not be silent on important terms which may otherwise be determined by less guaranteed, implied terms.

Case Reference: Mones v Lisa Franklin Ltd [2022] EAT 199