Staffing companies and Covid-19: latest furlough scheme and lockdown exit developments

Written on 15 May 2020

What do recent UK government announcements about its job retention scheme and exiting lockdown mean for staffing and other workforce solutions companies?

The Coronavirus Job Retention Scheme (CJRS) will be extended by a further four months to continue until end of October. This briefing sets out details of the announcement this week. The important points are as follows:

  • New flexibility will be introduced from August to get employees back to work, with furloughed workers able to return to work part-time.
  • Employers will be asked to pay a percentage towards the salaries of their furloughed workers from August.
  • The government will explore ways through which furloughed workers who wish to undertake additional training or learn new skills are supported during this period.
  • How this will work in practice will become clearer as more details are released; the Chancellor has announced these will be available by the end of May 2020.

More questions for staffing companies

However, the government has not provided guidance on a number of a crucial issues for staffing and other workforce solutions companies. There is nothing yet about:

  • How this will work for agency workers who are on furlough. Who will be responsible for topping up? Will this be the end user of the agency?
  • Whether difficult areas for staffing companies will be resolved : can the furlough grant can legitimately be claimed if the relevant temp's assignment would in normal times have long since finished or the staffing company is not actually in general financial difficulties?
  • What actual clawback powers HMRC will have and what the enforcement regime will look like? Will it have to prove fraud? Or will it merely have to prove that the employer or staffing company did not act in good faith in line with the principles of law relating to unjust enrichment? Alternatively, will it just have to prove that the rules of the scheme were not complied with?

While questions like these remain unanswered, we are aware that some staffing companies and umbrella companies – fearing a future backlash against alleged abusers of the scheme – are understandably taking a cautious approach to using the furlough scheme for temps and umbrella workers.

Clawback provisions

Uncertainties around the likelihood of a future challenge are also fuelling concerns that auditors will stipulate that a provision be made for clawback of grants. Those that are using the scheme for their agency workers are taking care to have written records of the basis on which they decided to apply for the scheme. These include records of discussions with clients about whether or not assignments would have been ongoing (but for Covid-19 interrupting their need for temps) and with legal advisers to show that they followed professional advice. These steps should minimise the risk of HMRC accusing staffing companies of acting in bad faith or fraudulently, and auditors requiring that provision for clawback be made.

'Discretionary' bonuses

We are also aware that there is still confusion in the market as to whether or not so-called "discretionary" bonuses can count towards regular pay if they are in practice always paid. We would advise extreme caution on this point. If companies choose to treat bonuses – which are described in the contracts of employment as discretionary – as "regular pay", will they be opening themselves up to potentially huge claims by HMRC relating to expenses paid tax-free over the last five years or so? These tax-free expenses payments are frequently dependent on the fact that a large element of pay is not "regular" but discretionary. We urge any company looking to treat discretionary bonus as regular pay to take advice before making a furlough payment claim.

Updated guidance published on 13 May 2020 confirms that when a worker is engaged on a zero-hour contract basis, such that the time between assignments would not count as working time under the Working Time Regulations, then annual leave will not accrue for such workers during the furlough period. This is consistent with the view we originally took until some "unfortunate" HMRC guidance a few weeks ago. It is useful to have new clarification in the guidance. However, this applies only to zero-hour contract workers. It does not apply to workers who are engaged on an overarching contract basis such that there is deemed to be a continuity of engagement or employment between assignments. Annual leave will accrue in the normal way during furlough for those workers.

Safe workplaces for temps and contractors

While plenty has been said about the steps employers have to take to make the working environment safe for employees – many aspects of which are complex – there is very little coverage of what staffing companies and end users need to do in respect of agency workers and contractors.

The main problem is that in most cases staffing companies have no control over how the workplaces their temps and contractors work in are set up and managed, yet they have certain legal obligations to ensure that supplied workers work in safe environments.

For example, Regulation 20 of the Conduct of Employment Agencies and Employment Businesses Regulations 2003 requires employment businesses to "take all such steps as are reasonably practicable, to ensure that the work-seeker and the hirer are each aware of any requirements imposed by law… which must be satisfied by the hirer or the work-seeker to enable the work-seeker to work for the hirer in the position which the hirer seeks to fill" and, in relation to health and safety, to have "made all such enquiries, as are reasonably practicable, to ensure that it would not be detrimental to the interests of the work-seeker or the hirer for the work-seeker to work for the hirer in the position which the hirer seeks to fill".

These duties are onerous given the current situation and very real threat to workers' safety (for example, in situations like food processing and healthcare). The onus is on the employment business to obtain this information and pass it on and take various reasonable steps to ensure workers safety.

Regulation 20 also requires employment businesses to pass on and update any information to the hirer regarding a worker's suitability to work in the role. This raises the question: how far does an employment business have to go in carrying out Covid-19-related checks and reporting cases that may pose an infection risk?

The General Data Protection Regulation (GDPR) considerations will need to be taken into account in any reporting and updating process an employment business agrees with its hirer clients. It will be up to employment businesses to agree with hirers how information will be made available and exchanged.

While the Employment Agencies Standards Inspectorate may enforce GDPR considerations relatively sympathetically in the next few months, the regulations also give injured workers a direct right to claim damages from the staffing company if this duty is failed. Staffing companies need to make sure that their procedures are updated and Covid-19 relevant.

It is very likely that major claims will be brought by some workers who suffer serious illness and, perhaps, death – the PPI claims industry may find a new lease of life.

Protective equipment

Does the staffing company's contract with the hirer make clear who has to provide personal protective equipment (PPE)? Are face masks technically PPE? The question of who has responsibility for providing PPE is important in frontline medical and care roles, but lower-grade PPE may be required in other work settings too.

Being clear about who is responsible for what will be important and communicating with workers about any requirement (or not) to wear certain PPE will need to be addressed. Contracts often include a catch-all obligation on the staffing company to provide PPE – and often on a non-specific basis. Staffing companies will need to check whether return to work PPE requirements need to be costed for and amended.

Insurance matters

If claims are made by agency workers and contractors (for example relating to damage to health following working at a site where they become infected), staffing companies need to consider whether their insurance position.

In principle, a staffing company's professional indemnity insurance would cover situations where they had acted negligently in supplying a worker – such as failing to check that the hirer had carried out a Covid-19 risk assessment which might be an example of negligence on the part of the staffing company – but any scenario would need to be checked with the relevant insurer. This highlights the importance of having a process in place to evidence that the staffing company did all that it reasonably could to ensure that the worker had a safe place of work.

Has the staffing company agreed to indemnify the client in respect of any claim made by or injury to a supplied worker? We would advise a review of all contractual indemnities given to key clients, especially those clients operating higher risk workplace arrangements. And, crucially, are directors of staffing companies aware of their potential personal liabilities relating to a failure to ensure the safety of agency workers and contractors?