Are law firms entitled to furlough employees that are working their notice period?

Recently, we have been concerned to see some of our candidates being furloughed in circumstances where they were working their notice period having resigned pre-pandemic.

The consequence of this has, at a very practical level, created a lot of difficulties for lawyers – and particularly law firm partners – preparing to move firm. Most of those affected have been unable to prepare their cases for their departure often to their clients’ detriment. The issues and frustration caused to the exiting lawyer and the lawyer likely to inherit their work are significant too. Without the law firm enabling the facilitation of a proper and meaningful handover process clients and the inheriting lawyer will suffer because of the stresses this lack of planning creates. There is also the very real difficulty this practice creates for lawyers wanting to execute their move with a material client following.

We spoke with Jane Wheeler an expert in employment law and partner at Keystone Law to understand more about the legitimacy of this practice. Her thoughts were as follows:

1. Are law firms entitled to furlough employees that are working their notice period? It seems clear from the guidance on the Government’s job retention (furlough) scheme and the recent Treasury Direction that the scheme is intended to be used only by those firms impacted by the epidemic: in other words, it would seem contrary to the aims of the scheme to (for example) put someone who had resigned on furlough. This is because the scheme is intended to be used by organisations in respect of roles specifically affected by the coronavirus. There is, therefore, a risk of negative publicity for the firm., or an adverse finding by HMRC, if the firm’s use of the scheme is audited. There is, however, nothing, in principle, to stop a law firm furloughing an employee during the notice period. The firm would need to obtain consent from the employee to furlough, including consent to any reduction in pay. An employee might be less likely to agree to be furloughed, on reduced pay (80% subject to the £2,500 cap) when they are shortly to be leaving the firm. Employees that are forced to go on furlough and accept reduced pay are likely to have claims for breach of contract/unlawful deductions from wages.
2. Can employees working their notice period resist being furloughed? My view is that it is likely to be difficult for an employee to resist being furloughed (i.e. required not to work). This is a bit like garden leave, where the contract continues but with no obligation on the employer to provide work. In principle, the employee has to consent to be furloughed but it may amount to a reasonable instruction of the employer to instruct them not to work. An employee may decide not to consent to any reduction in pay during the furlough period. If the firm imposes the reduction in pay, without the employee’s consent, then the employee would have breach of contract/unlawful deductions of wages claims for the difference between actual pay received and what the employee is entitled to be paid under the employment contract.
3. Can partners (that are not employees) be furloughed? Employees or workers on the firm’s PAYE payroll are covered by the scheme, provided that they were notified to HMRC on an RTI submission on or before 19 March 2020. This means that salaried members of LLPs (who are designated as employees for tax purposes and on the firm’s payroll) would be covered by the furlough scheme.
4. How can senior employees protect their ability to move clients (if agreed with the departing firm) if they’ve been furloughed? The principle of furlough means that an employee cannot actively work or the firm in a way that generates revenue for that firm. It should not affect the other clauses (during and post-employment) in the employment contract which can, for example, restrict clients whom the employee can solicit/contact. Where possible, we suggest that the senior employee agrees with the firm (at the earliest possible opportunity after notice is given) what message is given to clients so that clients have a choice of whether to stay at the old firm or go with the senior employee. If the employee is approached by a client during the notice period (including during furlough) care needs to be taken to ensure that the employee complies with their employment contract. We understand the concern that many senior employees will have about their ability to port their contacts. It may be possible (within the remit of the employment contract) for the employee to comment to that client that they have been placed on furlough and that there are a number of restrictions binding them currently. This can improve the situation where the senior employee feels a bit helpless about the situation and has concerns that what the firm has done by placing them on furlough reflects negatively on them. Care needs to be taken with these conversations with clients and specific advice sought.

Amongst our candidates impacted by this practice, several have described how it feels as though they have been deliberately barred from continuing to work with their clients – clients with whom they have personally developed long standing and trusted relationships – so as to minimise or interrupt all together their client following. It remains to be seen whether this practice is likely to continue given the controversy surrounding it but, for many of our candidates furloughed whilst working their notice, the practice is being met with resistance and frustration, largely because the shared sentiment is that the practice seems directly at odds with the purpose for which the government intended.