Contractors’ Questions: Does my client’s contractor furlough interfere with the government furlough?

Contractor’s Question: Is there any legal recourse for me in light of my client’s decision to continue to blanket ban PSCs ahead of private sector IR35 reform, even though the government has put back the reform by 12 months?

Like many in the banking sector, I've been subject to this blanket ban and, since March 20th 2020, have been working through an umbrella company. What has become apparent (although not formally announced yet), is that my client is about to make all contractors take a compulsory furlough.

My fear is that this enforced downtime will snooker all contractors because to take advantage of the COVID-19 furlough scheme, the worker must have been employed or engaged at the time of the chancellor’s announcement -- March 20, and not been terminated since. Are those conditions applicable? Regardless, please advise.

Expert’s Answer: The implementation of new IR35 rules for off-payroll working in the private sector, which affect workers operating through PSCs, has been postponed until April 2021, as you identify. But many companies that use contractors had already made up their minds about how they are going to comply, before the delay was announced.

Any blanket ban on PSCs at the company you supply is a separate issue to the Coronavirus Job Retention Scheme (which you refer to) and, while you may be able to challenge your client’s blanket ban, it probably will not be a challenge you can mount within the context of the coronavirus or the government support schemes in relation to coronavirus.

For your reference, the CJRS is open to any employer regardless of size, and covers full-time and part-time employees and workers (including agency workers, apprentices, directors and office holders and those on zero-hour contracts), provided that they were on their employer's PAYE payroll on or before February 28th 2020.

Separate issues (cont.)

Any furlough announced by your own client between it and contractors is, like your IR35 challenge idea; a separate issue to the government furlough scheme, which engagers must apply to the government for, in order to offer it to workers who cannot work because of coronavirus.

As far as the government’s scheme (the CJRS) is concerned, furlough will mean no working activity is permitted for the individual concerned but they can receive up to 80% of their salary, for a three-month period with backdated effect from March 1st 2020, once the HMRC portal for the scheme opens on April 20th 2020. For employees of limited companies, salary tends to be paid out at quite a low level.

The CJRS is separate to the Self-Employed Income Support Scheme (SEISS), which you do not enquire about, but it too is support announced by the government for people who work for themselves while this pandemic is ongoing.

Next steps

In future, you and other contractors may want to discuss with a client the possibility of being brought onto payroll ahead of the new IR35 implementation date next year, which would offer you more employment rights going forward, but will not help in the current circumstances.

As to those circumstances, which for you includes a blanket ban on PSC usage during a national health crisis, as I said at the outset, the client’s ban may be subject to your challenge. However, you should be aware that due to the coronavirus’s wide-ranging impact, and the government’s response to the outbreak (such as social distancing), some tribunals are only operating via video link. Moreover, any challenge would likely be in a long queue for consideration.

Timing couldn't be worse

Finally, contractors who had their contracts terminated as a result of IR35 reform decisions internal to their client and no doubt made before the covid-19 outbreak, are in a very difficult position as a consequence of extremely unfortunate timing. In your case specifically, had you been moved onto a PAYE umbrella company on February 20th (not March 20th as is the case), you would be eligible for the CJRS as a result of being an employee of the umbrella.

The expert was Alex Watson, an employment lawyer at Fieldfisher.