Deductions from Furlough Pay – is it legal?
It has been widely reported that a Steakhouse restaurant group, Tomahawk Steakhouse, asked employees to loan the company 10% of their furlough salary to assist with “short-term cash flow issue” to cover the costs of national insurance and pension contributions. GMB union has commented that staff were told that their suitability for their roles would be reviewed if they did not agree.
This has undoubtably raised the question amongst many employers, is this legal?
As a starting point, any reduction in pay, or loan arrangement would be treated as a variation to the employees’ contract. This means that an employer would need to consult with the employee and get their agreement to the change.
Under the current terms of the Coronavirus Job Retention Scheme, employers are required to pay the grant to their employees and the employer is also required to pay national insurance and pension contributions.
On face value, if an employee receives the grant but then agrees to voluntarily loan 10% of their wage to an employer, it appears to be legal. However, if employees were forced to sign the agreement under duress, the agreement is likely to be void and an employee could resign and claim constructive unfair dismissal. Tomahawk denies such claims and states that all their employees agreed voluntarily to the loan, totalling around 500 staff.
In response, Treasury Minister, Jesse Norman, said that employers “cannot enter into any transaction” which reduces the amount of furlough paid, and that “employers are required to pay staff all the Coronavirus Job Retention Scheme grant they receive”. He further states “Where an employee had authorised their employer to make deductions from their salary, these deductions can continue while the employee is furloughed provided that these deductions are not administration charges, fees or other costs in connection with the employment.”
The GMB union criticised Tomahawk Steakhouse for “bullying its own young, low-paid staff to raise interest free cash” and called on the Government to close the “legal loophole”.
Whilst employers can make lawful deductions from employees’ wages with their agreement, this can also put employers in a moral dilemma. Tomahawk Steakhouse’s actions have been widely reported in the press and deemed by many as an abuse of the Coronavirus Job Retention Scheme. Only time will tell to see if this has a lasting effect on their business reputation and employee morale.
Author: Anna Schiavetta, Employment Law Solicitor at Howarths