Furlough, agencies and public funding - more details on eligibility in the education sector

Background

The Government announced its Coronavirus Job Retention Scheme on 20 March. Initially, there was no suggestion that the public sector wouldn’t be able to furlough staff, but subsequent employer guidance indicated that organisations in receipt of ongoing public funding to meet staff costs were “not expected to furlough staff.” 

It then published guidance notes on payments to suppliers for contingent workers impacted by Covid-19 which looked at the position of agency and other contingent workers engaged by public sector contracting authorities. Our FAQs on furloughing agency staff looked at some of the issues that arose in that context.

On 18 May, the government published guidance about school closures and staffing levels and this includes a section on paying for agency workers. Then, on 19 May, it also updated its guidance on the Procurement Policy Notice: Supplier relief due to Covid-19 – additional sector guidance for state funded schools.

This article considers what action schools/colleges need to take for directly employed staff and contingent workers, as well as considering what steps they may need to take if they have already acted in a way that is contrary to the most recent government guidance.  

Directly employed staff

On 22 April, the government published guidance on the financial support for education, early years and children’s social care which included a section on the CJRS which stated:

"The government expects that the scheme will not be used by many public sector organisations, as most public sector employees are continuing to provide essential public services or contribute to the response to the coronavirus outbreak. Where employers receive public funding for staff costs, and that funding is continuing, we expect employers to use that money to continue to pay staff in the usual fashion – and correspondingly not furlough them. This also applies to non-public sector employers who receive public funding for staff costs. Organisations that are receiving public funding specifically to provide services necessary to respond to coronavirus are expected not to furlough staff. In a small number of cases, for example where organisations are not primarily funded by the government and whose staff cannot be redeployed to assist with the coronavirus response, the scheme may be appropriate."

It then goes on to say:  

Where government funding is continuing to be paid, you will be expected to continue with the provision of services as far as possible. Where this is not possible, you should redeploy staff to best support the Covid-19 response. However, staff should continue to be paid, even where typical duties cannot be completed;

The government acknowledges that you may need to use a combination of the schemes that the government has made available to support employers, however, you shouldn’t use the CJRS until other cost saving options have been explored first.

If your organisation is classified as public sector you should not furlough staff that are supported by public funding. However, if you are a public sector organisation that also receives private income which has ceased or reduced you may be able to furlough staff under CJRS, subject to qualifying criteria.

Conditions for public sector organisations using CJRS

If you are in receipt of some public funding, you can only use the scheme where the employee:

• works in an area where services are temporarily not required and their salary is not covered by public funding;
• would otherwise be made redundant or laid off;
• is not involved in delivering a provision that has already been funded;
• where appropriate is not required to deliver services for a vulnerable child and/or child of a critical worker 
• and where furloughing the employee would not lead to financial reserves being created.

The wording suggests that all of the above would have to apply and you can’t just rely on one factor. 

However, in practice the division of funding is rarely clear cut as to apply to specific individuals or services. Where you cannot easily separate the funding (and indeed schools/colleges are not expected to), the government advises that:

“…the total proportion of teaching and non teaching staff (based on gross payroll) that are retained should be at least equal to the continuing public income the organisation receives.” 

In other words, the gross total of your organisation’s wage bill covered under the CJRS cannot exceed the private income you receive.

Ad-hoc staff and directly engaged contingent workers

Many organisations also engage ad-hoc, zero hours and contingent workers, such as exam invigilators, paid for using public funding. If these individuals are still needed, you should pay them as normal. However, if they are not required because of Covid-19, you should pay them 80% of their typical pay up to the £2,500 cap, based on retrospective pay and limited to the amount originally budgeted for. This reflects the position for contingent workers engaged via agencies, as discussed below.

The guidance includes a warning that DfE are considering appropriate measures to monitor schemes and identify any duplication of funding. Where this is found, the DfE may look to recover any ‘misused’ public funding as a result.

Areas of uncertainty

Unfortunately, there are still a number of areas of uncertainty.

In particular, although public sector organisations are “encouraged” to redeploy workforces to help support the Covid-19 response and explore other options to reduce operating costs, before seeking the support of government grants, it’s not clear how far schools/colleges have to go to demonstrate they have considered other options.

The government has said it is developing an ‘online tool’ to support the education, early years and social care sectors with the guidance but no further details or launch date has been provided for this.

Staff not directly employed and contracts with third party suppliers 

Many schools/colleges use agency staff and third party suppliers to assist with operations. However, much of the recent guidance – whilst providing clarity on directly employed staff – doesn’t go into the same amount of detail to help organisations decide what to do about individuals they don’t directly employ.

The previous position

The previously published guidance, explained that where agency staff are on live assignments and able to continue to work, you should continue to pay them as per your contractual agreements. However, the position is trickier where agency staff are no longer needed, but their services are paid for from public funds.

The guidance went on to state that “public sector contracting authorities are encouraged to apply the guidance …” and continue to pay agency staff unless and until the arrangement would ordinarily come to an end. This suggested that you should not cancel contracts as a result of Covid-19.

Latest guidance

On 18 May, the Government published guidance notes on payments to suppliers for contingent workers impacted by Covid-19 which should be read in conjunction with the government procurement policy note. These documents provides answers on a range of topics including supply teachers and contingent workers (section 15). We summarise the key principles below.

• Agency staff on live assignments

If your agency staff can continue to work, you should pay them at the agreed rates. If however, the worker cannot work due to Covid-19 (i.e. sickness or school/college closure) you should pay 80%, up to the £2,500 cap and agencies should not furlough these individuals.

• Agency staff that are not on live assignments

If an assignment is due to come to an end (e.g. for a reason other than Covid-19) or has ended, you don’t have to extend the assignment and the worker can be furloughed by the agency under the CJRS. However, because staff can only be furloughed for a minimum period of three weeks, you would not be able to use the agency worker again until the end of that period. You need to be mindful of this when considering ongoing resource needs.

• ‘At risk’ suppliers

The government guidance has also stressed the importance of publicly funded bodies classified as ‘contracting authorities’ supporting the wider supply chain and, in particular ‘at risk’ suppliers, where the supply of goods and/or services is reduced or suspended as a result of Covid-19 and there is a business argument for continuity of providers in the longer term.

Supplementary guidance published by the Government on 19 May provides additional information for state funded schools including how to determine if you are a contracting authority (you are if over 50% of your income comes from public funding), the scope of the note (its applicable until 30 June 2020, but is not binding) and ways you can support ‘at risk’ suppliers.  Ultimately, the decision is yours to make but you may want to consider:

• payments to aid cash flow (even if this is contrary to contractual terms) such as those which allow you to reduce payments because of reduced performance;
• other contractual relief such as amending contractual terms to support suppliers (e.g. changing timescales or KPIs or limiting entitlement to service credits); and
• accelerating payment of invoices.

If you are concerned about existing contracts, we recommend you seek specific legal advice before taking any action which is not consistent with the government guidance.

Options if you have already terminated an agreement because of Covid-19

1. Contingent workers you directly employ

If you terminated a contract with a contingent worker you directly employ (i.e. not via an agency) because of Covid-19 you should reinstate their contract on the same terms, provided the contractor is not already using another government support scheme.

2. Suppliers

What about suppliers? As stated above, there is guidance to support ‘at risk’ suppliers and the ethos of the guidance is fairly clear – publicly funded organisations should be trying to keep supply chains open. However, it’s not clear if all of the government guidance will be viewed as mandatory or simply ‘best practice’ (albeit the latest on third party suppliers guidance does state that this is not binding on organisations); it doesn’t expressly state potential consequences for any breaches nor do we know whether the guidance can be relied on after the event where termination of contracts pre-dated publication. 

Until we have clarity on these outstanding questions, it is difficult to establish if a contract has been terminated incorrectly. However, if it has, the usual rights and remedies around breach of contract claims apply. Therefore, the key question for organisations to grapple with is, would the contracts which have been terminated as a result of Covid-19 continued if the organisations had not been closed and, if so, should these contracts be reinstated?

Indeed, reinstating these contracts is consistent with reinstating directly employed staff who may have been made redundant as result of Covid-19. Equally, however, if this was what the government intended surely it would have expressly stated this (as it has done for directly employed staff)?

Until we have clarity on this, as an organisation you have to weigh up perceived risks of sticking to your original decisions, or reinstating these contracts.

The key take away, for the time being, is that as an organisation you need to be able to justify the decisions you have made (and, continue to make), especially if they go against the government's desire to support third parties.

In an ideal world, you might be able to ‘wait and see’ and hope for further clarity or direction from government, but in reality this is not likely. Many suppliers will already be considering their options as loss of these contracts will, in many cases, be a significant financial hit. 

Therefore it would be prudent to revisit the contracts you have terminated as a result of Covid-19 and consider whether (a) the contract has been terminated legally and (b) if there is any scope to reinstate the contract and for support to be provided to these suppliers, in line with the government guidance. Each contract should be considered on its individual facts. If, as an organisation, you decide not to reinstate a contract(s) you must be prepared for a legal challenge and provide evidence to defend your decision.

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