Job-retention programmes – and their aftermath

The Covid-19 pandemic has caused governments the world over to implement schemes to avoid mass unemployment during periods of economic shutdown. Margaret Taylor assesses the programmes in place across a number of jurisdictions and the consequences as these schemes wind down.

Note: This article was written in mid-August 2020.

The German economy was one of the hardest hit by the financial crash of 2008/09. It was also one of the fastest to recover, thanks in part to a job-retention scheme that enabled workers to keep earning while the crisis raged and remobilise once it had abated.

As Björn Gaul, Conference Content Officer on the IBA Employment and Industrial Relations Law Committee and a partner at CMS in Germany, says: ‘The short-time work regulation [Kurzarbeit] - which puts people onto short working time and the state pays 60 per cent or 67 per cent of their net salary - is made for employers who are not able at the moment, for reasons external to them, to employ their employees. I think that’s why Germany came out of the crisis [relatively quickly] in 2009. It’s like a running start.’

Unsurprisingly, governments around the world have sought to follow Germany’s lead by finding similar ways of avoiding mass employment amid their Covid-19 shutdowns. From the UK’s furlough scheme and the US’ Paycheck Protection Program (PPP), to France’s temporary unemployment scheme and Canada’s Emergency Response Benefit (CERB) and Emergency Wage Subsidy (CEWS), numerous measures have been introduced that to some degree emulate the German Kurzarbeit programme.

As was the case in Germany, some programmes were already in existence, with governments simply tweaking them to make them Covid-ready. France, for example, already had its chômage partiel – or partial unemployment – scheme, which pays up to 70 per cent of wages to staff who are either unable to work or have to work reduced hours due to circumstances such as the economic situation, a disaster or bad weather of an exceptional nature. In ordinary times, the French state pays this benefit for a maximum of six months, but that has been extended to 12 as a result of Covid-19.

Olivier Kress, Website Officer on the IBA Employment and Industrial Relations Law Committee and a partner at French firm Flichy Grange Avocats, says that having this programme to fall back on has proved ‘quite a strong advantage’ for employers in France.

‘At the beginning of the pandemic the French government took immediate measures in order to help companies and employees,’ he says. ‘As a company you expect to restart your business one day and this has helped a lot of companies – the recourse to the scheme has been huge.’

Kress explains that the scheme has been used by companies that were facing economic difficulties, such as in situations where they’ve lost a major client. ‘The important thing is that the government specifically tried to facilitate the use of it by not putting huge conditions on benefiting from the scheme,’ says Kress.

Making law on the fly

In Canada, on the other hand, CERB – which pays CAD $2,000 every four weeks to anyone unable to work as a result of Covid-19 – and CEWS – which subsidises businesses so they can pay staff 75 per cent of their wages – were completely new programmes introduced with very little time for planning or thought.

The result, says Patrick Benaroche, Senior Vice-Chair of the IBA Employment and Industrial Relations Law Committee and a partner at Stikeman Elliott, is that the government has been forced to ‘work out the detail as it goes’. He adds that the programmes are amended on a daily basis to deal with the unexpected that results when laws are passed at such short notice.

The confusion that has caused for employers has been replicated in the UK, where 11 separate pieces of guidance have been issued in relation to the national government’s job retention scheme, some of which have been rewritten close to 20 times. Tom McLaughlin, a senior associate at London employment boutique BDBF, says this is putting businesses at risk of falling foul of the scheme rules.

‘The difficulty has come – and it’s difficult to be too critical of the government – in that a new employment status that we never had before in this country was invented overnight on the back of an envelope,’ he says. ‘The finer details of this were worked out in fits and starts as they went along and there are a large number of pieces of guidance and legislation governing the scheme that don’t necessarily make sense.’

McLaughlin explains that the scheme has been quite fast-moving, with little areas of nuance that haven’t been fleshed out until later, such as on holiday entitlement. ‘The process of getting the application in and getting the money is relatively straightforward, but understanding the scheme and the rules and feeling confident about it is not,’ he adds.

While HM Revenue & Customs has given employers a 30-day window in which to rectify genuine mistakes in interpreting those rules, it will not deal leniently with employers who have deliberately defrauded the scheme. As one of the key criteria for accessing the Government’s help is that staff do no work at all during their time on furlough, even a staff member receiving a work-related phone call could result in a breach. In addition to having to repay any money incorrectly claimed, sanctions of up to 200 per cent of the amount over-claimed will also apply.

Not all penalties are so clear-cut, though. In the US, where businesses could, until 8 August, access loans specifically designed to keep employees in their jobs, discussions are ongoing about how lenient the loan-forgiveness element of the scheme should be.

The act that introduced the US’ PPP allows for loans of up to $150,000 to be converted to grants on condition that employers uphold their commitment to retain staff. Both Republicans and Democrats want to extend the deadline for applying for those loans, while making the process of applying for them simpler, though the former also wants to reduce the pool of companies eligible to apply for one.

Until a decision on how to proceed is reached in the US Senate, some degree of uncertainty for employers will remain. Even when that decision is reached, Julie Adams, a partner at US firm Ford Harrison, warns that businesses must be careful not to open themselves up to charges of fraud, which will be brought by the state against anyone thought to be breaching the terms of the scheme.

‘The Paycheck Protection Program morphed from its original form, but the gist of it was that the federal government would give certain companies loans to encourage them to retain employees,’ she says. ‘The key to having that loan forgiven was it was going to be tied to what efforts companies made to retain folks. As it was initially proposed, there were stringent obligations aimed at retaining or rehiring employees, but those were relaxed to say that as long as employers met certain retention criteria or made good-faith efforts, the loans may be forgiven.’

Adams explains that a company that received a loan from the federal government and didn’t take the measures that were required to retain employees will have to repay some or all of the loan. ‘For those companies and individuals that fraudulently obtained a PPP loan, the federal government is going after them with criminal charges ranging from mail and bank fraud to money laundering,’ she notes.

Disputes ahead

Nor is it just actions from above that companies need to be wary of. With the spectre of mass job losses looming as certain countries seek to wind down their job retention schemes, employment disputes are also expected to arise.

Amanda Steadman, a knowledge lawyer who works alongside McLaughlin at BDBF, notes that ongoing changes to the UK furlough scheme – which is due to wind up at the end of October – mean many employers are now weighing up whether to begin reducing their headcounts rather than foot their pre-pandemic wage bills in the post-lockdown world.

This has been prompted by the fact that employers are now having to contribute towards the cost of retaining staff who are still unable to do any work. Initially the UK government paid 80 per cent of furloughed staff’s wages – up to a maximum of £2,500 a month – and employers were not obliged to contribute anything. From the start of August, however, employers have had to pay National Insurance and pension contributions on the furlough pay while in September they will have to contribute 10 per cent of that pay too, rising to 20 per cent in October.

‘A scheme that was a no-brainer for employers because it wasn’t costing them anything is now going to cost them cold, hard cash,’ Steadman says. ‘Those amounts seem quite small, but if you multiply them by 500 employees it all starts to add up. The crux is going to be whether those jobs are really still there. If they are, and the employer has confidence that they will need those people in the future, it still makes sense to keep them because the cost of firing them then recruiting new people will be a whole lot more.’

‘If they don’t have confidence that the jobs are there, the fact they will have to start paying those employees will tell,’ she adds.

McLaughlin says it’s clear that not everyone who was furloughed is going to have a job to go back to, with there now being a sense ‘that that is only going to happen in 50 per cent of cases’.

‘The reality is that the furlough scheme has supported jobs which are otherwise redundant in a more long-term way because businesses haven’t bounced back or people who had been reliant on office-based or paper-based ways of working [have been forced to] move to electronic ways,’ he says. ‘The jobs supporting those ways of working aren’t coming back.’

A number of UK businesses have already announced redundancies, with research from the Chartered Institute of Personnel and Development (CIPD) and recruiter Adecco suggesting that a third of employers are looking to reduce their workforces as a direct result of the pandemic. Businesses that have already confirmed they will be making staff cuts include restaurant chain Pizza Express, which expects 1,100 jobs to go, and airline British Airways, which is eliminating 12,000 roles.

Yet with furlough impacting on certain groups of staff more than others, Steadman warns that employers will have to tread carefully to avoid a spike in employment disputes against them.

‘An issue that might come to the fore is the discrimination angle,’ she explains. ‘A much higher percentage of women than men volunteered to be furloughed. If you have a situation where an employer is pursuing a redundancy exercise and just simply thinks that all those who are furloughed will be made redundant rather than also including all those who are still working, that could be discriminatory. It could potentially be an unfair process.’

In continental Europe, where laws tend to be more employee-friendly than in the UK or US, employment disputes are also expected to rise in line with the number of companies looking to reduce their workforces.

Kress at Flichy Grangé says that while President Emmanuel Macron has given greater flexibility to employers since assuming the French presidency in 2017, the default position remains that dismissed employees tend to challenge their employers in the labour courts.

‘Those who were dismissed will challenge the reason why they were dismissed and there will be a lot of litigation around that,’ he says. ‘We are doing a lot of redundancy schemes at the moment and they will be challenged in the forthcoming months by employees. It’s very common in France for people to challenge why they were dismissed – around 95-99 per cent do.’

Kress explains that in France, as opposed to the UK or the US, employers must justify why they need to terminate their relationship with an employee. About 85 per cent of challenges are upheld, he notes, and in about 60-80 per cent of cases there’s an appeal.

In Germany, while the Kurzarbeit programme has been extended from six months to 12 as a result of the pandemic, Gaul at CMS believes employees will start losing their jobs in the coming months as the economic reality of the post-lockdown environment begins to become clear.

‘We will have dismissals starting in September or October, that’s for sure, even with the short-time scheme,’ Gaul says. ‘[The scheme] is able to fill a gap of between 12 and 24 months, but if you already had a problem because of a changing market, for example in the automotive industry, this is the crisis to double your problem.’

Gaul suggests that while people are currently on the short-time scheme, companies are preparing to restart and that will probably be with fewer employees. ‘We will have a lot of announcements of dismissals,’ he says, noting that he’s already working for some clients ‘that will be starting the procedure in September or October and two of those are talking about almost 4,000 employees.’

As is the case in France, this is likely to give rise to a significant increase in employment disputes making it to the courts, which will result in additional expense for employers over and above Germany’s already-generous redundancy packages.

‘In Germany people don’t normally accept a dismissal so there will be a lot of people running to court,’ Gaul says. ‘If the employer loses, the employee comes back. That’s the normal situation in 99 per cent of cases.

Gaul adds that more than 80 per cent of court proceedings end with a termination but where the employer settles with the employee and pays them an additional package.  

The end of the beginning

Although some governments are making tentative preparations for their job retention schemes to be scaled back, the fact there is still no vaccination or cure for Covid-19 means they could have to be reinstated should further lockdowns ensue.

Both McLaughlin and Gaul believe their respective governments could look at using sector-specific schemes in future, to prop up industries such as leisure or aviation that would most likely be forced into total shutdown again.

Such measures would necessarily be short-lived and designed to prevent particular sectors of particular economies from collapse. For Benaroche at Stikeman Elliott, however, there are longer-term lessons to be learned from the pandemic that will colour employment practices for years to come.

‘We’re seeing a very interesting phenomenon,’ he says. ‘Prior to coronavirus, Canada had an ageing population but the economy was growing so that fed into the labour pool. The unemployment rate was the lowest it had been in 40 years – companies couldn’t find workers. Now what’s happening is there’s an acceleration of automation – digital-based businesses are thriving and working from home is creating demand.’

‘Bars, entertainment, live events – all of those areas where there was a huge demand for jobs now all of a sudden have no demand,’ he explains. ‘On the other hand, jobs are going to be in demand in the tech sector, with companies hiring engineers and software developers.’

From a top-down point of view, Benaroche says the government is looking at ways of responding to that change by, for example, creating better working conditions and benefits for workers in the gig economy. Changes are going to be needed from the bottom up too, he says, with the pandemic forcing employers to reassess not just their staffing levels, but the way in which those staff do their jobs as well.

‘Employers need to look at their use of space and how that’s going to impact on employees,’ Benaroche says. ‘Some workers just don’t feel like doing the commute any more. People have adapted to this new lifestyle and employers are going to have to integrate that. They don’t have a choice; the train has left the station.’