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Treasury Direction: The legal framework for the Coronavirus Job Retention Scheme

17 April 2020
Business colleagues in glass room
On 15 April 2020 the Chancellor made a Treasury Direction ("the Direction") providing the legal framework to the Coronavirus Job Retention Scheme ("CJRS").  The Chancellor has also announced through a government news story that the CJRS will be extended to the end of June.   

Although not an Act of Parliament nor a Statutory Instrument, the Direction is still legislative in its origin.  

The purpose of the CJRS is clearly set out within the Direction:

"… to provide for payments to be made to employers on a claim made in respect of them incurring costs of employment in respect of furloughed employees arising from the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease".  

The Direction sets out its stall in the opening paragraphs, making it clear that no CJRS claim may be made in respect of an employee if it is abusive or is otherwise contrary to the exceptional purpose of the CJRS.  Employers be warned.  

The Direction is detailed and complex and in places seems to contradict the guidance issued by HMRC. In this update we highlight the key points for employers to consider now that we have a legal framework.  

Which employers qualify for the CJRS?

In order to qualify employers must have a pay as you earn (“PAYE”) scheme registered on HMRC’s real time information ("RTI") system for PAYE on 19 March 2020 (“a qualifying PAYE scheme”).

The guidance confirms that employers can only claim for furloughed employees that were on their PAYE payroll on or before 19 March 2020 and which were notified to HMRC on a RTI submission on or before 19 March 2020.

The new cut-off date of 19 March 2020 will benefit an estimated 200,000 new-joiner employees, whilst also limiting the opportunity for any fraudulent activity – the CJRS was first announced on 20 March 2020.  The RTI notification requirement may unintentionally result in some employees being excluded from the CJRS even though they commenced employment well in advance of 19 March 2020. The RTI notification ordinarily occurs when an employee is paid and if this did not occur until the end of March, these employees will not meet the requirements of the CJRS.  

In line with the updated guidance, the Direction also confirms that claims under the CJRS can be made in respect of employees who transfer under the Transfer of Undertakings (Protection of Employment) Regulations 2006 after 19 March 2020.  The guidance states "a new employer is eligible to claim under the CJRS in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership".  Where a TUPE transfer took place before 19 March 2020, the same issue highlighted above could occur where the RTI submission has not been made to HMRC before the cut-off date of 19 March 2020.

Unlike the guidance, the Direction does not deal with public sector organisations or publicly funded employers.   Many of these organisations have been concerned as to whether furloughing staff is an option as the guidance gives a clear steer that the CJRS is not designed for this group of people.  However, this left many public sector bodies/publicly funded bodies in a difficult position where they had staff that they wanted to furlough, for example because they needed to shield in line with government guidance.  Although another area of ambiguity, the lack of reference to this exclusion in the Direction gives some weight to the argument that this group of people could, in the right circumstances, be eligible under the CJRS.  

Which employees can employers claim for under the CJRS?

The Direction outlines three key requirements for an employee to be furloughed:

1. the employee has been instructed by the employer to cease all work in relation to their employment,
2. the period for which the employee has ceased (or will have ceased) all work for the employer is 21 calendar days or more, and
3. the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease.

The third requirement makes it clear that there is no need for a redundancy situation in order to claim under the CJRS.  It has become increasingly clear with every update to the guidance that a strict redundancy situation was not necessary in order to make a claim, however the Direction now provides welcomed clarity.  

Agreed in writing 

A new requirement of note, which contradicts the guidance, is that in order to qualify under the CJRS there must be an agreement in writing.  The Direction states:

"An employee has been instructed by the employer to cease all work in relation to their employment only if the employer and employee have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment."

This condition is significant and action may need to be taken by employers to ensure the strict requirements of the CJRS are met.  Many employers were under significant pressure to furlough employees in a short timeframe based on the Government's latest guidance.  Employers who did not receive a response from employees agreeing to the furlough arrangement or who sought to rely on deemed consent should take immediate action to seek written agreement of the furloughed employees.  In addition, where trade unions have negotiated on behalf of multiple employees, written consent should still be sought.  There is no requirement under the Direction that the written agreement pre-dates the period of furlough and so it seems likely that confirmation now should not prevent a successful claim under the CJRS.  

Update – the latest version of the guidance conflicts with the Treasury Direction and states "There needs to be a written record, but the employee does not have to provide a written response".  While there is a conflict between the guidance and the Treasury Direction we would suggest that employers minimise risk and do seek written consent to the furlough arrangement. Please see our Legal Update on the latest guidance. 

How does sick pay interrelate with the CJRS?

There is ambiguity between the Direction and the latest guidance. The Direction seems to backtrack on the approach taken under the latest guidance, whereby an employer appeared to have a choice as to whether to furlough employees who are currently off sick (the guidance reads - "If, however, employers want to furlough employees for business reasons and they are currently off sick, they are eligible to do so, as with other employees.").  The guidance also allows employers to choose to furlough employees who fall sick during furlough leave ("It is up to employers to decide whether to move these [employees who become sick during furlough] employees onto Statutory Sick Pay ("SSP") or to keep them on furlough, at their furloughed rate.").  

The Direction states that where an instruction to cease work is given at a time when SSP is payable or liable, the period of furlough leave cannot commence until the period of original SSP has ended. This means that employees who are currently on SSP cannot be furloughed until the period of SSP has concluded.  This is inconsistent with the guidance.  

The Direction goes onto state "but any subsequent entitlement to Statutory Sick Pay by virtue of the employee becoming unfit for work again after the original SSP has ended must be disregarded". This would suggest that a further period of sickness (entitling the employee to SSP) would not necessarily break the furlough period.  

As we have outlined in our previous updates employers may wish to consider a provision in their furlough agreements confirming that any sick pay that becomes payable on furlough leave can be reduced to SSP or that company sick pay will be paid at the same rate as furlough pay. If agreed by the employee, this action would reduce an employer's exposure to significant contractual sick pay claims during a period of furlough.   

Separate to the Direction, a further update to note in relation to SSP is that individuals who are classed as extremely vulnerable and at very high risk of severe illness from coronavirus (COVID-19) are deemed incapable for SSP purposes following new regulations brought into force on 16 April 2020. Providing the SSP eligibility criteria is met, this change of law helps to provide a safety net for a particularly vulnerable group of people.  


It is important for employers to familiarise themselves with the detail contained within the Direction. It is questionable whether a further direction may be made. The Direction itself envisages the possibility of further directions. Although no specific commitment has been given, considering the number of outstanding questions, clarity would be helpful.  

We will keep you updated.  

If you would like any further information with regard to the issues raised in this update please contact your usual DWF contact or another member of the Employment Team. 

Key resources 

Government CJRS guidance for employers 

Government CJRS guidance for employees 

Government support FAQs 

Acas Coronavirus (COVID-19): advice for employers and employees

Pensions Regulator Guidance

The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction 

DWF Legal Update on the CJRS guidance on 26 March 2020 

DWF Legal Update on the CJRS updated guidance on 4 April 2020

DWF Legal Update on the CJRS updated guidance on 9 April 2020 

DWF Legal Update on the CJRS updated guidance on 15 April 2020

Further Reading

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