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Protect yourself from furlough fraud: Law firm's advice to business owners

Protect yourself from furlough fraud: Law firm's advice to business owners

Around £3.5 billion is thought to have been paid out either mistakenly or in response to fraudulent claims under the Coronavirus Job Retention Scheme (CJRS), according to HMRC.

Therefore, it’s crucial that business owners make sure the administration requirements and rules have been complied with to avoid any implications, says a leading employment law solicitor at Nelsons.

HMRC has wide-ranging powers of investigation to look into suspicious cases, with a number of arrests already being made in relation to what’s being dubbed as ‘furlough fraud’. The risks of businesses getting it wrong can, ultimately, have criminal consequences for the employing entity and significant financial consequences for the company.

Laura Kearsley, partner and solicitor specialising in employment law at Nelsons, said:

“Any business owner that has fraudulently claimed – on purpose or accidentally – could be liable to pay back all amounts, not necessarily just the amount that was dishonestly obtained. As such, if they have a big workforce, the amount could be crippling – not to mention the negative PR implications for the business as well.

“For anyone who is looking into acquiring a business, it’s never been more important to ensure that everything is in order and above board with regards to any employees who have been placed on furlough and how the company has been managed throughout the pandemic.”

The history of the CJRS

“It seems a lifetime ago when the government brought in the new concept of furlough leave, which enabled employers to continue to pay staff to remain at home throughout the first period of lockdown and beyond. The scheme paid 80% of wages of workers placed on leave up to a maximum of £2,500 per month.

“In July, the scheme changed to allow a hybrid of flexible furlough that was due to end on 31 October and be replaced by the Jobs Support Scheme (JSS). However, the reintroduction of enhanced restrictions and a national lockdown resulted in an extension to the original terms from November until March 2021 and the JSS was put on hold.

“If a business you’re looking into acquiring has benefitted from and claimed under the furlough scheme, it’s important to check whether the eligibility test was met and the administration requirements and associated rules have been complied with.

“You should be asking to see the written evidence of employees agreeing to be furloughed in each case to ensure that furlough fraud hasn’t been carried out. Even if a fraudulent claim was made before you took over the company, as a new owner acquiring the shares in a business, liability for the financial and criminal consequences would pass to you.”

Redundancies

“A number of businesses have had to make redundancies this year due to the impact of Covid-19. Therefore, it’s always worth looking at any employees who have recently been dismissed and actively consider the risk of any potential unfair dismissal claims or protective awards for failure to consult.

“While redundancy processes may have had to be adjusted due to the pandemic – for example, group redundancy consultations can’t necessarily be held in person and need to be done virtually – the expectation is that coronavirus is not an excuse to forgo any of the legal processes that are required.

“Therefore, it’s of paramount importance to ensure due diligence has been done before the acquisition to avoid any potentially serious, expensive and time-consuming consequences if any mistakes have been made.”

Covid-secure workplaces

“Depending on the industry, there are rafts of guidance from the government regarding what employers should do to ensure a workplace is Covid-secure. When acquiring a business, it’s important to check that a risk assessment has been completed and employees have been consulted so everyone is kept safe while at work.

“If employees are able to work from home, this presents its own challenges in making sure all team members can work safely. This might require a risk assessment or some form of remote working provision.

“Remember, just because employees are working from home does not mean the responsibility falls to them to ensure their individual workplace is safe.”

Be thorough

“Now, perhaps more than ever, it’s vitally important for an acquiring business to check that whether a potential target company has taken all the measures required to ensure best practice has been followed throughout the coronavirus pandemic.

“From remote working and furlough through to redundancies, making buildings Covid-secure and everything in between, all these checks will give an acquisition the best chance of success and minimise the possibility of any unpleasant discoveries coming to the fore further down the line.”


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