Furlough - a global perspective

In Australia, 'furloughing' is known as 'standing an employee down' from employment and there are some similarities here to the measures adopted in the UK.

Under the Fair Work Act 2009 (Cth) (FW Act), an employer may stand down an employee without pay for certain specified reasons - including the situation where the employee cannot usefully be employed because of a stoppage of work for which the employer cannot "reasonably be held responsible". However, this position may be modified by the employee's contract of employment or an applicable enterprise agreement or modern award.

The Australian government has amended the FW Act to support its $130 billion 'Jobkeeper' financial stimulus package. Under these temporary arrangements, specified businesses suffering substantial reductions in turnover due to COVID-19 (at least 30% or 50%, depending on the size of the business) can issue a 'jobkeeper enabling stand down direction', directing employees to (a) not work on a day(s) on which the employee would usually work, (b) work for a lesser period than the employee's ordinary hours on any given day, or (c) work a reduced number of hours overall. Those employers will then receive $1,500 per fortnight wage subsidy from the Australian government per eligible employee, to ensure that the employee remains in connection with their employer.

The Danish Government has entered into a 'Three-Party-Agreement' (the Agreement) with labour organisations representing both employers and employees. The Agreement is a compensation scheme for employers and employees to avoid massive redundancies. Unusually, the Agreement applies to employees and employers regardless of whether they are a member of an organisation/trade union.

The agreement states where private companies have to make 30% or more than 50 employees redundant (as a result of COVID19), the company must continue to pay normal salaries to all employees. However, they will receive state compensation of 75% of salaries of full-time employees capped at a maximum of DKK 30,000 per employee per month. For hourly wage earners, the state compensation amounts to 90%. This is also capped at a maximum of DKK 30,000 per month. Unlike the UK, the companies must then pay the remaining part of the salaries.

As in the UK, the employees cannot work. However, unlike the UK,  the company cannot dismiss employees due to financial reasons.

An employer in Hong Kong cannot impose a furlough arrangement, or mandatory suspension of work with no pay, on an employee as this is unlawful under the Employment Ordinance (the Ordinance).  Even if the employment contract includes an express provision purporting to allow the employer to furlough the employee, the Ordinance renders that provision void and unenforceable.

Therefore, an employer in Hong Kong (who has been badly affected by COVID-19) would have to take other steps to deal with these issues, including:

1. Reducing days worked and pay by consent
2. Arranging for employees to take unpaid leave by consent
3. Terminating the contracts of employment.

In early April 2020, the Hong Kong Government announced a financial relief package aimed at enabling employers to retain their employees including the Government paying 50% of the monthly salary of employees who are enrolled by their employer in Hong Kong’s mandatory pension scheme.  This relief measure is capped at HK$9,000 per month per employee, and will last for six months.  Accordingly, whilst the furlough practice is not recognised, a general compensation scheme for employers and/or employees is adopted as in the UK, Denmark and Australia.

To avoid a financial crisis, employers in both organised as well as unorganised sectors have been advised by central government not to impose a furlough arrangement without pay on employees and workers.

Whilst employees can be asked to work from home, employees of establishments which are non-operational due to COVID-19, are to be deemed to be on duty.  Employers are, accordingly, advised to not make deductions from an employee’s salary or entitled leave.

In relation to workers employed in industries, shops or commercial establishments, an order has been issued by the Central Government under the Disaster Management Act 2005, mandating payment of wages without any deduction for the period that the establishments are closed on account of the lockdown. The violation of this Order can attract a fine, penalty or both.

The legal validity of orders, circulars and advisories issued by the Central Government and the various State Governments as a response to COVID-19, is yet to be tested. It also remains to be seen whether the Government of India will issue more specific guidance enforcing the rights of employees, whilst striking a balance between the interests and rights of an employer.  The Government of India  is also likely to expedite the enactment of the Code on Wages which is awaited.  However, unlike the other countries cited above, there is no current temporary compensation package made available by the government.

The concept of furloughing is well established in the USA. It is done for economic reasons in 'cash crunches' or seasonally - like say a golf club that needs employees only in spring and summer. 

A company in the USA  largely has the right to do so, without restriction, save that the employer has one year to either bring the employee back or officially dismiss them. As in the UK, while furloughed, an employee is forbidden from being asked or required to do any work of any kind for its employer. 

As in India, no temporary compensation package has been expressly created for employers and/or employees for this period of financial hardship.  However, most furloughed employees in the USA can collect unemployment benefit (but there are state by state variations). This was increased by $600 over usual limits by Congress recently but will expire unless renewed in July.