As the Coronavirus crisis continues, the sports industry has emerged as one of those to be worst affected economically. With no way yet to play matches, clubs’ revenues are down, and many may be fighting for survival in the coming months. Professional rugby clubs fall squarely into this category, with many propped up by wealthy individuals and most making significant annual losses. Without match-day income, clubs are inevitably going to struggle to fulfil all of their obligations.

As such, many have sought to make cuts by reducing the wages of players and staff. It has been reported that all Premiership clubs have imposed a 25% pay cut on players, while Championship side Newcastle have asked all players to take unpaid leave. A further question now arises: can UK clubs make claims under the Government’s Coronavirus Job Retention Scheme?

The simple answer to this question is likely to be ‘yes’ – but it is worth considering in greater detail. This article will try to do just that, setting out how the Government Scheme operates and explaining how both players and clubs might best take advantage of it in these challenging times.

The Government Scheme

On 26 March 2020, the HM Revenue & Customs (“HMRC”) published guidance on the Government’s Coronavirus Job Retention Scheme (the “Scheme”). Its purpose is to ensure that businesses are able to continue paying their staff, to support cash flow and to avoid the large-scale redundancies seen during the global financial crisis of 2007-2009. In short, it aims to keep the economy ticking over during the widespread shutdown and tries to help millions of individuals through this difficult time. It is unprecedented in its scale.

The basic position under the Scheme is that employers can claim up to 80% of their ‘furloughed’ employees’ wages from HMRC, subject to a cap of £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on paying those wages. Having claimed this from HMRC, the club must then pay those furloughed employees the lower of 80% of their regular wage or £2,500 per month. The Scheme allows employers to claim in respect of at least three months’ worth of furloughed employees’ wages from 1 March 2020 – i.e. wages for March, April and May 2020. It may, however, be extended, should the Coronavirus crisis continue.

The term ‘furlough’ is not one that has ever been used before in English law – it is a US term. What it essentially means is that an employee has been placed on leave, for a minimum of three weeks, due to the extraordinary economic circumstances, but that their employment continues. To be eligible for the Scheme, employees must not undertake work for or on behalf of the employer (including not providing services or generating revenue) whilst on leave.

Importantly, the Scheme does not prevent employers from paying their employees a top-up sum in addition to the amount received under the Scheme, such that they could potentially earn their full salary. Indeed, if employees are to be paid anything less than their full, contractually agreed salary, the employer will first need to obtain the employee’s consent as a matter of contract/employment law.

It is also worth noting that the term ‘employees’ is not used in the English legal sense, in the Government guidance. Employers can claim in respect of anyone on their PAYE payroll, including full and part-time employees, agency workers and those on flexible or zero-hour contracts – this likely goes beyond the definition of an “employee” in s.230(1) of the Employment Rights Act 1996. Income tax and Employee National Insurance contributions will continue as usual – i.e. employees will have to pay income tax and Employee National Insurance contributions on the earnings they receive by virtue of the Scheme.

Though the Scheme has been announced, employers are not yet able to claim under it. The Government has said that employers will be able to claim via an online ‘portal’ which will be available from the end of April. It is unclear whether employers are expected to continue paying furloughed employees on their normal payroll dates, or whether they can wait until they receive the grant from HMRC to do so. As a matter of contract law, payments ought to be made on the contractually agreed dates, unless otherwise agreed.

Indeed, the Government guidance states:

Employers should discuss with their staff and make any changes to the employment contract by agreement. When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way.

Are Rugby Clubs Entitled to Claim for Furloughed Players?

As professional rugby clubs are businesses, they are eligible to claim under the scheme – as long as they have created and started a PAYE payroll system on or before 28 February 2020 and have a UK bank account. In order to claim, they will also need to write to their players confirming that they have been furloughed – and keep a record of this communication. As long as players are on a Club’s PAYE payroll, Clubs will potentially be able to claim in respect of their wages.

The key requirement is that the players are not working for the club. The meaning of “working” appears to be broad and includes “providing services or generating revenue”.

As discussed in my earlier article on pay cuts during the Coronavirus crisis, though players are unable to train with their teammates, or play matches to represent the club, many have been involved in social media campaigns. I gave the example of the #MakeThatCall campaign being used by Wasps, where players are posting videos, shared through the Club’s social media channels, to engage with isolated fans. Such campaigns are being used to maintain fan interest and to generate goodwill in these non-playing times. Arguably, this amounts to the provision of a service and at least contributes to the generation of revenue. In some instances, players may also be inadvertently generating revenue for their club by allowing their image to be used on promotional material for Club merchandise, for example.

Taking a strict approach to excluding furloughed players from any brand-related activity would be the best way to ensure that Clubs’ claims under the Scheme are not barred. Whether, in practice, HMRC would take such a strict approach remains to be seen.

And what about players training on their own at home? If Clubs are supplying them with equipment, training programs and nutritional supplements, for example, would players be “working” by training on their own? Arguably they would. On the other hand, staying in shape is vital to the continuance of their own careers – players are training because it is vital for their own futures, not merely because their Clubs want them to. Would a furloughed lawyer be working for their employer by simply continuing to read legal articles to stay updated on the law? Surely not. The Government guidance addresses this. It states:

A furloughed employee can take part in…training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.

This suggests that “training” would not prohibit claims for furloughed players – but there is a fine line between professional rugby players merely training, and providing services to their employer. It could certainly be argued that these are one in the same. The tone of the Government guidance does suggest that training would not be problematic, but it is my view that HMRC would be more likely to find that a player was ‘providing services’ where they were following a structured program of training dictated by the club. After all, if the players do what the club requests whilst on leave, they will be in the condition desired by the club when the season returns and in a better position to be competitive, thus conferring a benefit on the club.

As such, the more a Club can distance itself from its furloughed players, the more likely it is to make a successful claim to HMRC. This might carry its own risks, though. For example, player insurance policies will need careful consideration, while the lack of involvement of players might further limit a Club’s ability to generate any revenue during this time. There is a balance to be struck for Clubs, and they will likely need to take counsel on this issue.

Can Players Negotiate a Better Deal?

Under the Scheme, the maximum amount that an employer can claim in respect of each employee is the lower of 80% of their monthly salary and £2,500 per month. For players earning more than £37,500 a year, the sum of £2,500 will amount to less than 80% of their monthly salary. For a player on £100,000 a year, the Scheme would only cover 30% of their monthly wages. For a player on £500,000 a year, the Scheme would cover a mere 6% of their pay.

Many players will, therefore, be understandably concerned. Players – as we all do – plan their lives around their expected income. A player on £500,000 a year who is suddenly faced with a 94% reduction in pay for three months would be rightly concerned about their ability to meet mortgage payments and other obligations.

This is why it is important to emphasise that the Scheme does not prevent employers from topping up the payments from HMRC to cover an employee’s full salary. After all, the Scheme operates as between employers and HMRC – what an employer pays their employee is to be agreed between them.

In my earlier article ‘Coronavirus & Rugby: Pay Cuts and Playing Contracts’, I explained that employees have a legal right to receive their salary in full, as set out in their employment contract – unless they agree otherwise. If an employer deducts pay without consent, an employee will have a legal claim (for a debt, unlawful deduction or constructive dismissal). This is why obtaining employees’ agreement to the Coronavirus measures is essential – the Scheme allows employers to claim money from HMRC, but if they don’t intend to pay their employees in full, they still need the employees’ consent to be able to reduce their pay lawfully.

Though players will have little desire to enter formal disputes with their Clubs, their legal rights would give them some leverage to negotiate a better arrangement. Players can withhold consent to a pay reduction until they are happy with the ‘deal’ being offered. For example, players might want their Club to top-up these payments to cover their full salary, or at least most of it. As long as the Club is able to claim under the Scheme, it will receive a grant of £2,500 per employee per month (or 80% of their wage), which will at least offset their costs during this period.

As an example, a player earning £40,000 a year would allow their Club to claim £2,500 a month from HMRC under the Scheme. If the player agreed to receive only this amount from the Club, they would be agreeing to a pay cut of 25%. The player might be happy with this arrangement or might wish to negotiate so that the Club covers the difference. This would mean that the Club would effectively be paying 25% of the player’s salary, and the remaining 75% would be covered by HMRC.

Of course, some Clubs might find it is impossible to pay their players anything apart from what they will receive from HMRC. If Clubs are unable to reach agreements with players on this issue because they cannot afford to pay, they might be forced to consider making redundancies – which would bring its own complications. As I noted in my previous article, accepting a substantial pay cut might be the only way to keep a Club solvent during this economic crisis, so it may be in a player’s long-term interests to do so.

A final issue for players to seek clarity on is whether they will continue to be paid on their usual payroll dates, or whether their Club wishes to delay payment until it has received the sums from HMRC – which could take some time. Under contract, players are entitled to be paid on the contractually agreed date – probably the end of the month. However, if a Club is struggling for cash such that it would simply be unable to pay until it has received the HMRC grant, the Club would need to reach an agreement with its players to defer payments until such time.

Conclusion

To return to the initial question posed: yes, professional rugby clubs in the UK should be able to make use of the Government’s Coronavirus Job Retention Scheme, as long as they ensure that their players are in no way “working” for or on behalf of the Club, nor generating revenue.

Players ought to consult their agents, lawyers and union representatives prior to signing agreements to accept pay reductions, to ensure that they are understand the consequences, and their rights. Indeed, player unions such as the RPA ought to be actively seeking clarification from Clubs on the stance they are to adopt as regards the Scheme.

The Coronavirus crisis poses a real threat to rugby’s financial ecosystem. Already, International Unions, leagues and Clubs have had to take drastic action. Further measures are inevitable, but it is hoped that the welfare of players – and their families – will be protected.