If an employee director is placed on furlough under the coronavirus (COVID-19) job retention scheme, what is the effect on their duties as a director?

If an employee director is placed on furlough under the coronavirus (COVID-19) job retention scheme, what is the effect on their duties as a director?

An employee director’s status as an employee is separate from the office they hold as a director of the company.

A director owes a number of duties to the company. Many of those duties have been developed by the courts over hundreds of years from more general common law rules and equitable principles. The main directors’ duties are set out in statute in sections 171177 of the Companies Act 2006.

See: Directors—overview and Practice Notes:

• Employee status

• Office-holders—Directors

• Directors’ duties—a quick guide

The government’s guidance for employers on the coronavirus (COVID-19) job retention scheme (CJRS) clearly states:

‘To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of the organisation. This includes providing services or generating revenue.’

The guidance is silent on the question of whether a director can still perform their duties as a director while they are furloughed.

It was suggested in a CBI webinar on the CJRS that a director would still be able to undertake their statutory duties eg to file accounts while on furlough, as doing so would not count as undertaking work.

The Lexis®Nexis Employment team has not found anything in the guidance that would suggest the contrary.

The employer should, however, be aware that, in some circumstances, it may be difficult to distinguish between the individual’s duties as an employer and a director, eg in the case of a Finance Director whose employment duties include the preparation and filing of the company’s accounts.

As to what steps HMRC might take if it considers that an employer has incorrectly claimed a grant under the CJRS, the government’s business support FAQs state that the government will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.

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