Lay Offs and Short-Time Working

We have recently received a number of queries from employers regarding laying off their workforce or placing them on short-time working to assist in their financial recover. Below we have provided some generic advice for employers which may be used to aid recovery, especially when the provisions of the Coronavirus Job Retention Scheme no longer apply.

What is lay-off and short-time working?

When you lay off an employee, you essentially stop providing them with work and pay for a period of time. They still remain your employee, but will not be required to work.

In contrast, short-time working is where you provide an employee with less work and less pay for a period of time. Again, they still remain your employee, but are required to work less than their standard hours.

Both of these should only be used on a temporary basis to provide reduced costs for short-term recovery. There are two different ways that an employer can try to implement lay-offs or short-time working, and this depends on the contract of employment.

How does it work?

Some contracts of employment will have a clause allowing short-time working or lay-off of the employee. This would give the employer a contractual right to lay-off or place the employee onto short-time working.

It is also possible for lay-off or short-time working to be implied into employment contracts. This can only happen where the employer operates within an industry where lay-offs and short-time working is common practice. In order for this to apply, the common practice must be ‘reasonable, certain and notorious’ and such that ‘no workman could be supposed to have entered into service without looking to it as part of the contract’.

What if there is no term in the contract allowing lay-off or short-time working?

In this situation, an employer would be in fundamental breach of contract if they lay-off or place an employee on short-time working. This would entitle the employee to either resign and claim they were constructively dismissed, or accept the breach of contract and claim a statutory guarantee payment.

Where an employer is experiencing a need to temporarily reduce its costs, it should consult with employees to try and agree a temporary reduction in pay and benefits. Employees being consulted with may be more willing than normal to accept these terms if the alternative is closure of business or job losses. Ultimately, if an agreement cannot be reached, the employer will need to consider a redundancy process.

How much notice or consultation should be given?

If there is a clause in the employment contract allowing for lay-offs or short-time working, this may also expressly outline a certain notice or consultation period that the employer will need to adhere to avoid being in breach of the contract.

If you have a contractual clause that is silent on a notice or consultation period, or no clause at all, the notice requirements will depend on what could be considered reasonable in the circumstances. Employers should be careful here to carefully balance the needs of the business against the need to act reasonably in how employees are managed. If there was a pressing need to implement lay-offs immediately, this should be clearly communicated to employees.

What payments will the employee be entitled to?

Subject to statutory eligibility criteria, an employee that has been laid-off or placed on short-time working will be entitled to a Statutory Guarantee Payment. At the time of writing, this is set at £29 a day for up to 5 days in any 3 month period (giving a maximum of £145). If the employee works part-time or earns less than £29 a day, this amount will be reduced proportionally.

An employee that has been laid off or placed on short-time working may also be entitled to claim a statutory redundancy payment in certain circumstances. To do this, they will have to follow the relevant scheme set out in the Employment Rights Act 1996.

If you are considering laying-off or placing some of your employees on short-time working and require further information, or to discuss the issues raised by this article, please contact Herrington Carmichael’s Employment Department on 0118 977 4045 or employment@herrington-carmichael.com 

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.