Lay off and short-time working – coping with a unexpected downturn in business

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Many businesses are suffering from the spread of coronavirus and considering what options are available to them to manage their workforce during this turbulent time.

One option is to lay off employees or put them on short-time working.

What is lay off and short-time working?

Broadly speaking, laying off employees means that the employer provides employees with no work (and no pay) for a period but they remain employees.  Short-time working means providing employees with less work (and less pay) over a period but they remain employees.

Lay off and short-time working are temporary solutions to save money but without dismissing employees. These measures are typically used in sectors such as manufacturing. However, recent economic circumstances have seen the measures used more widely in the professional services sector and for salaried employees.

Subject to meeting the statutory conditions, an employee who is laid off or put on short-time working will be entitled to apply for a statutory redundancy payment in certain circumstances.

Alternatively, an employee may be entitled to be paid a statutory guarantee payment (SGP) by their employer.

A contractual right to lay or use short-time working

Some employers have a contractual right to lay off employees or put them on short-time working.  Ideally, the contractual right should be expressly written into the employment contract but it can be an implied contractual term particularly in certain sectors. The wording (or interpretation) of any contractual clause is key to what the employer can do; for example for how long and on what pay can employees be laid off or put on short-time working?

In the absence of an express clause which deals with how long an employee can be laid off for, employees have attempted to argue that the employer can only lay off an employee for a reasonable period. However these cases have generally been unsuccessful.  Equally, a constructive dismissal could still arise if lay off or short-time working rights are exercised in breach of the implied term of mutual trust and confidence so employers need to exercise caution in relying upon these measures over prolonged periods of time.

What if there is no contractual right to lay off or use short time working? 

If an employer lays off an employee or puts them on short-time working in the absence of an express or implied right to do so, the employer will be in fundamental breach of contract entitling the employee to resign and claim constructive dismissal.

The Acas guide ‘Lay-offs and short-time working’ makes clear that where the employer lays employees off or puts them on short-time working, without the contractual right to do so, an employee’s options are:

• Choose to accept the breach of contract and treat the contract as continuing, while claiming a statutory guarantee payment.
• Sue for damages for breach of contract in the civil court or, in certain circumstances, at an employment tribunal.
• Claim before an employment tribunal that there has been an unlawful deduction of wages under Part II of the ERA 1996.
• Claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to potential claims for unfair dismissal and/or redundancy pay.

What happens to holiday entitlement during short-time working or lay off?

Provided the employment contract is not broken during a period of lay-off or short-time working (so that the employee remains “on the books” rather than being dismissed and re-engaged), statutory holiday entitlement is unaffected. It is unlikely to be advisable to use any new “short-time” hours as being the “normal working hours” for the purposes of calculating holiday pay.  Where an employee is temporarily laid off they can, of course, choose to take paid holiday instead, and must be paid at their normal rate.

It should be noted that, if the employer operates a contractual redundancy payment scheme, it is likely that the contractual terms will only apply if the employer dismisses the employee for redundancy. If the employee claims a statutory redundancy payment under the statutory scheme, they are unlikely to be able to claim the benefit of any enhanced payment under their employer’s contractual scheme (because the trigger for payment, dismissal by the employer, will not have occurred).

Guarantee payments and workless days

An employee may be entitled to a statutory guarantee payment (SGP) on up to 5 “workless days” in a three-month period (or pro rata for an employee who works less than 5 days per week). A “workless day” is a day during any part of which the employee would normally be required to work in accordance with their contract, when the employee is not provided with work by their employer because of either of the following:

• There is a reduction in the requirements of the employer’s business for work of the kind which the employee is employed to do.
• There is any other occurrence which affects the normal working of the business in relation to this type of work.

The employee does not need to be on “lay-off” or “short-time working”.

An employee will not be entitled to an SGP where:

• They do not have at least one month’s continuous employment before the period for which they are claiming an SGP.
• The workless day is due to industrial action.
• The employee has unreasonably refused an offer of alternative work.
• The employee does not comply with reasonable requirements imposed by their employer with a view to ensuring that their services are available.

An SGP is calculated in accordance with a formula and subject to a maximum rate.

If you would like further advice on implementing short-time working or a lay off or any other ways of managing your workforce during these uncertain times, please contact our employment law solicitor, Clare Thomas (ct@bowcockpursaill.co.uk or 01782 200500)