Guidance note: short-time working and lay-off

Please note that since this article was published, the Government announced a new job retention scheme aimed at staff who would otherwise need to be made redundant. Employers should consider whether they can adopt this scheme as an alternative to laying off staff or making redundancies.

During periods of economic uncertainty, and particularly in view of the sudden and significant impact of COVID-19 on many sectors, employers may want to consider some alternatives to redundancies, in particular laying off employees or imposing short-time working in accordance with the provisions of the Employment Rights Act 1996.

The aim is to ensure that employees remain employed during these periods, but the employer can make a short term saving on labour costs and also have the flexibility to reinstate the workforce when trade starts to pick up. The advantage for employees is that this can be an attractive alternative to being made redundant.

Can employers impose short-time working or lay-off under the statutory provisions?

Only where there is an express or implied contractual right to do so. In practice it is quite rare for contracts to include an express provision for short-time working or lay-off.

What if there is no express contractual right?

• Unless there is clear and established practice of having done this in the past which has given rise to an implied contractual right, imposing adjusted working is risky (as explained below). The question of whether there is an implied right to do so is a strict test and employers should be confident that they can satisfy it before relying on it.
• As an alternative to the statutory provisions for short-time working and lay-off, if there is no express or implied right to this, it might be possible for terms and conditions of employment, including hours or days of work to be varied by mutual agreement between employer and employee (see below).

What is the statutory meaning of short time working under the Employment Rights Act?

• Reducing the number of working days and/or hours and employees receiving less than half of their normal week’s pay.
• Not a complete cessation of work.

What is the statutory meaning of layoff?

• Requiring staff to stay at home or take periods of unpaid leave for at least one day and for a period which is expected to be temporary.
• A complete cessation of work.

Statutory guarantee payments

• Employees are entitled to receive guarantee payments for up to five ‘workless days’ (not in respect of reduced hours only) in a three-month period.
• To be eligible for a statutory guarantee payment, the employee must have at least one month’s continuous employment, must not have unreasonably refused an offer of alternative work and must comply with reasonable requirements imposed by their employer to ensure that their services are still available.
• The guarantee payments are calculated by multiplying the number of normal working hours on the workless day by the ‘guaranteed hourly rate’. This guaranteed hourly rate is calculated as one week’s pay divided by the number of the employee’s normal working hours in a week. However, these payments are subject to a maximum daily rate, which is currently just £29 per day or £30 per day from 6 April 2020 (subject to a maximum payment of five days or £145 (£150 from 6 April 2020) in any three months).

For how long can staff be laid off or put on short-time working?

There is no limit on the period of time. However, redundancy pay can be claimed by eligible employees if the period of lay-off or short-time working (or a combination of the two) has lasted:

• four or more consecutive weeks; or
• six weeks (of which no more than three are consecutive) in a 13-week period.

This relates to period of short-time working or lay-off or a mixture of the two. Periods on strike or lock-out do not count towards this.

• Note that for redundancy pay purposes, an employee is only treated as on short-time working for any week if he is paid less than half of his normal remuneration. To claim a redundancy payment, an employee is required to serve a written notice on the employer of intention to claim. An employer can serve a counter-notice if it is reasonably expected that the employee would be able to return to work within a period of four weeks.

Other considerations during lay off or short time working

• Sick pay – if employers haven’t done so already, they should consider reviewing sick pay policies. Employees who are already unable to work, for example due to sickness or (arguably) medically advised self-isolation, cannot be laid-off or put on short-time working.
• Holiday – employees’ statutory holiday continues to accrue during a lay-off or short-time working period provided the contract is not broken.
• Notice – if any employee resigns or is dismissed during the lay-off period, they will usually be entitled to be paid their normal salary during the notice period.
• Sponsored workers – if you have sponsored any of your employees for a Tier 2 work visa, you need to bear in mind that there are particular rules which apply to them, please contact a member of our Immigration Team to discuss further.

Alternative options

• If there is no express or implied contractual right to impose lay off or short time working, employers could seek to mutually agree variations in hours and/or days of work commensurate with a pay cut with their employees on either a temporary or permanent basis.
• Where this is done it is important to put it in writing and obtain signatures from employees to demonstrate their agreement to the changes.
• Those who accept temporary changes to their days of work and remain employed can still claim a statutory guarantee payment for any ‘workless days’ (where eligible – see above).
• Note that important statutory requirements for collective consultation may apply if temporary or permanent changes are proposed to the contracts of 20 or more employees, particularly if the employer intends to dismiss and re-engage staff under the new terms if they do not voluntarily accept the changes. Employers will generally be reluctant to allow some staff to refuse to accept reduced hours when others have agreed.
• Even if an employer is seeking agreement from fewer than 20 staff a fair process must be followed before any dismissal and re-engagement takes effect for a failure to agree to contractual changes.

What are the potential risks where changes are imposed?

If there is no statutory right (express or implied) to introduce lay-offs or short-term working and any changes to contracts are imposed without gaining employees’ agreement then in these circumstances employees could seek to claim:

• Constructive dismissal – resignation in response to a breach of contract for those with over two years’ service.
• If this is found to be an unfair dismissal, an employee can claim (a basic award) of a maximum of £15,750 (£16,140 from 6 April 2020) per employee, plus up to a year or more loss of earnings (capped at £86,444 – £88,519 from 6 April 2020 – if less than the employee’s salary).
• Breach of contract – a claim can be pursued in either in a court or employment tribunal. This is limited to £25,000 compensation in a tribunal but is potentially unlimited if brought in a court.
• Unlawful deduction from wages – where pay is reduced or withheld altogether. Employees can claim unlawfully deducted sums and, in some cases compensation for further financial loss. There is a three month time limit for bringing a claim but this runs from the last in a series of deductions.
• Discrimination and/or detriment – if some employees are selected for these contract variations over others whose hours and pay remain unchanged, on the basis of a protected characteristic. Employees may claim an injury to feelings award of £900, rising to £44,000 or more in serious cases.
• Failure to collectively inform and consult – if the employer imposes contractual changes by way of dismissing and reengaging more than 20 employees without informing and consulting in accordance with the applicable statutory rules, employees may have a potential claim for a protective award of up to 90 days’ pay. However, the employer may be able to rely on a ‘special circumstances’ defence to such a claim.

For more information on the Employment guidance that Birketts can offer, or if you require
assistance with any of the matters referred to above, please speak to a member of Birketts’ Employment Team.