Lay-offs and Short-time Working
Even in a successful and well managed business there can be circumstances which result in a temporary reduction of work, particularly if your business depends on seasonal or contractual work.
What is a lay off?
When there is no work available you may wish to lay off some employees. This means you would ask them not to come into work until there is more work available. The expectation is that this will be a temporary situation. For example, in construction work it may be customary practice in your business that employees are laid off between jobs, i.e. there may be a short lag between one job finishing and another starting. However, if the lay off amounts to dismissal then your employees may be entitled to claim redundancy pay or claim constructive or unfair dismissal.
The right to lay off employees
If the employer expects that because of the type of business they carry out that there may be circumstances in which there is a shortage of work for employees then this should be recorded in the contracts of employment. This is because an employer is entitled to lay off employees without pay when the contract of employment contains an express right to do so in circumstances which are agreed to by the employee. Employers may wish to agree the issue of laying off with employees particular trade unions, but it is still significant that such an agreement be incorporated into the employee contracts of employment to take contractual effect. This can be done by referring to the agreement within the employment contracts when they are originally created or by varying the existing employment contracts.
Where there is no express or implied right to lay off employees it may still be possible if the employees agree to vary their contractual terms. This does not however mean that you will be entitled to lay off employees unilaterally without pay in the future. They may agree to being laid off as an alternative solution to redundancy.
The employer may also wish to specify how long the lay off is likely to last for. Employers should be mindful that employees being laid off for a long period of time may decide to claim redundancy.
There may be an implied right of the employer to lay off employees if it can be clearly shown that this has been established practice over a long period of time. In which case, employees may be expected to have been aware of such practice when entering the employment contract.
There is no right of the employer to lay off employees without pay when there is a shortage of work. However, there is a general right at common law to lay off employees, i.e. tell them not to turn up to work because there is no work available.
Laid off employees are entitled to statutory guarantee payments from their employer. Guarantee pay can be paid for a maximum of five days in any three-month period. The maximum that can be paid each day is reviewed annually but sits currently at £28 a day or the employee’s daily rate, whichever is lower. Therefore, the maximum amount of guarantee payment in total payable per three months is £140. If the employee works part time their guarantee pay entitlement will be worked out in proportion to their working hours. Failure to make guarantee payments can result in claims for unlawful deduction of wages. Employees cannot claim guarantee pay for any day in which they have done even some work for you, i.e. if they work part of the day and are then laid off for the rest of the day.
Where employees are party to a collective agreement providing for guarantee payments then the Secretary of State can make an exemption order excluding your employees from having the statutory right to guarantee pay. This will usually only be accepted where the guarantee pay provisions offered by you are at least equally as favourable as the statutory provisions.
Wrongful Lay off
If you do not include a contractual right to lay off without pay then doing so will put you in breach of the employment contract unless you are acting in prior agreement with each affected employee. Laying off without pay when there is no right to do so can result is claims for damages for breach of contract, claims for unlawful deduction of wages and even claims that your actions amount to constructive dismissal resulting in unfair dismissal. Further, you may be liable for redundancy payments.
Short time working is when your contractual hours of work are cut. This can be a number of contractual working days each week or contractual hours in the working day.
In common with lay offs, the employer must have an express or implied right to reduce employees pay. Employees may accept short-time working as an alternative to being made redundant, particularly after the redundancy consultation process where there is a duty for employers to consider all alternatives before making any redundancies.
If you cut employees hours without the right to or without prior agreement with the affected employees then you may face claims for constructive or unfair dismissal and even for loss of wages and unlawful deduction of wages.
Employees are entitled to claim a redundancy payment if they are laid off (receiving no wages) or put on short-time working (and are receiving less than half a week’s pay) for four consecutive weeks, or for six weeks in a period of thirteen weeks.