How Employers Can Cope With the Impact of Coronavirus and Apply Lay-Off or Short-Time Working to Employees

27th March 2020 Employment

As many employers face difficult decisions due to the impact of Covid-19, we are producing a number of blogs to help employers understand their options and the latest legal changes. This blog outlines useful information for employers on the options of lay-off and short time working for staff. It also touches on the other option of furloughing employees, but we have covered applying furlough in more detail in a separate blog – see JMW’s website for this blog and others.

As mentioned above, employers may now wish to consider the options of layoff or short-time working for employees. So, what do those terms actually mean and how can they help employers? Read on for more details!

What is lay-off and short time working? How can these 2 options help employers?

Laying off an employee occurs when:

  • The employee’s employment contract provides that whether or not they are paid depends on the employer providing them with the work they are employed to do; and
  • They are not entitled to any remuneration because / when their employer does not provide work for them.

In summary, this means that it applies where the employer provides the employee with no work (and no pay, save that statutory guarantee payments can apply in some circumstances) for a period while retaining them as employees. 

In contrast, short-time working occurs when:

  • The employer is providing the employee with less work (which has to be of the kind which the employee is employed to do) while retaining them as employees; and
  • The employee's remuneration for the week is less than half a week’s pay. 

There are specific legal definitions that have to be met.

Unlike dismissal, these options are a temporary solution to the problem of no or less work for employers. As a starting point, employers should check if they have the ability to lay off the employee or apply short time working - this would normally be referred to in the contract with the employee. Although, in some industries employers may be able to argue there is an implied contractual term allowing them to do this – we suggest legal advice is taken if you believe you may be able to argue that based on previous practice for example.

If you do have the contractual ability to do it, then read on to find out how that can benefit you at this tricky time. If your contract does not have a lay off or short time working clause, then don’t worry - there are some other options you can consider instead, including agreeing a change to the employee’s contractual terms to accommodate these options or furlough leave (mentioned below).

Is layoff the same as putting an employee on ‘furlough’ leave under the Coronavirus Job Retention Scheme or is that a different option?

As you will no doubt have seen, the Coronavirus Job Retention Scheme (CJRS) was announced by the Government on 20 March 2020. This scheme involves placing employees, who would otherwise be made redundant as a result of COVID-19, on paid “furlough” leave. The scheme then permits employers to receive a grant from HMRC to help with payments to the furloughed employees. 

Under the scheme, the employee is not required to work, but still receives at least 80% of their wages (up to a maximum of £2,500 per month). Employers may top up the wages to 100%, but they do not have to. To claim under the scheme, the Government has confirmed that certain requirements have to be met, including for example designating employees as being furloughed, confirming it in writing and more. The latest government guidance for employers (at the time of writing on 27 March 2020) is located here.

The Government guidance confirms that an employee cannot do any work at all for their employer when on furlough leave. This means that furlough leave is similar to an employee being laid off, save that the employee will continue to receive 80% of their wages (up to a maximum of £2,500 per month, which is then reimbursed by HMRC) which would not be the case in a normal layoff situation.

What happens if there is no lay-off or short-time working clause in the contract? What can the employer do?

If an employer lays off an employee in the absence of an express or implied contractual right to do so, the employer will be in fundamental breach of contract entitling the employee to resign and claim constructive dismissal. Even if they don’t resign, there are other options available to the employee too – for example, a claim for unlawful deduction of wages. Similar arguments could be run where short-time working is applied in breach of contract as well.

If you don’t have the required clauses in place, the best option is of course to seek the employee’s agreement to the terms being varied and not to just impose it. The hope for employers is that employees may be willing to agree to these alternative arrangements in the current unprecedented situation involving COVID-19 to ensure the survival of the business and a job to return to. Of course, if an employee refuses to consent, they risk being made redundant, so the alternatives of layoff or short time working may seem more attractive to the employees than that.

Employers could opt to see whether employees are willing to agree to being laid off or short-time working as a starting point and / or whether they are willing to agree to be furloughed. The latter is of course likely to be more popular and well received by employees, given each employee would then receive 80% of their wages (up to £2,500 per month). 

Can an employee who has been laid off or put on short-time working claim redundancy?

Potentially, yes. In some circumstances, and provided they have the required service, employees who are laid off or put on short-time working (or a combination of the two) for four consecutive weeks, or a total of six weeks (of which no more than 3 should be consecutive) in any 13, have a right to terminate their employment and claim a statutory redundancy payment. Alternatively, such an employee may be entitled to be paid a statutory guarantee payment (SGP) by their employer. 

Employers must not keep employees on these arrangements for longer than they need to, as otherwise the employees may treat themselves as redundant and be eligible for a redundancy payment. This is of course an issue for employers to be mindful of when deciding whether to use layoff or short time working, given we do not know how long the COVID-19 situation will last.

For the purposes of the statutory scheme for redundancy payments, an employee is laid off only if they are entitled to no pay at all (apart from a SGP) under their contract during the week in question and short-time working means that the employee's hours are reduced due to a diminution in their work, such that their pay during that week (not counting any SGP) is less than half a week's pay (uncapped).

Under the Coronavirus Job Retention Scheme, where the employee is still receiving pay (80% of their wages) from the employer, it is not yet clear whether this would prohibit an employee from obtaining a redundancy payment. However, in our view, it would be very difficult for an employee to claim that, given the level of pay they should still be receiving under that scheme and bearing in mind the existing legal rules.

What is the process for claiming redundancy?

To claim a statutory redundancy payment, an employee must meet specific criteria, including for example the following:

  • An employee must have two years’ continuous service (calculated up to the last day of the week of lay-off on which they are relying);
  • They must have spent the necessary length of time on lay-off;
  • The employee must serve written notice of their intention to claim;
  • An employer that wishes to contest a claim (on the basis that there is a reasonable expectation of a return to normal working) must serve a counter-notice;
  • If the employer serves a counter-notice, the employee must apply for a tribunal to decide their claim at a hearing; and
  • If the employer fails to serve (or serves and then withdraws) a counter-notice or the tribunal upholds the employee’s claim, the employee must resign with notice.

Other key points

When it comes to layoff, if you offer your employee work but they decline it so that no work is actually done, then this does not mean that layoff applies – you will still have offered work to them and this will mean that work has been provided under their contract. In addition, if an employee is not available to work for you anyway, for example because of illness, they will not be treated as being laid off in that circumstance. 

Any selection process to lay off staff should be reasonable and based on similar criteria to those used in a redundancy exercise. The criteria should be as objective as possible. It is also advisable to try to agree the criteria with the employees when consulting with them about a lay-off. This same process is advisable for those you are considering for short-time working as well.

How to get more information

This blog forms part of a series of blogs that we are producing to help businesses at this unprecedented time (see JMW’s website for further details).

If you would like advice relating to these matters or have any queries about dealing with any other workplace issues linked to the Covid-19 outbreak, please contact Paul Chamberlain, Emma James or another member of the employment team on 0345 646 0342. 

This note is for general guidance only and should not be used for any other purpose. It does not constitute, and should not be relied upon as legal advice.

JMW Solicitors is a Limited Liability Partnership.

The copyright in this note is owned by JMW. Any reproduction of this article should be credited to JMW. All rights reserved.

This note is correct as of 27 March 2020

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Emma James is a Senior Associate located in Manchesterin our Employment department

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