If an employer is facing only a temporary dip in its need for labour, it may prefer to lay employees off temporarily or reduce their working hours for a limited period, rather than make them redundant. Three legal questions are raised here. Can the employer take these steps without breaching its employees' contracts of employment? What right do employees have to be paid in these circumstances? And in what circumstances can an employee who is laid off or put on short-time claim a redundancy payment?
If a company anticipates that it may want to lay employees off or reduce their working hours, it should ensure that their contracts of employment give it the power to do so. The power might be contained in an express term set out in the contracts themselves or in a collective agreement that has been incorporated into the contracts by reference. Or it might be an implied term based on custom and practice. (It is sometimes difficult to establish an implied term based on custom and practice, and it is therefore advisable for companies to ensure that their contracts give them an express power to lay off or reduce hours.)
Even if an employer has no contractual power to lay employees off or reduce their working hours, it may not be breaching their contracts if it does so, provided it continues to pay them the wages or salary they would normally receive. This is because most employees have the right to be paid if they are ready and willing to work, but no right to insist on working. For most employers, however, the aim of laying employees off or reducing their hours is to save labour costs, and so they would not want to maintain employees' pay.
An employer that lays an employee off or reduces his or her working hours without maintaining his or her pay and without having the contractual power to do so, is acting in serious breach of the employee's contract. The employee is therefore entitled to resign and claim that he or she has been constructively dismissed and that the dismissal was unfair. Whether or not the employee decides to resign, he or she may also be able to bring a claim that the company has made an unlawful deduction from his or her pay. (The claims that an employer may face if it acts in breach of an employee's contract are set out elsewhere in the Guide (potential legal claims ).)
An employee who is not provided with work on any day may nevertheless be entitled to be paid for that day, under his or her contract of employment. For example, employees who receive an annual salary or a set weekly wage are likely to be entitled to their usual pay even if they are not provided with work, unless their contract provides otherwise. Employees who are covered by the engineering industry's National Guarantee of Employment Agreement for hourly rated manual workers are guaranteed to receive pay at their time rate for 39 hours a week even if no work is available, provided they are ready and willing to work. Payment is reduced where short-time working has been approved as an alternative to redundancy. Any hourly-paid worker who is required to be available for work at or near the workplace for any period may be entitled to be paid the national minimum wage for that time, even if no work is actually provided (time work ).
If an employee has no right to be paid during a workless day under his or her contract or the minimum wage legislation, he or she may still be entitled to a guarantee payment under the Employment Rights Act 1996. A statutory guarantee payment is calculated on the basis of the employee's normal hourly rate for working his or her normal working hours in that day, but is subject to a limit. The limit is adjusted each year in line with the Retail Prices Index, but from February 2008 stands at £20.40. An employee is entitled to only a limited number of days' guarantee pay in any three-month period. The limit is the number of days in the employee's normal working week, up to a maximum of five.
The following list identifies employees who are not entitled to statutory guarantee payment:
- Employees who have been employed for less than one continuous month.
- Employees whose workless day is due to a strike or lock out or some other industrial action involving any employee of their employer or of an associated employer.
- Employees who have unreasonably refused an offer of suitable alternative work or have not complied with the company's reasonable requirements to ensure that they are available to work.
If an employee has been laid off or put on short-time working for an extended period, he or she may be entitled to claim a statutory redundancy payment from the company. This applies only to employees whose right to be paid depends on them being provided with work. An employee is viewed as laid off for a week if he or she has not been paid because there has been no work that week. An employee is viewed as being kept on short-time for a week if his or her pay is at less than half the usual amount because the employer has provided less work than normal.
An employee can claim a redundancy payment if he or she has been laid off or kept on short-time for four or more consecutive weeks, or for any six or more weeks in a period of thirteen weeks. In order to claim, the employee must resign. The company may be able to resist the claim for a payment if it is reasonably likely that the employee will, within four weeks of claiming the payment, have 13 weeks work without being laid off or put on short-time.
The rules on entitlement to a redundancy payment through lay off or short-time working are complex. Companies that wish to resist a claim for a redundancy payment in these circumstances should therefore consult their Association for advice.