Definitions
The statutory definition of lay-off and short- time working is set out in s.147 Employment Rights Act 1996:
(1) “…an employee shall be taken to be laid off for a week if:
(a) he is employed under a contract on terms and conditions such that his remuneration under the contract depends on his being provided by the employer with work of the kind which he is employed to do, but
(b) he is not entitled to any remuneration under the contract in respect of the week because the employer does not provide such work for him.
(2) …an employee shall be taken to be kept on short-time for a week if by reason of diminution in the work provided for the employee by his employer (being work of a kind which under his contract the employee is employed to do) the employees remuneration for the week is less than half a weeks pay.”
The statutory definition relates to the right of an employee in certain circumstances to claim a redundancy payment.
In order for an employer to put employees on lay-off or short-time working there must be a term in the employee’s contract authorising the employer to do so. This may be either an express term written into the contract or an implied term by custom and practice. It is worth noting that, whilst the statutory definition of short-time working envisages the employee working for less than half a week, the contract can authorise any period of short-time work.
Does the contract permit lay-off or short-term work?
An employer who anticipates the requirement to implement lay-off or short-time working is best advised to have an express contractual term in the contract of employment authorising him to do so. An example of such a clause is at the end of this guide. If an employer does not have such a clause and wishes to introduce one they should seek advice from their HR Rely adviser.
Some employers may be able to rely on a contractual term implied by custom and practice. In Bond v CAV Limited (1983) it was held that for a term to be implied into a contract authorising lay-off:
(a) there must be a custom of lay-off in that particular business; and
(b) the custom must be both:
- “reasonable, certain and notorious” and
- “such that no workman could be supposed to have entered into service without looking on it as part of his contract”
This is a strictly applied test and any employer who is contemplating asserting an implied term of this nature should seek advice from their HR Rely Advisor.
If an employer intends to impose lay-off or short-time working, without any contractual basis for doing so, he will be in breach of contract. The employees will be in a position to resign and claim constructive dismissal or, more likely bring a claim for breach of contract or unlawful deduction of wages. However, this is not to say that it might not be possible to come to an agreement with employees and/or the trade union to agree to a period of short time working or lay off. This is sometimes entered into as an alternative to redundancy. An employer wishing to embark on this route should speak to their HR Rely Advisor.
Right to claim redundancy pay
Employees who are subject to prolonged periods of lay-off or short-time working can serve written notice on their employer of their intention to make a claim for a statutory redundancy payment even though their employer has not dismissed them.
To qualify the employee must have been on lay-off or short-time working for four consecutive weeks or six weeks in a 13 week period where no more than three of the weeks are consecutive. For the purpose of short-time working the employee must earn less than half a week’s normal pay under the short-time working arrangement.
A week where the employee is subject to lay-off or short-time working as a result of a strike or lock out cannot be relied on by the employee as part of the period entitling him to claim a redundancy payment.
To claim a redundancy payment the employee must have two years continuous service.
The employee must serve on his employer written notice of intention to claim (NIC) a redundancy payment within four weeks of the end of the last period of lay-off or short-time working he wishes to rely on.
The employer has a defence to such a claim. The employer must be able to recommence normal working within four weeks and this must continue for at least 13 weeks. He must serve a valid counter notice within seven days of receiving the NIC. Letter in response to request for redundancy during lay off or short time working. This is a tight deadline and the consequences of missing it are serious. If an employer is unsure how to proceed he should seek advice from its HR Rely Advisor immediately.
The counter notice must contain the words “we contest liability for any redundancy payment.” The letter should also state the normal working is to resume and the arrangements for this.
If the employer does not in fact resume normal work and the employee is laid-off or on short-time work for the four weeks following the NIC the defence fails. The employee will automatically qualify for a redundancy payment if they have the requisite length of service. If an employer receives a NIC the first step should be to consider whether it is possible to give the employee(s) work to do in the four weeks after the NIC is served so that the employee earns at least 50% of his normal earnings. Because the four week period starts with the service of the NIC it is important to note the date upon which this was received.
Notice pay
An employee doesn’t have to resign to claim redundancy pay. He can wait to see if there is an entitlement to redundancy pay. If there is an entitlement, then to qualify for the payment the employee will have to resign within a specific time frame. Provided this is done, if the employee is entitled to the period of statutory notice then the employee is entitled to receive normal pay even though they may be on short time working or lay off.. If the contractual notice period is more generous than statutory, but only by less than a week, the employee is again entitled to normal pay. If the contractual notice period is longer then the statutory notice provision does not apply and normal pay need not be paid.
Enhanced severance pay
If the employee is entitled to a contractually enhanced redundancy package this will not usually be payable if the employee resigns and claims redundancy because of a prolonged period of lay-off or short-time working. However, specific contractual terms will have to be checked and if the contractual term is based on custom and practice evidence as to how these issues have been dealt with in the past will be important in deciding whether enhancements should be paid. If you are in doubt contact your designated advisor.
Statutory guarantee payment
During a period of lay-off or short time working, an employee may qualify for a statutory guarantee payment (SGP). An employee with normal working hours who is not provided with work on a day he would normally be required to work under his contract will receive a SGP from his employer if:
- There is a reduction in the requirement of the employer’s business or 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.
SGPs are payable for any “workless day”. An employee will not be entitled to a SGP if:
- He does not have at least one month continuous employment before the date for which he is claiming a 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 his employer with a view to ensuring his services are available.
The SGP is paid on the first five workless days in a rolling three month period.
Calculating statutory guarantee payments
The SGP is calculated by multiplying the number of working hours on the workless day and multiplying these by the guaranteed hourly rate. If there are no normal working hours no SGP is payable. The hourly rate is calculated as one weeks pay divided by the number of normal working hours in the week. There is a statutory maximum for each workless day This is reviewed annually The current rate of SGP is contained in our pay data information.
If the employer makes a more generous payment, possibly based on a contractual arrangement, this will discharge the liability to make a SGP.
The effect of lay-off and short-time working on contractual terms
During periods of lay-off and short-time working the employee’s terms and conditions operate in full save for the employers obligation to pay normal wages. However, certain contractual terms can cause difficulty during periods of lay-off and short-time working.
Company sick pay
The whole purpose of lay-off or short-time working will be defeated if employees can call in sick (falsely or not) and claim sick pay. It is advisable that any contractual term relating to lay-off and short-time working sets out unambiguously the employer’s right to withdraw sick pay during periods of lay-off or short-time working. If there is no written contractual term evidence should be gathered to demonstrate how sick pay was dealt with in previous periods of lay-off and short-time working.
In practice it is common for contracts to be silent on these points. If this is the case the employer should set out its position at the beginning, usually after consultation with recognised unions or workplace representatives.
If you are faced with any uncertainty or disagreement about this contact your HR Rely Advisor.
Statutory Sick Pay (SSP)
If the employee has fulfilled the statutory criteria for claiming SSP then the employer has no grounds for refusing to pay SSP.
Statutory Maternity Pay (SMP), Statutory Adoption Pay (SAP) and Statutory Paternity Pay (SPP)
If an employee qualifies to receive SMP, SAP or SPP during a period of lay-off or short-time working the employer is obliged to pay it. However, if periods of lay-off or short-time working happen during the period used for calculating entitlement for SMP, SAP or SPP or for calculating the 90% pay for SMP the reduced pay will form the basis of any calculation. In these circumstances an employer may well be requested to exclude employees in these circumstances from the lay-off or short-time working arrangements.
What if the employer pays enhanced maternity/adoption/paternity pay? As with sick pay this should ideally be dealt with as part of the contract of employment. If it is not covered in the contract there is no clear legal position. These situations are best dealt with on a case by case basis and much will depend what if anything can be agreed with employee representatives. If you find yourself in this situation contact your HR Rely Advisor.
Holiday entitlement
Employees will retain their full holiday entitlement while on lay-off or short-time working. This would change only if there were a variation of contractual terms to make the employees part-time.
If an employer does not want holiday to be taken during a period of lay-off or short time working, it can announce that no request for holiday will be granted during this period. This can be problematic if there is little remaining time in the holiday year or if the period of lay-off or short-time working is lengthy. Further, a rigid stance by the employer can cause employment relation problems.
Pension contributions
This will depend on the rules of the pension scheme. This is a complex area of the law and specialist advice should be taken before any decision not to make pension contributions is made. Commonly, employers continue to pay pension contributions at the normal rate.
Draft contractual clause
Set out below are two example clauses to include in contracts to allow for lay off and short time working.
CLAUSE (LONG FORM)
Lay-off and short-time working
1.1 If there is a reduced need for employees to perform work of a particular kind on a temporary or permanent basis, or any other occurrence which affects normal working, the Company shall be entitled to lay you off or impose short-time working [indefinitely or] for such period as the Company shall decide.
1.2 While you are laid off you shall not be required to work and shall have no right to remuneration other than set out in this clause
1.3 While you are on short-time working your working hours may be reduced as the Company sees fit and your remuneration shall be correspondingly reduced
1.4 [The Company shall give [not less than [NUMBER] weeks' notice OR as much notice as is reasonably practicable] of lay-off or short-time working. Thereafter it shall give [not less than [NUMBER] weeks' notice OR as much notice as is reasonably practicable] of any further change to your hours including a return to normal working hours.]
1.5 During any period of lay-off or short-time working the Company shall pay statutory guarantee pay in accordance with legislation in force from time to time.
CLAUSE (SHORT FORM)
Lay-off and short-time working
If there is a reduction in work, the Company may temporarily lay you off without pay or reduce your working hours and your pay proportionately [on giving [one week's] notice in writing]. Depending on the circumstances you may have a statutory right to a guarantee payment.