Coronavirus: Lay-offs and short time working

Tuesday 17 March 2020

With the anxiety surrounding Coronavirus escalating, employers are becoming increasingly concerned about business continuity.

Will they be able to pay staff if sickness absence or self-isolation substantially affects cash flow? If, as is widely speculated, schools are closed and large public gatherings banned, and this causes business closures, will employees still have to be paid?

Employment legislation allows employers to issue contracts reserving the right temporarily to lay-off staff without normal pay or to put employees on reduced hours. This type of contract is common in the manufacturing sector, and those industries where there are significant fluctuations in work, but otherwise is extremely rare.

However, in order to be able to exercise that statutory right, employers must have reserved it in the contract of employment. It will usually take the form of a right to lay staff off (or put them on reduced hours) for a short period of time (usually 7 to 14 days). Lay-offs under such a contractual provision can be with or without pay, but if the lay-off is expressed to be without pay the employee may be entitled to receive a statutory guarantee payment. This is at the rate of £29 per day for 5 days in any 3 months period.

In order to be eligible for statutory guarantee pay, an employee must:

• have been employed for at least one month;
• be available for work;
• not refuse a reasonable offer of work; and
• not have been laid off because of strike action.

A lay-off provision cannot be used to avoid the cost of making employees redundant. Where an employee is laid off for an indefinite period, they may have a claim for a redundancy payment.

Furthermore, an employer who lays staff off or imposes reduced hours, but does not have the contractual right to do so, risks employees resigning and claiming that they have been constructively dismissed (assuming they have the appropriate qualifying service).

Our advice is that every employer should review their contracts of employment to establish if they have a lay-off clause. If they do not, the best long-term advice is to consider including such a clause.

But what about the short-term? The best advice is to be frank and direct with staff about the need either to shut down for a short period or to have a period of reduced hours, and to secure employees’ agreement to a temporary change in their contracts.

If you have any questions about the operation of lay-off clauses, guarantee pay, or securing employee agreement to short-term contractual changes, please contact a member of our Employment Law team today.