7. Lay-offs and short-time working

An employer facing financial difficulties or a reduction in work may attempt to lay-off employees or put them on short-time working for a specified or unspecified period. The economic downturn has been characterised by many examples of employers and unions collaborating to use these and other mechanisms in order to avoid redundancy. High profile examples include Unite’s successful negotiations with Honda over short-time working. For example, Unite reported as recently as May 2011 that a working time agreement negotiated in 2009 for workers at the Honda plant in Swindon will mean that cuts in production of as much as 50% will involve no loss of earnings for staff. Another well publicised deal was struck by Unite and GMB in March 2009 at Jaguar Land Rover, to introduce a four-day week to safeguard jobs, with the backing of 70% of the workforce.

The law

Employees who are laid off are not required to attend work and will not receive their basic rate of pay. Unions can, and often do, negotiate better terms than the statutory minimum protection the law provides. To fall within the statutory definition of “short-time work”, individuals will have been required to work fewer hours in the week for which they must have received less than half a week’s pay. In some circumstances, employees who are laid off or put onto short-time work are entitled to a redundancy payment.

This Chapter explains the circumstances in which employers can lawfully lay-off employees or put them on short time.

A lay-off is defined in section 147 of the Employment Rights Act 1996 (ERA 96) as a situation where an employee is employed under a contract for work in return for pay, but the employer does not offer work and therefore the employee is not entitled to be paid.

Short-time work is defined as a situation where, “by reason of a diminution of the work provided for the employee” by the employer, the employee’s pay is less than half a week’s pay.

The courts will usually interpret the rules giving employers the right to lay-off quite restrictively. This makes it important that union reps carefully examine any proposals for lay-offs or short-time working before agreeing to them, if there is no existing right or custom which allows for this. Without a pre-existing agreement permitting short-time working or lay-offs, the employer is likely to be in breach of contract by engaging in either or these practices without consent.

Employers can only lay-off employees or place them on short-time working with their agreement. This can be either:

• In the existing employment contract (either an express term, implied through custom and practice or incorporated via a collective agreement); or

• Agreed through negotiation to respond to an immediate situation (typically to reduce the likelihood of redundancies).

Unpaid short-time working or lay-off

An employee who agrees to be put on short time working or laid off is entitled to be paid (either guarantee pay — see below, or agreed contractual terms if better than guarantee pay). In other words, where there is no legal right to lay-off employees or put them on short-time work, employers should pay employees the full amount of the wages they would have earned if they had been allowed to work.

An employee who is put onto short-time working or laid off without agreement will have a claim for unlawful deduction of wages (section 13 Part II ERA 96) and breach of contract. A claim for unlawful deduction of wages is brought in the Employment Tribunal. Unlike a claim for constructive dismissal, there is no need to resign in order to claim unlawfully deducted wages. The claim must be brought within three months of the deduction (or within three months of the last deduction, where it forms part of an unbroken series of deductions).

In Davies v Hotpoint [1994] IRLR 538, the courts examined a collective agreement which allowed for short-time work only where “approved (by the union) as an alternative to redundancy”. The court decided that this meant that when employees were paid less than full wages because of short-time working without union approval, this was an unlawful deduction under Part II of the ERA 96.

Guarantee pay

The employee is entitled to be paid either statutory guarantee pay (section 28 ERA 96) or if better, any contractual entitlement to pay in the event of lay-off or short-time working agreed in the contract of any collective agreement.

The statutory rate for guarantee pay is capped at £22.20 per day as at 1 February 2011 and is payable for a maximum of five days in any three-month period. The maximum amount payable in any three-month period is therefore £111.00 commencing 1 February 2011 for a maximum of five workless days. An employee who earns less than the guarantee pay rate will be paid his or her actual wage rate.

A “day” is a 24-hour period from midnight to midnight and has to be a “workless day”, that is when employees would normally work but have been required not to work. It does not cover days when employees are off work for sickness or holidays, even if there would have been no work for them to do on that day.

An employee is not entitled to statutory guarantee pay if:

• s/he has been employed for less than one month;

• the reason for the lack of work is a strike, lockout or any other form of industrial action;

• s/he has unreasonably refused to do alternative work that has been offered by the employer; or

• s/he does not comply with “reasonable requirements” to ensure s/he is available for work.

The right to guarantee pay is available to employees only, not workers. More information on the definitions of “workers” and “employees” can be found in the LRD booklet Law at work — see “Further information” at the end of this booklet.

Guidance on the relationship between guarantee pay and jobseeker’s allowance can be found at: www.direct.gov.uk/en/Employment/Understandingyourworkstatus/Temporarylayoff/DG_177591.

Redundancy pay for lay-off or short-time working

If an employee has been laid off work without pay or put on short time working earning less than half of an employee’s weekly wage, s/he may be able to make a claim for a redundancy payment. The relevant rules are set out in sections 148-154 of the ERA 96. The rules are extremely complex and the timetable for applying is very strict, so anyone thinking of claiming should first seek advice from their union or from Acas.

To be able to claim, the lay-off or short time working must have lasted either:

• four or more whole weeks in a row; or

• a total of six or more whole weeks within a 13-week period.

Making a claim

Anyone wanting to make a claim must follow the correct process, as follows:

Employee’s written notice

The first step is for the employee to give the employer written notice of intention to claim redundancy. This notice must be given within four weeks of the end of either:

• four or more whole weeks of lay-off or short-time work in a row; or

• a total of six or more whole weeks of layoff or short-time working within a 13 week period (where not more than three weeks are consecutive).

Employer’s response

The employer then has seven days in which to either accept the claim or to give the employee a written “counter notice”. If an employer fails to give the employee a counter-notice, the employee is allowed to assume the claim has been accepted.

The counter notice tells the employee that the employer does not accept the claim for redundancy pay because work will be available in the near future. The “near future” must be within four weeks, and the work must last at least 13 weeks without interruption.

If the employer issues a counter notice, the employee will not be able to claim redundancy pay except by applying to an Employment Tribunal. An employer can withdraw the counter notice by informing the employee in writing.

Resignation

To get redundancy pay, the employee must resign by giving either:

• one week’s notice; or

• the notice period required by the employment contract (where it is longer than one week).

Obviously, resignation is a serious matter and employees should seek advice from their union or Acas before taking this step. In any event, it is crucial to get the timing of the notice right. A redundancy claim is likely to fail if notice is not given correctly.

If seven days have passed since the employee gave his or her written notice to the employer and the employer has not given the employee a counter notice, the employee should hand in his or her notice within three weeks after the seven days has ended.

If the employer has given a counter notice but has then withdrawn it, the employee must give notice within three weeks of that withdrawal.

If the employer has given a counter notice and has not withdrawn it, the employee can make a claim to an Employment Tribunal. After the employee receives notification of the Employment Tribunal’s decision s/he has three weeks in which to resign. It is not necessary to resign until the employee knows the Employment Tribunal’s decision.

If the employer appeals the Employment Tribunal’s decision, the employee still only has the three weeks to resign. This means that if the employer wins the appeal, the employee could be jobless and without redundancy compensation.