Guarantee pay (pay during lay-off or 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. Unions can and often do negotiate better terms than the statutory minimum protection the law provides to workers in this situation.



A “lay-off” is defined 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 the employee is not entitled to be paid (section 147, ERA 96).



“Short-time work” is defined as a situation where “by reason of a diminution of the work provided for the employee”, the employee is getting paid less than half a week’s pay (section 147, ERA 96). 



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


• already in the employment contract (an express term in the contract document, a term implied through custom and practice, or a term incorporated from a collective agreement, handbook or policy – see Chapter 3); or



• agreed through negotiation to respond to an immediate situation — typically to reduce the likelihood of redundancies. 



It would be a breach of contract for an employer to enforce an express contract term to lay off employees where there is no genuine lay off situation (Craig v Lindfield & Son Limited [2015] UKEAT/0220/15/LA). A genuine lay off situation requires both:


• a genuine downturn in work; and


• a realistic expectation of future work. 



Employees who are laid off or put on short-time working are entitled to their normal pay, unless the contract clearly allows the employer to pay something less, or no pay (Miller v Hamworthy Engineering [1986] IRLR 461). 



Even if the contract allows the employer to lay workers off or put them on short-time working without pay, any employee with at least a month’s service must be paid at least statutory guarantee pay. 



An employee who is put on short-time working or laid off without agreement will have a tribunal claim for unlawful deduction of wages (see page 110) and breach of contract (see Chapter 3). 



The rules on statutory guarantee pay are found in section 28, ERA 96. Statutory guarantee pay is based on normal hourly earnings subject to a cap, and is limited to five days’ pay in any three-month period. The maximum paid for a day is £27.00 (2017-18) (section 31, ERA 96). 



A “day” is a 24-hour period from midnight to midnight and has to be a workless day, that is, a day 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 employer can pay contractual guarantee pay that is better, but not worse, than statutory guarantee pay.



No statutory guarantee pay is due if:


• an employee has less than a month’s service;



• the lack of work is due to industrial action;



• alternative work is unreasonably refused; or



• there is non-compliance with “reasonable requirements” to be available for work.



Only “employees” can claim statutory guarantee pay.



The time limit for claiming statutory guarantee pay in the employment tribunal is three months from the date on which payment should have been made (section 34, ERA 96). The first step in any tribunal claim is to initiate Acas EC by submitting an Acas EC Notification Form. Acas EC is free. This step must be taken within the three-month time limit for bringing the claim. For information about Acas EC, see Chapter 13.



As with all tribunal claims, there is a tribunal fee for claiming a statutory guarantee payment: £160 to issue the claim and £230 for the hearing. Since the maximum statutory guarantee pay for a full-time employee is just £27.00 per day for five days in any three months (giving a maximum claim value of £135), tribunal fees have effectively wiped out this kind of claim for any worker who does not qualify for government “Help with fees”. For information about tribunal fees see Chapter 13.



Employees with at least two years’ service who are laid off for at least four consecutive weeks (or six non-consecutive weeks in a 13-week period) may qualify for a redundancy payment (section 148, ERA 96). The rules that must be followed to be paid a redundancy payment in this situation are highly prescriptive and must be followed rigidly (see page 442 of Chapter 11).



Where an express (written) contract term allows an employer to lay off employees indefinitely without pay, there is no implied contract term that the lay-off will only last for a reasonable period. However, the employer will be subject to implied contractual duties of trust and confidence (see Chapter 3).


An employee who resigns during a period of lay off without following the statutory rules strictly (regardless of how long the lay-off has lasted) will not be eligible for a redundancy payment (Craig v Bob Lindfield & Son Limited [2015] UKEAT/0220/15/LA).