Guarantee pay

An employer that is 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 in section 147 of the 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 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”, the employee is getting paid less than half a week’s pay.

Courts usually interpret the lay-off and short-time working rules restrictively. Without a clear pre-existing agreement permitting short-time working or lay-off, the employer is likely to be in breach of contract by insisting on either step without consent.

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

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

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

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 (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 put on short-time working or laid off without agreement will have a tribunal claim for unlawful deduction of wages (see page 91) and breach of contract (see Chapter 3).

The rules on statutory guarantee pay are found in section 28 of the 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 £26.00 (2015-16) (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 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 claim is to initiate Acas Early Conciliation, which is free. This must be done within the three-month time limit. For information about Acas Early Conciliation, see Chapter 13.

There is a tribunal fee for claiming a guarantee payment: £160 (2015) to issue the claim and £230 (2015) for the hearing. Given that maximum statutory guarantee pay for a full-time employee is just £26.00 per day for five days in any three months (a maximum claim value of £130), tribunal fees effectively wipe out the value of this kind of claim for any worker who does not qualify for fee remission. For information about fees and remission 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) (see page 368 of Chapter 11).