COVID-19: Solutions for employers: Lay offs, short-time working and salary reduction

Posted Wednesday 18th March 2020

Temporary lay offs and short-time working

As a temporary solution, employers (who have the contractual power to do so) can lay off employees or place employees on short-time working.

In the case of lay offs, employees are provided with no work and no pay for a period but are retained as employees. Contrastingly, in the case of short-time working, employees are provided with less work and less pay for a period and are retained as employees.

Employees who are laid off or subject to short-time working may be entitled to:

1. apply for a statutory redundancy payment in certain circumstances (see below); or
2. be paid a statutory guarantee payment (SGP) by their employer.

Employers must have the contractual right to lay off employees or put employees on short-time working as to do so without the consent of the employee would be a fundamental breach of contract.

Statutory guarantee payments (SGP)

Employees are entitled to be paid SGP by their employer if there is:

1. a reduction in the requirements of the employer’s business for the type of work the employee is employed to do; or
2. any other occurrence which affects the normal working of the business in relation to the type of work the employee is employed to do.

SGP is limited to five days in any three-month period for full-time employees, or pro rata for employees who work fewer than five days a week.

Redundancy Pay

Where employees are laid off or put on short-time working (or a combination of the two) for at least four consecutive weeks, or a total of six weeks in any 13-week period, they may have a right to terminate their employment and claim a statutory redundancy payment.  Furloughed employees will not be eligible.

Changes to working days/hours or pay

If employers want to vary the working days/hours or pay  of employees they will need to have an express right to do so in the relevant section of the contract i.e. a general power to vary will not suffice.

If employers have the express power to vary pay or days/hours, this will be subject to an implied duty to use the power fairly. Thus employers will need good cause for making the change. The virus should provide a good cause if the employer’s business is being damaged as a result. Employers would also need to give as much notice as possible of such changes but the virus situation is likely to mean that reasonable notice can be short.

If employers do not have the necessary power to vary consent should be sought on the basis that the changes requested are necessary in the circumstances.

If an employee refuses to consent the employer has the following options:-

1. terminate after following a proper process, and after giving the employee a further chance to consent, on the basis of the refusal to a change needed; or
2. terminate existing employment contract and offer re-engagement on the new terms that they want. If this option applies to 20 or more employees, a collective consultation process will need to be followed.  There is risk of a claim for unfair dismissal with this route for employees with over two years’ service, but in the current virus climate the risk of a successful claim will be lower; or
3. impose the changes and leave it to the employee to decide how to respond. This approach may result in claims, such as claims of constructive unfair dismissal if the employee has the requisite two years’ continuous employment.

This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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