Coronavirus/COVID-19: Lay-offs and short-time working
Summary – Lay-offs and short-time working
- If your business is severely affected by the Coronavirus (COVID-19) situation you may need to look at introducing temporary measures in order to protect the workforce and the business.
- These measures include moving to short-time working (where employees work fewer than their normal contractual hours, for example, a three-day week).
- If the situation continues you may also consider lay-offs (where an employer asks employees to stay at home and not attend work or be paid for a temporary period).
- Employees with at least one month’s service will be entitled to a small fixed statutory guarantee payment to partially compensate them for the reduction in salary. Employees who are affected for longer periods may be entitled to redundancy pay. Normally this will be a lay-off for four or more consecutive weeks or six weeks in a thirteen-week period. To claim this the employees must resign with written notice of their intention to claim this. Employers can avoid redundancies if they guarantee employees 13 consecutive weeks of work within four weeks of receiving the employee’s notice.
- These are relatively rarely used legal provisions and can only be implemented if there are express, correctly drafted clauses in their contracts giving the employer the right to lay-off staff due to a shortage of work or to move staff to short-term working. Normally these contractual terms are only seen in manufacturing industries/factories.
- Unless the company has this contractual right, any attempt to impose lay-offs will give rise to potential claims for breach of contract, unlawful deduction from wages or constructive dismissal.
- Employees may, however, consent to a period of unpaid leave or an unpaid sabbatical, or a period of reduced-hours work and pay, particularly where this option is presented as an alternative to the risk of redundancy dismissals.
- Employees may also consent to a period of paid annual leave (i.e. using their annual leave entitlement), as an alternative to an unpaid period of leave or unpaid reduced working hours.
A potential approach where lay-offs or short-time working may be required due to Coronavirus/COVID-19
Where the business is severely affected and there is a shortage of work so that lay-offs or a move to short-term working are essential for the survival of the business AND there is no contractual provision for lay-off or short term working, the following approach may be taken:
All staff are contacted (and, where possible, met with) to advise of the situation and the risks to the business.
It is explained to all staff that (a) redundancies are likely to arise from this situation. (b) as an alternative to redundancy, staff will be asked to explicitly agree to a period of unpaid leave/an unpaid sabbatical/a period of short-term working, (c) that eligible members of staff are entitled to statutory guarantee pay during lay off or short-time working. The maximum they can get is £29 a day for 5 days in any 3-month period – so a maximum of £145.
All staff are given a letter, detailing the position and asking for agreement (via a signed copy of the letter) to a period of unpaid leave/an unpaid sabbatical/a period of short-term working. This letter can also detail how staff may make a claim for redundancy in the future, if the lay-off/short term working arrangement continue.
If an agreement cannot be reached there are then two potential options:
(a) The business concludes that redundancies cannot be avoided and moves to make staff redundant, following a correct and fair redundancy process and making statutory/contractual redundancy payments (depending on whether employment contracts make provision for contractual redundancy pay in excess of statutory provisions).
(b) Dismiss and re-engage staff on new contracts – which would include a right to unpaid lay-off/reduce working hours with pay reduction.
The latter option is possible but is unpopular with most employers due to the negative effect on employee morale and the fact that this approach leaves the company open to claims of constructive unfair dismissal.
It is important to remember that unless there is an express contractual term which allows the employer to lay-off staff without pay or to impose a short-term working arrangement than an attempt to impose these arrangements will make the employer liable to a breach of contract claim, or a claim for unlawful deduction from wages, or a claim for dismissal (unfair or constructive) or a claim for redundancy pay. Therefore it is essential that if these arrangements are to be put in place then clear, a written agreement is sought and received.
Frequently Asked Questions
Is there a right to lay off employees?
There is a general right at common law to tell most employees not to turn up for work but there is no general right not to pay them because work is not available.
In what circumstances can an employer lay off employees?
This can be done where there is an express contractual right agreed between employer and employee. Alternatively, there may be an agreement covering the issue between the company and the union, or a national agreement for the industry which the employer follows.
Such an agreement has contractual force only if it is incorporated into the individual employee’s contract of employment.
The right of an employer to lay off may also be implied if it can be shown (by clear evidence) that it has been established over a long period by custom and practice.
Can employees be laid off if there are no express or implied rights to lay off?
Both parties may agree to alter the contract terms so that the lay-off is not a unilateral act by the employer but by mutual agreement (for example, where the only alternative is a redundancy).
This will not necessarily mean that the employee has agreed to a variation in the employment contract giving the employer the power to lay off unilaterally without pay in the future.
Do employees have any right to payment during a period of lay-off?
Employees can be laid off without pay where there is a specific term in their contract allowing the employer to do so.
When employees are laid off, they may be entitled to statutory guarantee payment from the employer. Payment is limited to a maximum of five days in any period of three months and the daily amount is subject to an upper limit which is reviewed annually. (See “what is statutory guarantee pay” below).
On days on which a guarantee payment is not payable, employees may be able to claim Jobseekers Allowance and should contact their local Jobcentre office about eligibility.
How long can a lay-off last?
This will depend on the terms specified in the contract. However, the employee may in certain circumstances give his or her employer written notice of an intention to claim a redundancy payment (see “applying for redundancy” below).
There’s no specific legal limit for how long a member of staff can be laid off or put on short-time working. However, members of staff could apply for redundancy and claim redundancy pay if it’s been:
- 4 weeks in a row
- 6 weeks in a 13-week period
What is a wrongful lay-off?
If there is no contractual right to lay-off without pay but the employer does so, he or she will be acting in breach of contract. The employee may:
- Choose to accept the breach of contract and treat the contract as continuing, while claiming a statutory guarantee payment (see “what is guarantee pay” below).
- Sue for damages for breach of contract in the civil court or, in certain circumstances, at an Employment Tribunal
- Claim before an Employment Tribunal that there has been an unlawful deduction of wages under Part II of the Employment Rights Act 1996
- Claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to a potential claim of unfair dismissal and/or, if eligible, redundancy pay. (This is a complex area and further advice should be sought, for example from a solicitor)
What is short-time working?
Short-time working occurs when employees are laid off for a number of contractual days each week, or for a number of hours during a working day.
As in the case of a lay-off, the employer must have an express or implied power in order lawfully to reduce the amount of pay. Normal practice would be for the workforce or their union to agree to short-time working as an alternative to redundancies.
Where there are no express or implied rights to short-time working, employees may claim that the employer’s action amounted to a dismissal (constructive or otherwise) and complain to an Employment Tribunal of unfair dismissal. (This is a complex area and further advice should be sought, for example from a solicitor).
They may also sue for loss of wages in a civil court or, in certain circumstances, in an Employment Tribunal or claim that the employer has made an unlawful deduction of wages under Part II of the Employment Rights Act 1996 (to an Employment Tribunal only).
Employees placed on short-time working may be able to claim Jobseekers Allowance for the balance of the hours they do not work. Advice on eligibility may be obtained through a local Jobcentre.
What is statutory guarantee pay?
Members of staff are entitled to guarantee pay during lay off or short-time working. The maximum they can get is £29 a day for 5 days in any 3-month period – so a maximum of £145.
If members of staff usually earn less than £29 a day they will get their normal daily rate for 5 days in any 3-month period.
Where staff work part-time, the entitlement is worked out proportionally.
People cannot claim guarantee pay for any day on which they do some work.
Not paying statutory guarantee pay counts as an unlawful deduction from wages – therefore staff could make a claim to an employment tribunal.
Who is the eligibility for statutory guarantee pay?
To be eligible to receive statutory guarantee pay, a member of staff will need:
- To have been employed continuously for 1 month (includes part-time workers)
- To reasonably make sure they are available for work
- Not to refuse any reasonable alternative work (including work not in their contract)
- Not to have been laid off because of industrial action
Can a claim be made for a redundancy payment because of lay-off or short-time working?
If an employee is either laid off (receives no wages) or put on short-time working (receives less than half a week’s pay) for four consecutive weeks – or for six weeks in a period of 13 weeks – because of a shortage of work, the employee can give the employer written notice that he or she intends to claim a redundancy payment.
How do people apply for redundancy and claim redundancy pay?
Members of staff can apply for redundancy and claim redundancy pay if they have been laid off without pay or put on short-time and receive less than half a week’s pay, due to a shortage of work for:
- 4 or more weeks in a row
- 6 or more weeks in a 13-week period
In order to claim this, members of staff need to:
- Write to their employer giving written notice that they intend to claim a redundancy payment within 4 weeks of the last day of the lay-off or short-time period.
- The employer has 7 days to accept the claim or give written counter-notice.
- If the employer does not give counter-notice, the member of staff can assume that the employer has accepted the redundancy claim.
A counter-notice means that the employer expects work will soon be available – it must start within 4 weeks and must last at least 13 weeks. i.e. employers can avoid redundancy claims if they guarantee employees 13 consecutive weeks of work within four weeks of receiving the employee’s notice claiming redundancy.
The employer can withdraw the counter-notice in writing.
The member of staff must then resign in order to get redundancy pay. They have three weeks to hand in their notice, starting from:
- 7 days after they gave written notice to the employer (if they did not get a counter-notice)
- the date the employer withdrew their counter-notice
Force Majeure Clauses and Corovirus/COVID-19
Summary – Force Majeure
A large number of contracts for services contain “Force Majeure” clauses – although this is a very uncommon clause in contracts of employment.
Where a business has contracts with providers of services (who are not employees) there is often such a clause- this is a contract provision which relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible.
In the absence of a force majeure clause, parties to a contract are left to the mercy of the common law contract doctrines of “impracticability” and “frustration of purpose,” which rarely result in excuse of performance.
Courts tend to interpret force majeure clauses narrowly; that is, only the events listed and events similar to those listed will be covered. For example, while acts of terrorism might be a specified force majeure event, it does not necessarily follow that a court would also excuse a party’s performance based on “threats” of terrorism.
The position will depend in part on the governing law of the contract, as the concept and effect of force majeure varies significantly across European jurisdictions.
In English law, force majeure is not defined, either in statute or under case law. And the concept of force majeure will not be implied into a contract, meaning that the parties can only rely on this concept if it is expressly covered in the contract.
Whether a particular clause is triggered will depend entirely on the words that the parties have used – particularly the list of events that are often included in a force majeure clause.
Frequently Asked Questions
What is a force majeure clause?
The expression “force majeure clause” is typically used to describe a contractual term by which one (or both) of the parties is/are usually:
- entitled to cancel the contract; or
- excused from performance of the contract, in whole or in part; or
- entitled to suspend performance or to claim an extension of time for performance,
upon the occurrence of a specified event or events beyond their control. As such, that party will not be liable for its failure to perform the obligations, in accordance with clause.
What’s the effect of triggering force majeure?
The same force majeure event, under the same law, could give rise to quite different effects in different contracts.
Where the contract is subject to English law, then it’s up to the company to specify the contractual effects. Common consequences of a force majeure event include:
- suspension of contractual obligations;
- extensions of time to fulfil obligations;
- renegotiation of terms;
- obligation to mitigate losses; and
- the right to terminate the contract.
To benefit from those effects, recent case law suggests that the party looking to be excused must have been ready and willing to perform the contract if it had not been for the force majeure event.
What if you can foresee the event?
It is difficult to predict the scale, length and effect of the COVID-19 pandemic in any given country or sector; but current legal advice is that the fact of an outbreak could hardly be said to be unforeseen.
While the concept of foreseeability is a fundamental part of the definition of force majeure under some legislation (for example, French law). English courts have not taken the same approach, and if the contract is silent on whether the event needs to be unforeseen, a court will be reluctant to impose that qualification.
Can I suspend or terminate the contract for services using a Force Majeure clause?
This is dependent on what the clause provides. For example, such a clause might include:
- If either party considers that any circumstance of Force Majeure has occurred which may affect materially the performance of its obligations then it shall forthwith notify the other in writing to that effect giving full details of the circumstances giving rise to the Force Majeure event.
- Neither party shall be considered to be in default of its obligations under the Contract to the extent that it can establish that the performance of such obligations is prevented by any circumstance of Force Majeure and which was not foreseeable at the date of the Contract.
- If the performance of the obligations of either party under the Contract is so prevented by circumstances of Force Majeure and shall continue for a period of 30 calendar days or less then during that period the Contract shall be considered as suspended. Upon the ending of the Force Majeure Event, the contractual obligations of the parties shall be reinstated with such reasonable modifications to take account of the Force Majeure as may be agreed between the parties.
- If the performance of the obligations of either party under this Contract is so prevented by circumstances of Force Majeure and shall continue to be so prevented for a period in excess of 30 calendar days then the Contract shall be terminated by mutual consent and neither party shall be liable to the other as a result of such termination.
- If the Contract is so terminated then subject to the transfer to the Client of all benefits in the Services performed by the Supplier up to the date of the Force Majeure notice, then the Client shall pay to the Supplier such reasonable sum as may be agreed between the parties in respect of the Services performed up to the date of the Force Majeure notice.
In these circumstances, it is clear that if the performance of obligations under the contract is prevented for 30 days or fewer then the contract will be considered to have been suspended (i.e. no work under the contract will be carried out and no payment received) but the contract will be reinstated at a future date. Where the performance of obligations is prevented for more than 30 days, the contract shall be terminated. It would be advisable, where such a clause is in place, to include in the written notification of the Force Majeure Event, the provisions relating to the prevention of performance at up to 30 days and 30 days plus, is outlined, so that clear notice of the position has been given.
However, other Force Majeure clauses may make reference to formal notice being given. Where this is the case, the contract may be suspended or terminated, provided that the correct contractual notice is given.