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Lay-off and short time working in the current COVID-19 Crisis

What goes around comes around, but not always in the same guise. Clients with long memories may recall that a significant part of the legal background to the UK’s industrial unrest in the 1970s and 1980s was the rules around lay-offs and short time working, or “LOST”. The legislation has been relatively little used since then but has remained on the statute book, and it contains some potential pitfalls for businesses seeking to manage their overheads in response to the current crisis.

It is particularly relevant for employers who may be looking to avoid dismissal of employees, whether for altruistic reasons or to minimise exposure to redundancy costs. Failure to comply with the LOST legislation can result in an employee having a right to a statutory redundancy payment even if the employer intends to resume full time employment at a later date.

For these purposes, laying-off means temporarily providing an employee with no work (for no pay) but maintaining the employment relationship; short-time working involves providing employees with less work (for less pay), while continuing to employ them. An employer does not have a general right to take either of these steps but may be able to do so with the employees’ consent.  If the employer attempts to do so without consent, (and in the absence of an express or implied contractual right) there will be a breach of the employment contract: normal principles of employment law apply.  In other words, employees may be entitled to compensation for breach of contract, unlawful deduction of wages and constructive unfair dismissal. Those on zero-hour contracts may be entitled to statutory sick pay if they are told to self-isolate, but only if they earn more than an average (over an eight-week period) of £118 a week before tax. If the employment contract permits the employer to lay the employee off without any pay at all, or to impose short time working, then the periods of lay-off and/or short time working (either separately or as a combination of the two) should not exceed four consecutive weeks, or a total of six weeks in any period of 13 weeks. If it does, then an employee with two years’ continuous service may, once this period has passed, notify the employer of their intention to claim a statutory redundancy payment. The employer has only one substantive defence available, namely that it is reasonably expected that, within four weeks of the service of the notice of intention to claim, the employee would  be in a period of employment with the employer of at least 13 consecutive weeks without any further need for lay-off or short-time working.

On Friday, 20 March 2020, the Chancellor announced the Coronavirus Job Retention Scheme (CJRS), under which all employers can apply to HMRC for a grant to pay 80% of the wages of retained staff who are not working (known as “furlough”) up to a maximum of £2,500 per worker per month.

The CJRS will be backdated to 1st March 2020 and will remain in place until at least the end of May 2020.

The scheme is open to Sole traders, LLPs, Limited Companies, Charities and Partnerships.

 It is likely that payments will be made by the end of April. Government guidance just released states:

“You will need to:

  • designate affected employees as ‘furloughed workers’, and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation;
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required)”

Where there is no contractual right for the Employer to lay off an employee or put them on short term working, the Employer will have to negotiate with the Employee to agree for them to become a furloughed Employee.

Whilst the Employee is furloughed the employee remains employed by the Employer but should not undertake any work for the Employer.

The Employer is not obliged to make up the missing 20% of the employee’s salary but the Employer will need a contractual right to either withhold the 20% of the Employee’s salary or the Employee’s consent to do so.

This is a positive and welcome step by the Government to protect employees who face losing their jobs during a time of unprecedented global uncertainty but there are significant questions about the CJRS and how it will work in practice.  For example: what is meant by staff who are not working – or furloughed? What is the position of an employee who is laid off but is asked to do a few ad hoc hours work from home by their employer? Can the employer claim under CJRS for them? If the employer furloughs them under the scheme, can they work for another employer and does this invalidate payment under the CJRS? What about staff that work part time for two employers – one who furloughs them and one who doesn’t? We will provide further answers to these questions as the Government’s position becomes clear.

As always, detailed rules apply and employers looking to reduce their employment costs are strongly recommended to take legal advice before discussing any form of lay-offs or short time working with their staff or at worst staff redundancies In addition, while some employers may be keen to move to some form of zero hours contract while the COVID-19 difficulties continue, great care should be taken.  Such a move could itself trigger unfair dismissal and/or redundancy claims under general employment law.

For further advice in this complex area contact Charles Avens or Toby Stroh of Druces’ employment team.