Does a lay-off have to be for a ‘reasonable’ period of time?

Short term lay-off of employees is an option available to employers who need to temporarily reduce their workforce. It is often used by employers in industries where there may be periods between customer contracts. For example manufacturers of boats may have a contract to provide several boats for one customer but when the contract comes to an end they may not have sufficient work to continue to employ the same level of staff. Rather than make redundancies the employer has the option, if they know a new contract is imminent, of temporarily laying off employees so that they can retain the skilled workforce before the next contract starts.

Alternatively an employer can put an employee on short-time working where they work shorter hours and receive less pay until work picks up.

The Law

Employers can lay off employees or put on to short-time working only if they have the contractual right to do so, i.e. if there is an express or implied provision in the employee’s contract to this effect.

When an employee is temporarily laid off the law states that in certain circumstances they will be entitled to request redundancy and receive a statutory redundancy payment rather than remain laid off.

In order to receive a redundancy payment the employee must:

1) have been employed for at least 2 years;

2) have been laid off or kept on short-time working for at least four or more consecutive weeks, or a total of six weeks (of which no more than three are consecutive) in any period of 13 weeks;

3) initiate the process by serving a written notice indicating their intention to claim a redundancy payment.

In these circumstances an employer may serve a counter-notice refusing redundancy if it reasonably expects that further work will become available within four weeks.

If an employer lays off an employee without a contractual right to do so then the employee can resign and claim constructive unfair dismissal.

There is no maximum period set out in law as to the length of time an employee can be laid off, however there have been several cases about whether an employer can only lay off an employee for a ‘reasonable’ period of time.

The Facts

On the 21st July 2015 Bob Lindfield & Son Limited (the ‘Employer’) laid off various employees from their design and technology company. The Employer had a contractual right to do so contained within their employee handbook, which formed part of the employee’s contracts.

One of the employees, Mr Craig found a new job whilst he was laid off and contacted the Employer to tell them that after being laid off for 5 weeks he assumed he had been made redundant and was entitled to a redundancy payment.

The Employer responded and denied that Mr Craig’s position was redundant, to which Mr Craig stated that he would have to make a claim for constructive unfair dismissal.

The Employer issued a formal notice to state that Mr Craig would not be made redundant as his job role was still required.

Mr Craig made a claim in the Employment Tribunal stating that the lay-off period was unreasonable and he had been constructively dismissed.

At the Employment Tribunal they disagreed with Mr Craig’s assertion that the lay-off period was unreasonable or that there was any implied term as to the reasonableness of the period that he could be laid off. Mr Craig appealed to the Employment Appeal Tribunal.

 The Decision

The Employment Appeal Tribunal considered the purpose of the provisions for lay-off and short-time working in the Employment Rights Act, namely to allow Employers the flexibility to reduce overheads and retain employees during down turns in business.

They also considered that the rights of employees had been considered in the legal provision as after 4 weeks employees can apply for redundancy pay if they do not want to continue to work for the employer.

In light of this the Employment Appeal Tribunal decided that there was no implied term that the period of lay-off had to be reasonable.

Points to note

This case is useful for employers in restating what the legal position is when laying off or placing employees on short-time working.

Interesting the Employment Appeal Tribunal did note in this case that if an employer were to lay-off an employee with no prospect of a return to work then they would effectively be preventing an employee from obtaining a statutory redundancy payment and this could be a breach of contract entitling and employee to resign and claim constructive dismissal.

What action do you need to take?

1) If you consider that your business may need to lay-off employees or reduce working time for a short period it is important to include this in your employment contracts.

2) If you are unsure about whether this will apply to you it is necessary to get some specific advice.

3) If you do lay-off employees or place on short-time working you should behave reasonably and I recommend that you seek advice about the process.

Case Name

Craig v Bob Lindfield & Son Limited – Employment Appeal Tribunal