What is a reasonable period to ‘lay off’ your employees?

One of the most important and often useful clauses within a contract of employment for employers in any trade is the ‘lay off/short-time working clause’.

For those that are not aware, such a clause would usually entitle an employer who suffers a downturn in the work available, to either reduce the hours of the affected employees or alternatively, completely ‘lay off’ such employees without pay – subject of course to the employee’s right to receive statutory guarantee pay in qualifying circumstances.

If an employer attempts to take this action without such a clause being present, the employee may be entitled to resign and claim constructive unfair dismissal.

Section 135(1)(b) of the Employment Rights Act 1996 provides further guidance as to the rights of the employee in a lay off situation, and explicitly states that provided the below criteria are satisfied, the employee’s employment will be terminated and a redundancy payment must be made:

The employee must have two year’s’ continuous service;
The employee must have been laid off or kept on short-time working for a period of at least four consecutive weeks or, or a total of six weeks (of which no more than three are consecutive) in a thirteen week period;
The employee must thereafter follow the procedure as set out in sections 147 – 154 of the ERA 1996, declaring their intention to claim a redundancy payment.

If the employer reasonably believes that work will become available in the next four weeks, it must serve a ‘counter-notice’ (section 149 ERA) meaning that the employee will not be eligible for the redundancy payment at this time.

Previously there have been conflicting decisions in the Employment Appeal Tribunal as to whether an employer can only lay off an employee for a ‘reasonable period’. 

In the recent case of Craig v Bob Lindfield & Son Ltd UKEAT/0220/15, the EAT was asked to consider whether a ‘reasonableness term’ could be implied into a lay off/short time working clause within a contract of employment to allow lay off and short-time working for an indefinite period without pay.

The facts of the case were that in July 2014 following a reduction in work available, the Respondent, a design and technology company, advised all affected employees that they would be laid off as of 21 July 2014.  The contracts of employment of the affected employees did allow for this course of action, albeit the relevant clause was actually contained within the Employee Handbook rather than the Contracts of Employment, which was incorporated into the Contracts.

The Claimant, a designer, was one of the aforementioned affected employees and on 22 August 2014, sent an email to his employer advising that he had found alternative employment elsewhere and was due to start on 1 September 2014.  The Claimant further advised that given he had now been laid off for almost five weeks, he felt he was entitled to a statutory redundancy payment to which the Respondent replied that this was not the case as he thought that work would resume shortly.

The Claimant thereafter informed the Respondent that he felt he had no alternative in the circumstances, than to resign and bring a claim for constructive dismissal.  The Respondent subsequently issued him with a section 149 counter-notice and advised the Claimant that his role was still required by the Company and was therefore not redundant.

The Claimant brought a claim at the Employment Tribunal claiming constructive dismissal on the basis that the lay off period was unreasonable.  The Employment Tribunal found for the Respondent, stating that there was no implied term in respect of the reasonableness of a lay off period and even if there were, the period in these circumstances was not held to be unreasonable.  In addition, as there had been no repudiatory breach of the contract of employment the Claimant was not entitled to claim constructive dismissal.

The Claimant subsequently appealed against the Employment Tribunal’s decision on the basis that the Tribunal was incorrect to find that the lay-off clause was not subject to a term that lay-off should be no longer than was reasonable, and that it further erred in concluding that four and a half weeks was not an unreasonably long period.