Guarantee payments are fairly rarely encountered in practice, but in times of economic hardship they are likely to be encountered more frequently.
Abercrombie & Others v AGA Rangemaster Ltd is, according to the Court itself, probably the first case of its kind to reach the Court of Appeal.
Guarantee payments are payments that an employer is required by statute to make to employees who have been laid off or placed on short time work because of a downturn in business. Sections 28 to 34 of Part III of the Employment Rights Act set out the details. the maximum payable is £24.20 a day for five days in any 3-month period, i.e. a maximum of £121. In practice many employment contracts provide for payment to be made even if there is no work available to be done in which case, as long as the contractual entitlement at least matches the statutory requirement, the contractual provisions prevail.
In this case the Court upheld the right of hourly paid employees to claim guarantee payments for workless days while they were working a four-day week, Mondays to Thursdays, under a temporary agreement reached via their union, the GMB. The agreement had been reached to address a shortage of work during 2009. When, during the currency of the agreement, things took a turn for the better, the employer did not, as it could have done, cancel the agreement early but instead let it be known that anyone who wanted to could go back to 5 day working early – some did, but not all.
The GMB, on behalf of its members, contended that they could claim guarantee payments for Fridays, because they had not been provided with work on a day on which they would normally be required to work – the agreement had set up what was, in the words of counsel for the employees the “new normal”. The employer’s case was that the workers were not “normally required” to work on Fridays while the agreement was in force. The Court of Appeal found in favour of the employees, pointing out that whether or not someone was “normally” required to work on a particular day in accordance with their contract of employment did not mean quite the same thing as asking whether he is in fact required by his contract of employment to work on that particular day. In the words of Lord Justice Underhill:
The question which governs liability under section 28 is whether the employee “would normally be required to work [on the day in question] in accordance with his contract of employment”. That is not the same as asking whether he is in fact required by his contract of employment to work on that particular day. The phrase “in accordance with his contract of employment” is governed by “normally”. Thus the question is whether the employee would normally be contractually required to work on that day. It is “normally” which is the key concept underlying section 28: the contrast which it imports is between the state of affairs as it actually is – where, ex hypothesi, the employee is not being required to work – and the state of affairs as it would be but for the (abnormal) non-provision of work for him to do. For the purpose of that contrast it seems to me immaterial whether the abnormal state of affairs is covered, or accompanied, by an agreement which expressly varies the contract of employment: what matters is that it is abnormal. The fact that the employee, or his representatives, may have expressly agreed to a departure from the norm, in a manner which gives rise to a variation of the contract of employment, does not by itself mean that it is any the less a departure
There is a risk that this decision will make the option less attractive for employers. It remains to be seen whether in future more redundancies are made, or whether the desirability of retaining a trained workforce will trump the cost issue.