In uncertain times, everybody knows redundancy is often an employers’ first port of call as a cost cutting-measure. Nonetheless, that can be a short-sighted move – the business will lose trained and effective employees will have to meet the cost of the redundancy payments in addition to the cost of the change management process in terms of morale and productivity and, ultimately, will face recruitment costs when, or if, the economy recovers.
In the current, depressing economic climate, many employers are considering alternatives to redundancy. Lay-offs, short-time working and sabbaticals are concepts that are increasingly being touted, but often misunderstood. And used incorrectly, they can lead to employment tribunal claims and a demotivated workforce. Used correctly, however, they can provide a genuine cost-effective alternative to redundancies.
Before considering how to lay off staff it’s important to comprehend what this actually involves.
An employee is laid off when not provided with work and consequently receives no pay. The lay off may cover the full contractual hours or in some cases part of those hours, in which instance it is classed as short-time working. Being laid off or placed on short-time working for an extended period can result in the employee being able to claim a redundancy payment, hence the need for careful management.
An employer is only entitled to lay off employees, or place them on short-time working, if it has a contractual right to do so. Such express contractual terms only tend to exist in collective agreements or in sectors such as manufacturing where lay-offs are more common. Rarely does the right exist outside that sector, meaning an employer seeking to enforce a lay off will be in breach of contract. In that case, the employee can bring a number of claims, most likely an Employment Tribunal claim for unlawful deduction of wages, thus defeating the object of the exercise.
In law, a lay-off or period of short-time working that exceeds either four consecutive weeks or six or more non-consecutive weeks in any 13-week period entitles an employee to leave and claim a redundancy payment. The legal definition of lay-off or short-time, however, refers to periods when the employee is receiving less than half a week’s pay. Thus, in theory, provided the employee is paid in excess of 50% of salary, there is no time limit to the period of lay off. In reality, though, an extended period of lay off at a reduced salary will most likely be in breach of contract and will entitle the employee to leave and claim constructive unfair dismissal.
Placing staff on sabbaticals may also seem an alternative to redundancy.
A sabbatical is not a legal concept, but is simply time away from work. Many businesses already operate successful sabbatical or career break schemes. The operation of such a scheme is at the discretion of the employer, as is the entitlement to pay during the sabbatical. Many schemes offer part-payment of salary, provided the employee undertakes activities during their sabbatical, which will benefit their career. Others are unpaid and simply offer a right to return to a role at the end of the break.
How can such schemes be implemented?
First, any employer needs to look at what it has in place contractually. In the absence of an express term to lay off, there is a risk of being in breach of contract. Similarly, in the absence of a sabbatical or career break policy there is a risk of a breach, and even in the event that a policy or provision already exists, it is unlikely to provide for sabbaticals to be enforced. If the employee does not agree to the sabbatical it can be difficult to enforce.
Similarly, it is difficult to enforce a long-term lay off. If agreement cannot be reached with affected employees this can challenging. If there is no contractual lay off entitlement, then how can the employer achieve its aim?
The employer will need to follow the lengthy process of changing terms and conditions. If more than 20 employees are affected by the proposed change, then collective consultation will have to take place. Once that has been exhausted, and/or if less than 20 are affected, then individuals will have to be consulted, circumstances considered, new contracts drawn up and the previous contract terminated. To take such a draconian option, the employer must also be able to demonstrate a sound business reason for the change to terms to attempt to rebut the inevitable Tribunal claims which follow. If the change to terms and conditions proposed by the employer is a long period of lay-off without pay, then there is a significant risk that an employment tribunal will find the change to be unfair. Such a route should not be undertaken lightly or without legal advice.
How can long-term layoffs be agreed?
The most effective way to introduce this is to seek employee agreement. A number of employers are finding both unions and employees open to discussion to retain jobs. Where unions are recognised, consultation should take place via the usual routes and, subsequently, with the individuals affected. Where there is no recognition or formal collective consultation body then consultation will have to be with the individuals unless, as above, enforced contract change is envisaged, in which case employee representatives will have to be elected and a formal consultation carried out.
How should pay issues be handled?
If long-term lay-off is envisaged, then the business will have to be prepared to pay more than 50% of salary if it wants to avoid the statutory provisions entitling an employee to claim redundancy pay.
If there is to be a voluntary sabbatical or career break, there is no obligation to pay.
But, if an employer is laying off for a shorter period and in accordance with the statutory provisions, then it only needs to pay ‘guarantee pay’, which currently stands at £21.50 per day for a maximum of five days in any rolling three-month period. In certain sectors, collective agreements provide for greater pay entitlement.
The business will also have to consider what sickness pay scheme it operates and how that will be affected. An employee facing a significant period of time on lay off may seek to be signed off to receive sickness pay. Failure to pay could lead to claims for breach of contract and/or disability discrimination.
Employers must also pay heed to entitlements that accrue during lay offs. During a lay-off, continuity of employment remains and the employee will continue to accrue holiday entitlements and this raises some legal issues
Some career breaks seek to break continuity, but this can be controversial, ineffective and less likely to lead to take-up from employees. While the employment continues, however, entitlement to contractual rights such as pay and holidays can normally be removed with agreement under the scheme, but the statutory entitlements will continue to accrue.
Remember that when short-term measurers fail and redundancies become necessary, employers must realise that the lay-off or sabbatical will not shortcut the redundancy process. The business will have to follow the requisite consultation and a fair selection process, and should ensure that those who voluntarily took sabbaticals or reduced their hours are not adversely affected.
Lisa Norman, associate, Bevan Brittan