A small business has decided to lay off staff for two weeks, as an alternative to redundancies. Esther Smith and Matthew Whelan advise on the correct procedure to follow.

The question:

A small firm employing only three staff has hit a brick wall with orders and clients cancelling. There is no alternative but to lay off staff for two weeks to give time to generate alternative business and save on costs whilst there is no work. Staff were advised last week this may be the case and, from next week, will not be required at work for two weeks.

Given the objective is to save money, only a day or two of holiday will be used in mitigation. Staff seem to understand that this is the only alternative and is being executed to avoid redundancy. Can the company proceed with these lay offs with minimal risk? Contracts make no mention of this.

Legal advice:

Esther Smith, partner, Thomas Eggar

Any change to terms and conditions (which would include a lay off period like this) is a matter for agreement between the parties. If the employer were to impose this requirement on employees without their acceptance, then they run the risk of a constructive dismissal claim, but if the state of the business is such as to justify the action of forcing the two-week period of leave, then a tribunal may find that the employer had “some other substantial reason” to justify their actions.

If the alternative is job losses then employees will ordinarily try to work with their employers on such initiatives, particularly if they are not restricted from taking on other work, say for an agency, during the period of lay off from their employer.

It helps an employer to implement such arrangements if there are provisions in the contract, but it is not fundamental if there are not. There are statutory provisions regarding lay off, short-time working and guarantee payments, but in the scenario you outline, it appears as if this is a short-term measure, which has been agreed to by the employees.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.

* * *

Matthew Whelan, solicitor, Speechly Bircham

The concept of laying-off has a specific legal meaning. You can only lay staff off if you have a right to do so. Even if there is a right, it only applies to employees who depend on being provided with work to be paid.

There are a few ways this right may arise. This could be in the employee’s contract of employment – although I note you state there is no mention of this. There could be a collective agreement with a trade union but this must be properly incorporated into each employee’s contract for you to rely on this in relation to a particular employee.

The right can be implied by custom and practice, although it can be difficult to prove a right is implied in this way and I would recommend you take legal advice before you rely on this.

The other way is to agree this with the employees. You should properly document the agreement and make sure it is enforceable.

There are legal provisions which give people certain rights if you lay them off, for example in respect of the payments they are entitled to. There is a similar concept known as short-time working, which also gives an employee rights.

You need to be careful with the practice of laying staff off as if you do this incorrectly they may have recourse against the company, including potentially the right to resign and claim constructive unfair dismissal.

Matthew Whelan can be contacted at Matthew.Whelan@speechlys.com. For further information, please visit Speechly Bircham.

* * *