The government has provided guidelines for business to prepare to “reopen” and the reality for many small businesses is that they are unable to reopen in the same format as before the lockdown indeed, some may not return at all.
Many employers will therefore be considering what their options are with regard to their employees. Employers may consider that their only option is redundancies however, there are other alternatives to redundancy that they wish to consider.
Lay offs
Some employment contracts contain what is known as a lay off clause. This allows employers to lay off all or some of their employees during a period of downturn in work. A lay-off means an employee is off work for at least 1 working day. They should receive their full pay unless the employment contract allows unpaid or reduced pay lay-offs.
If it is unpaid then the employee is entitled to guarantee pay, this is a statutory amount of pay set by the Government. The maximum an employee is entitled to receive while on lay off is £29 a day for 5 days in any 3-month period, a maximum of £145. If an employee usually earns less than £29 a day, they are entitled to receive their normal daily rate. If they work part-time, their entitlement is should be worked out proportionally.
If there is no lay off clause in the contract the employer will need to seek the employee’s agreement to be laid off. Any enforced lay-off could amount to a breach of contract which would entitle the employee to resign and claim constructive dismissal or unlawful deduction from wages. Employeescould apply for redundancy and claim redundancy pay if they have been laid off for 4 weeks in a row or 6 weeks in a 13-week period.
Unpaid Leave
This involves agreeing with employees for them to take periods of leave from work which will be unpaid.
The employment contract may already contain a clause which allows for employers to place their employees on unpaid leave however, if there is not, employers must obtain their consent. Failure to seek employees’ consent can lead to a claim for unlawful deduction of wages.
Employees are likely to be reluctant to agree to this and as an alternative, employers may wish to consider requesting that employees use some of their annual leave entitlement. Employers may ask employees to take annual leave, Employers are required to give employees twice as much notice as leave to be taken. For example, if employers want employees to take 2 weeks’ leave they must give employees 4 weeks’ notice.
Reduction of Working Hours
This is known as short-time working. Employers agree with their employees that they will work less than their normal contracted hours and receive less pay in accordance with those hours. This allows employees to still receive some income and avoid being made redundant.
It is important that it is made clear that the short-time working arrangements are temporary and the employee should ensure they are available to commence working their normal hours when the employer requires them to.
If an employer gives the employee notice or the employee resigns during the short-time working period the employee may be entitled to be paid based on their normal working hours during the notice period.
Again, unless the Employment Contract already contains a short time working clause employers must obtain their consent to vary their working hours and pay. Even with the contractual right to introduce short time if the employee has more than two years’ service and the short-time working lasts at least four or more consecutive weeks, they can claim an entitlement to statutory redundancy pay unless, the employer can demonstrate that there is a likely need for employment in the future.
Reduction in Pay
Employers may try to seek to agree with an employee for a cut in their salary and benefits. An employee’s rate of pay is a condition of their employment contract and therefore an employer cannot unilaterally reduce their salary without their consent. This could lead to a claim for breach of contract and/or unlawful deduction from wages.
If the employment contract contains a clause under which employers reserve the right to vary their employees’ pay and hours, they may be able to reduce an employee’s salary without their agreement however there must be a reasonable and for solid business reason for doing so. Employers should be very cautious about reducing pay without employees’ consent as, a court will ultimately decide whether it was reasonable.
Employers should consider reducing or ceasing payment of any discretionary, non-contractual benefits. If benefits are contractual, they will need to seek consent from employees to stop paying them.
Employers should be open and honest with employees about the impact COVID-19 has had on the business and their reasons behind making any proposals to make changes to employees’ usual working hours and pay. This can help prevent employees feeling resentful about decisions that are made and make them more likely to agree to the changes.
If you require any assistance with redundancy processes or any of the options discussed in this blog please do not hesitate to contact us.