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Lay-off and short-time working

Lay-off and short-time working are used where employers are temporarily unable to provide employees with work for their full hours. However, they are likely to be less attractive to employers and employees while the option of furlough under the Coronavirus Job Retention Scheme (the Extended CJRS) remains available. The Extended CJRS is currently due to run until 30 April 2021. See our FAQs on the Extended CJRS for details.

Last updated: 21/10/2020.

1. What if we need to temporarily close our business and send staff home, e.g. because of supply chain disruption, or reduced demand for products or services? (Last updated 21/10/2020)

In this uncertain time, businesses may want to make a plan in case they need to close temporarily, or significantly reduce their production volumes and a central part of that will be deciding how best to deal with staff. 

Today’s supply chains are increasingly global in nature and many are therefore vulnerable to potential disruption due to Covid-19, e.g. if factories are located in countries operating strict lockdowns and are therefore unable to fulfil orders. 

If UK businesses are therefore unable to obtain parts in sufficient volume, they may need to consider closing some of their production facilities or reducing production – not because of the virus itself but because they will not have the parts they need to continue production at normal levels. 

Similarly, some businesses may find they need to consider closing or operating on reduced hours because with people self-isolating there is less demand than usual for their products or services.

Since it was introduced in March 2020, furlough under the Government’s Coronavirus Job Retention Scheme (the CJRS) allowed many employers to avoid implementing lay-off or short-time working arrangements. However, with the CJRS ending on 31 October 2020, employers whose business is still suffering decreased demand may need to consider temporarily laying off their employees, or putting them on short-time working. Note, however, that if you are thinking of implementing short-time working, you may wish to consider whether you can use the Government’s Job Support Scheme (JSS), which is available for six months from 1 November and provides Government funding to support employers to retain employees in ‘viable’ jobs on reduced hours. We summarise the JSS here and will produce specific FAQs on the JSS once detailed guidance is published.

Employers should be aware that temporarily laying employees off without pay, or cutting back their hours with a corresponding reduction in pay, is likely to be a breach of contract, unless the employment contract expressly permits it. 

Contractual clauses expressly permitting lay-off or short-time working are relatively rare in practice. 

Where they do exist, they may well be subject to conditions, such as a requirement for prior consultation, agreement with the union on the period of lay-off/reduced hours, or other mitigation measures. Even if a contractual clause does not impose such conditions, as a matter of good practice the employer should not seek to rely on it without first consulting with affected employees. 

Employers that impose a lay-off or short-time working without contractual authority to do so could potentially face claims for unlawful deductions from wages, breach of contract, or even constructive unfair dismissal. 

The risk of such claims can, however, be reduced if the employer consults all affected employees and seeks to agree with them the period and terms applicable to any lay-off or short-time working before implementation.

If an employee is already on sick leave when lay off/short-time working begins, whether because they are self-isolating or for another reason, then they cannot be on put on lay off or short time working at the same time.

It is also important to note that employees who are laid off or put on short-time working may be entitled to statutory guarantee payments, or to statutory redundancy pay if the lay-off/short-time working persists.

Employees will understandably be concerned about any temporary closure decision; good communications, which explain the reasons for the business closure and commit to keeping staff updated on a regular basis will therefore be key to reducing anxiety and maintaining good employee relations. 

Member companies that are considering implementing a lay-off or short-time working should first consult our guidance on lay-off and short-time working in response to Covid-19 and seek advice from their Make UK adviser. 

2. What about if public health advice is to close businesses? (Last updated 21/10/2020)

From 1 November 2020, businesses that are legally required to close due to tighter local or national Coronavirus restrictions can claim 67% of each of their employees’ wages from the Government, subject to a cap of £2,100 per month, under the Government’s ‘extension’ to the JSS. Employers do not have to contribute towards employees’ wages while their business is required to remain closed, but must cover NICs and pension contributions where applicable. This ‘extended JSS’ scheme is available for six months from 1 November, but will be subject to review in January 2021. Currently, official public health advice from the Government only requires the closure of certain businesses (primarily in the hospitality and leisure sectors) in areas that have been placed in the ‘very high’ level of the Government’s three tier alert system to prevent the spread of Covid-19. Closure requirements and the extended JSS are therefore unlikely to apply to manufacturers at the present time.