How Do Companies Lay Off Employees?

Sometimes, an employer might not have enough work to give out.

Laying off workers can help keep your business going during hard times. But there are legal rules when it comes to temporarily letting employees go - for one week or just a few days.

If you don't manage your lay-off process, it could lead to unfair dismissal claims, compensation penalties, and business damages.

In this guide, we'll look at what a lay-off is, if it's different to short-time working, and how to manage employees on temporary leave.

What is a lay-off?

A lay-off is when an employer reduces an employee's work hours or days - on a temporary basis.

The length of the lay-off period will depend on the seriousness of the situation. For example, an employer doesn't have enough work, so they let a few workers go for a few days or consecutive weeks.

There's always a certainty that employees will return to work. But if this isn't an option, their employer may need to consider letting staff go permanently.

What is the difference between a lay-off and short-time working period?

People often confuse the terms lay-offs and short-time working.

A lay-off is when an employee is given no paid work for at least one complete working day. This might be because the business needs to downsize or manage their workforce.

Short-time working is when an employee works less than the normal working hours agreed to their contract. Like, working for three days a week (for six weeks in a row) instead of 5 days.

Short-time working is different to lay-offs because the hours have decreased, but not fully stopped. The employee's pay and work hours are still being offered per week - it's just less than it was before.

If offered, employees often accept lay-off or short-time working options. They see them as only a temporary measure when there’s not enough work. And believe it'll help avoid compulsory redundancies in the future.

What is the law on lay-offs in the workplace?

Lay-offs and short-time working terms are mostly found under the Employment Rights Act 1996 (ERA). In legal practice, they're collectively known as 'LOST'.

An employer can only legally enforce lay-off or short-time working if they have a contractual right. Meaning, this express right must be included in an employee's contract.

Lay-offs are usually found under 'shortage of work' contract clauses. So, employees will have already to it. If a contract clause doesn’t exist, employees may agree to lay-offs is expressed, as it’s a better option than redundancy.

Sometimes, an employer might be faced with having to lay-off staff because of unexpected business impacts. That's why it's always beneficial to add an express contractual right to all employee contracts.

This will help employees during temporary lay-offs and short-time working periods. And provide them with the right legal information and support.

What happens if your lay-off process is unlawful?

If an employer doesn't follow a fair and legal lay-off process, it could end with huge legal consequences.

Some lay-off processes treat employees unfairly compared to others; i.e., being selected unfairly). All employees are protected from discrimination relating to nine protected characteristics:

• Age.
• Disability.
• Gender reassignment.
• Marriage and or civil partnership.
• Pregnancy and maternity.
• Religion or belief.
• Sex.
• Sexual orientation.

If an employee felt they were mistreated during a lay-off period, they could raise this to an employment tribunal. Depending on the misconduct, they could process a constructive or unfair dismissal claim.

If the employment tribunal finds clear evidence of unlawful discrimination, you could end up paying unlimited compensation.

Along with financial penalties, an employer could face losing talented staff for good. Not to mention, the reputational damage and lost productivity that comes with employment tribunal processes.

Are there legal time limits for lay-offs?

There are no legal time limits for how long an employee can be laid off for. This goes for both lay-offs and short-time working.

Every employer should try to keep their lay-off period as short as reasonably possible. If any employee was laid off or put on short-time work for unnecessary lengths, it could lead to a constructive dismissal claim.

But only employees with at least two years’ service can raise this type of claim to an employment tribunal.

Employees are entitled to statutory guarantee pay during their lay-off period. They should receive this as full pay unless you have a contract clause allowing you to offer reduced pay if necessary.

Employees can claim statutory redundancy pay (SRP) if they have at least two years’ service. They’ll either receive pay if they were laid off for:

• Four weeks consecutively.
• Six weeks within a 13-week period.

(The pay rules are a little different when employees are permanently laid off or put on short-time working).

What is statutory guarantee pay?

Statutory guarantee payment (SGP) is a financial payment you give to employees who are laid off.

The maximum amount an employee can receive is £31.00 per day (as of April 2022). This is for five days in any three-month period - adding up to a total amount of £155.00. (Employers could choose to pay more through an express contract agreement).

To be eligible for statutory guarantee payments, an employee must:

• Have been employed continuously for one month.
• Make sure they're available for their normal working hours.
• Not refuse reasonable alternative work (including work that's not added to their employment contract terms).
• Not be laid off due to industrial action.

An employer cannot neglect giving statutory guarantee payments to their laid off staff. If they do, they could raise this as an unlawful deduction of wages.

Do employees have to agree to lay-offs?

Employees must agree to lay-offs if they’re signed these clauses in their employment contract.

When an employee is laid off or put on short-time working, they're still expected to attend work when their employer asks.

You can offer some employees reasonable alternative work for a short time. But if they don’t agree to any lay-off or short-time changes, they may lose their right to SGP.

What if an employee is sick during lay-offs?

An employee's sick rights apply during lay-offs and short-time working processes.

If an employee is sick, you need to pause their lay-off period and resort to your sickness absence management procedures. If they're sick for less than seven days, ask for a self-certification. Anything longer may require a fit note from a medical professional.

Employees will get sick pay instead of statutory guarantee pay (SGP) if they’re eligible. Because the employee isn't considered to be laid off or put on short-time working, statutory guarantee pay doesn't apply.

How to manage employees on lay-offs from work

Employers need to follow the most fair and lawful methods when it comes to lay-offs.

By doing so, you'll be able to protect employees whilst they're on temporary leave. And help re-establish stable productivity for your business.

Let's look at ways to manage employees on lay-offs from work:

Discuss the lay-off with your staff

The first step an employer should take is discussing the lay-off situation with their staff.

Explain what lay-offs are and why you have no choice but to make them. Ensure your employees are aware of what impacts are affecting the business; and therefore, their work hours and pay. going on with the business. For example, not having enough work to give out.

All employees should be given relevant information about the impacts throughout their lay-off period. And explain that they'll be contracted as soon as you're able to bring them back.

Select employees for lay-offs

The employer must take care when selecting staff to be laid off. Your selection process must be reasonable across your whole workforce. You must also ensure your criteria aren’t linked to any illegal, discriminative conduct.

There are several methods you can use to select staff for lay-offs. For example, you may choose to select employees based on their:

• Standard of work or capability.
• Skills, qualifications, or experience.
• Performance and disciplinary records.
• Attendance records. (Must be accurate and not include absences relating to protected characteristics, like disability or maternity.

Make sure the selection process is legally fair. If employees find clear evidence of unfair selection methods, they could raise this as unlawful discrimination.

Hold a lay-off meeting

It’s not a legal requirement, but employers should hold lay-off meetings. It’s the best way to convey information on what’s going on, who’s at risk of being laid-off, and what their future holds at the business.

You also need to highlight that this is a temporary arrangement. Make sure they know that this isn't a redundancy; you're working towards bringing them back as soon as possible.

Employees may bring representation with them to these meetings, like a trade union or fellow employee. This is best practice as they’ll have access to their full rights as you implement yours.

Provide a lay-off letter

After you've provided all information and held meetings with your employee, provide them a lay-off letter.

This letter is written confirmation for the lay-off; and will cover what aid and support employees will receive during their temporary leave.

The lay-off letter can include things like, the employee's name, payroll number, and job position. You can also include details of the manager who's dealing with the lay-off.

Make sure the letter is transparent about the lay-off situation; and offers contact details of those who can offer further information.

Initiate a guarantee pay scheme

Lastly, the employer needs to initiate pay to every person that's been laid off.

It’s good business practice combine your guarantee pay scheme through normal payroll. Remember, you cannot pay them less money than the statutory guarantee payment amount.

If you don't provide proper guarantee payments, it counts as an unlawful deduction of wages. And employees may raise this contract breach to an employment tribunal.

Remember, employees should receive full pay during their lay-off or short-time working period. (That's unless their employment contract states otherwise).

Sometimes, employees may choose to accept less pay, especially if they acknowledge how the business is suffering.

Are there alternative methods to lay-offs?

Yes, there are alternative methods you can use instead of a lay-off or short-time working.

Employers can ask staff to use their annual leave or accrued time off in lieu (TOIL). They could even ask them to take unpaid leave for a short time, but this is quite rare.

Sometimes, an employee will decide to choose redundancy or resign if the situation called for it. If they do, there are certain requirements that need to be followed:

Redundancy

In some cases, an employer may not be able to afford to bring back their staff. Maybe the business couldn’t recover from financial impacts; and, as a result, must close down.

It’s always better to provide this as a last resort, but you might need to think about making a redundancy. For example, maybe you can’t afford to bring back your laid-off employees. It might be hard to avoid redundancies if there’s no longer any work.

Sometimes, an employee may choose to make themselves redundant. Maybe they don’t want to wait for work to pick up; or aren’t satisfied with their short-time working hours.

If an employee raises a redundancy claim themselves, they need to request it through a written notice. You have seven days to either accept it or offer a written counter-notice. (If you don't offer a counter, the redundancy request is seen to be accepted).

Employers must offer a counter notice if they can guarantee work will start again soon. The work must start within four weeks - lasting for at least 13 consecutive weeks. But if not, the employee can claim redundancy pay once they’ve provided their written notice.

Remember, statutory redundancy payment is calculated based on an employee's age, continuous service, and weekly pay. As of April 2022, the maximum redundancy payment they can receive is £571 per week.

It’s not a legal requirement, but it’s best to follow the right redundancy pay process – even if they’re implemented it themselves.

Resignation

Usually, if they chose redundancy and resignation because of the lay-off, it could lead to a constructive dismissal claim. But they might choose to implement this themselves due to the circumstances of the business.

After employees have received their statutory redundancy pay, it’s time for their resignation. You’ll need to keep paying their statutory redundancy payment according to their eligibility.

They’ll need to complete their notice period first. This will be either one week's notice, or the length outlined in their employment contract.

You need to follow certain steps when an employee chooses to resign after redundancy. For example, the employee should tell you about their decision of redundancy.

The employer should then give a counter-notice within seven days. If you don’t provide a counter-notice, the employee can hand in their resignation notice within three weeks.

Get expert advice on lay-offs with Peninsula

It's so important to follow the right steps when employees are laid off or put on short-time working.

Failing this and you could face employment tribunal claims - leading to impacts on your business productivity, income, and reputation.

Peninsula offers expert advice on lay-offs and short-time working. Our HR team offers unlimited 24/7 HR employment services which are available 365 days a year.

We take care of everything when you work with our HR experts.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.