Can an employer require employees to take unpaid leave?

Whilst employers have introduced measures to safeguard employees from Covid-19, such as a ban on work-related travel, the implementation of remote-working and provision of special sick pay and sick leave policies, there are some sectors that are struggling to find ways of saving money whilst retaining employees until the demand for work returns to some form of normality. In these uncertain situations and as an alternative to dismissal, employers may be able to lay-off employees or place them on short-time working, provided they have a contractual right to do so.

Meaning of lay-off or short-time working

Laying off employees means that the employer provides employees with no work (and no pay) for a period while retaining them as employees. Short-time working means providing employees with less work (and less pay) for a period while retaining them as employees. Unlike dismissal or redundancy, it is a temporary solution to the problem of no or less work. An employer will be looking to save money when it lays people off or puts them on short-time working, by not paying them or by paying them less for a certain period.

Typically, lay-off and short-time working are used in sectors such as manufacturing or in sectors where demand changes seasonally, such as travel and leisure. In the recent economic climate, there has also been a marked increase in laying off employees in the professional services sector. Now with the uncertainty around Covid-19, this measure will more than likely be used more widely and by large employers, such as airlines, affecting a great number of people.

The contractual position

An employer cannot lay off an employee or put them on short-time working unless there is an express right to do so in the contract of employment.  While employed, the employee is entitled to be paid.  So if an employer lays off (or puts on short-time working) an employee without pay, without having reserved the contractual right to do so, he is in breach of contract and the non-payment is an unlawful deduction from wages.

Understanding the contractual position is important because it affects the employee’s contractual and statutory rights.

Where the contract permits lay-off or short-time working

Some employers will have anticipated the need to lay off employees or to put them on short-time working by including an express right to do so in their employment contracts.  It is difficult to imply that right into the contract, though it has been done.  In Bond v CAV Ltd [1983] IRLR 360, it was held that, for a term allowing lay-off to be implied into a contract:

• There must be a custom of laying-off within that particular business.
• The custom must be both:
• ”reasonable, certain and notorious”; and
• such that “no workman could be supposed to have entered into service without looking to it as part of the contract”.

This is a strict test and an employer should be confident they can satisfy it before they rely on an implied term to lay off employees.

Where the contract does not permit lay-off or short-time working

If an employer lays off an employee or puts them on short-time working without the right to do so, the employer will be in fundamental breach of contract entitling the employee to resign and claim damages for constructive dismissal and (where applicable) unfair dismissal.

The Acas guide makes clear that where the employer lays employees off or puts them on short-time working, without the contractual right to do so, an employee’s options are:

• Choose to accept the breach of contract and treat the contract as continuing, while claiming a statutory guarantee payment.
• Sue for damages for breach of contract in the civil court or, in certain circumstances, at an employment tribunal.
• Claim before an employment tribunal that there has been an unlawful deduction of wages under Part II of the ERA 1996.
• Claim that the employer’s action amounted to a dismissal (constructive or otherwise), giving rise to potential claims for unfair dismissal and/or redundancy pay.

If the employee decides to resign and claim unfair (constructive) dismissal and the reason for dismissal is redundancy (which is probable in this situation), the employee with two or more years of continuous service may also be able to claim a statutory redundancy payment.

Is there a limit to how long an employee may be laid off for?

In the absence of an express clause which deals with how long an employee may be laid off for, employees have attempted to argue that an employer can only lay off an employee for a reasonable period.  It depends on the sector concerned – a seasonal worker can only expect to work during the season; a manufacturing worker may expect only to be laid off during slack periods in the market.  Various cases have attempted to define ‘reasonable period’ but essentially if there is no genuine upturn of work, the employer should consider making the employee redundant.

Lay-off and short time working are useful tools for employers active in seasonal sectors of the economy.  They have not traditionally been included in contracts of employment where work flows are expected to be permanent.  Indeed, it would be inappropriate to try to add them now as a reaction to the disruption caused by the Coronavirus crisis.

If you would like to discuss your particular circumstances, please contact Stephen Morrall on 020 7412 5107 or stephen.morrall@hunterslaw.com.

This blog is for general guidance only and should not be relied upon. Legal advice should always be sought in relation to specific circumstances. The law is stated as at 15^th April 2020.