March 19, 2020
The economic impact of corona virus is becoming increasingly stark as businesses face supply chain challenges, reductions in demand and the possibility of forced closures of public facing businesses, such as restaurants, pubs and non-essential outlets. In order to manage their cash flow, businesses need to consider every way in which they can manage their costs in the short to medium term. One major cost in many businesses is the cost of employees.
With various measures set to stay in place for at least 12 weeks, if not longer, a strategy for business continuity, minimising workplace costs, supporting employees and managing employee relations is crucial. Sadly, it is inevitable that businesses may need to take more drastic measures, including pay cuts, reductions in working hours and ultimately, redundancies and we explore these in more detail below.
- Temporary reductions in pay and hours
Employers are contractually obliged to make payments to employees on terms that have been agreed, therefore any such reduction must be agreed in consultation with them. Be wary of solely relying on any variation clauses in your contracts of employment as these will be subject your duty to maintain employees’ trust and confidence and it may difficult to rely on any such clauses to impose a contractual change.
Where a temporary reduction in pay or hours cannot be agreed, an employer can only force through changes through a process of termination and re-engagement on the new terms and conditions. Please note that where 20 or more employees may be dismissed in light of the proposals, statutory collective redundancy rules will apply.
Many employees, of course, will agree to a reduction in pay, if it means that their employment can be continued and you should talk to your staff as soon as possible to see if such pay reductions can be agreed. Any agreement should be recorded in writing for the sake of good order and to protect the employer in the future if there is a challenge.
Please be aware that if you unilaterally impose any pay reductions, it runs the risk of employees resigning and claiming constructive unfair dismissal and/or bringing claims for breach of contract and/or unlawful deductions from wages. This would also most likely render any post-termination non-compete clauses void. You may in extreme circumstances, choose to take the risk of facing such claims rather than go out of business, but it is not the ideal choice.
- Lay-Off and Short-Time Working
The term ‘lay-off’ is often confused with redundancy. Lay-off is different from redundancy in that it is a temporary measure whereby an employer provides employees with no work (and therefore no pay) for a period while still retaining them as employees, generally, as a temporary solution to a problem such as a shortage of work or in this context the impact of a pandemic.
Short-time working means providing the employees with less work and therefore lower pay for a period, whilst also still retaining them as employees. Like lay-off, it is a short-term measure often designed to deal with a short-term shortfall of work.
Without the express contractual right to lay-off or short-time working, an employer is in breach of contract if it does not provide work and therefore pay for employees. It may be possible for an employer to argue that there is an implied contractual right to lay-off or to introduce short-time working, but it would need to demonstrate that this was a regular practice in its business (or industry) and well known to its employees; something which it may struggle to demonstrate.
Employees who are laid-off may be entitled to a statutory guarantee payment of up to 5 ‘workless days’ in a three month period. However, an employer may have their own policy in respect of a guarantee payment, which may offer an enhanced rate of payment. However, this is purely discretionary.
The maximum statutory guarantee payment is currently £145, made up of £29 per day for 5 days in any 3-month period, unless an employee earns less than this (in which case it will be at their normal daily rate) or works part-time (the payment being calculated proportionally).
Even if the employer has the contractual right to lay-off or introduce short-time working, where the employee has more than 2 years’ service and has been laid off or kept on short-time working for at least 4 or more consecutive weeks (or a total of 6 weeks, of which no more than 3 are consecutive, in any period of 13 weeks) they can claim an entitlement to statutory redundancy pay. An employer can serve counter-notice to an employee’s claim for statutory redundancy pay, but they would need to demonstrate that there was a likely need for future employment in the not too distant future.
If you do not have short-time working or lay-off clauses in your contracts, it may be possible to obtain employee agreement to incorporating these into contracts, as a more palatable alternative to redundancy. Furthermore, a temporary reduction in work under short-time working will not break an employee’s continuity of service, which could make an employee feel more comfortable accepting this option.
- Redundancy Dismissal
Unfortunately, a redundancy situation may also arise as a result of forced closure of certain businesses, or by a reduction in work caused by large-scale self-isolating and ‘social distancing’.
Employees with 2 years’ service or more are entitled to a statutory redundancy payment (and possibly an enhanced payment if their employer has a contractual obligation to make such a payment).
An employee with 2 years’ service or more can challenge the fairness of their dismissal. Such a challenge will be successful if the employer has not followed a fair and proper procedure and where the selection process is not sufficiently robust and reasonable.
If an employers is proposing to dismiss 20 or more employees in a 90 day period, more onerous collective redundancy rules will apply. It might be possible to argue that the pandemic is a special circumstance which render it not reasonably practicable to inform and consult in good time, although employers should still take steps towards compliance as are reasonably practicable. A failure to properly inform and consult could land you with a potential ‘protective award’ claim, the liability of which is 90 days’ pay for each employee dismissed.
While traditionally collective and individual consultation has largely been undertaken face-to-face, employers will need to adapt their processes to reflect what may be a separated workforce linked through technology.