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The unpredictable nature of the current economic market, combined with ever increasing running costs has meant that a lot of manufacturing businesses are considering implementing or using existing lay-off provisions in their contracts of employment. In this article, we discuss what lay-off clauses are, and consider the advantages and disadvantages of using them.
A lay-off clause is a provision in a contract of employment that states, in the event of a downturn in work or unforeseeable circumstances, the employer will not give the employee any work or pay (save for Guarantee Pay, see below) for a period of time whilst retaining them as an employee. Lay-off clauses often offer a temporary solution to unforeseen issues with workflow and they are regularly used by employers as an alternative to redundancy.
An employer must have the contractual right to lay off the employee on an unpaid basis in order to do so. Therefore, unless the employee is on a zero hours contract, laying them off without pay in the absence of a contractual provision for doing so will likely expose the employer to claims of breach of contract, unlawful deductions of wages, and possibly also constructive dismissal.
Although it is regularly wrongly presumed to mean the same thing, a lay-off is not the same as redundancy! Redundancy is a termination of employment (following a fair procedure) as a result of a redundancy situation facing the business.
Employees who have been laid off are entitled to Guarantee Pay, the maximum statutory amount at the time of publication is £31 a day (or their actual daily pay if this is lower) for 5 days in any three month period. This equates to a maximum of £155. In order to be entitled to the pay, the employee must have been employed for at least one month, be available for work, not refuse any reasonable alternative work and not be laid off as a result of Industrial Action.
Given all of the above, lay-off clauses are not a perfect solution to a sudden downturn in business and the drafting and use of lay-off clauses is something businesses should consider carefully and take prompt legal advice on before acting.
If you have any questions about navigating the use of lay-off clauses, or any other query related to Employment Law, please feel free to get in touch with our Employment team.
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This article has been produced for general information purposes and further advice should be sought from a professional advisor.