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Overview

Lay off and short-time working, otherwise known as ‘LOST’, are often considered as the same issue. For organisations and employees, however, these are two distinct concepts which have specific legal definitions set out within the Employment Rights Act 1996.

LOST is usually considered as an alternative to avoid compulsory redundancies, usually when there is a downturn in work or finance necessary to fund full-time employment. More information on redundancies, and considering alternatives, can be found in our employment law resources.

Employees may be placed on unpaid LOST where there is a contractual term entitling employers to do so. In the absence of such as contractual clause, unpaid LOST will breach the employees’ contracts of employment, entitling them to resign and claim constructive unfair dismissal.

Those who are placed on LOST may be entitled to receive statutory guarantee pay, or SGP. Further information on this entitlement is available in our guarantee pay resources.

The 2020 coronavirus outbreak

In light of the coronavirus outbreak, organisations may consider laying off staff, otherwise known as 'temporary redundancies', in order to manage business closure or a down-turn in work. Rights available to staff in these situations will depend on whether employees have a 'lay-off' clause in their contract. Please refer to our in-depth section for more details. 

23 March update

On Friday 20 March, the government announced its plans for financial assistance to help organisations retain employees for an extended period of time, despite offering no work, and avoid lay-offs. Organisations who do this will be able to obtain a grant from the Government to cover 80 per cent of furloughed employees’ wages, to a maximum of £2,500 per employee per month.

It is called the Job Retention Scheme and more information can be found in our article.

The provisions relating to lay-off and short-time working are outlined within the Employment Rights Act 1996 (‘ERA’).

ACAS have also released a guidance document for organisations on lay-off and short-time working.

Lay-off and short-time working, or LOST, are provisions used when there is a shortage of work, or insufficient finance available to fund full-time employment.

These provision are often used as an alternative to avoid redundancies. For more information on examining alternatives in redundancy situations, please use our ‘Redundancy’ pages.

In practice, lay-off is where the employer asks their employees to stay at home and not attend work.

The Employment Rights Act 1996 sets out a statutory definition of lay-off. Section 147(1) states that an employee has been laid off for a week where:

  • their employment contract provides that pay is dependent on their employer providing them with work that they are employed to do, but
  • they are not entitled to remuneration for that week because their employer has not provided them with work.

A period of lay off will only be classed as statutory lay off where it meets this definition ie they have not been paid for a week because their employer does not provide them with work, where their pay depends on carrying out work. For example, an employee who is paid an annual salary but is not provided with work for a period will not be placed on statutory lay-off, as their pay is not dependent on being provided with work.

In addition, statutory lay-off will only take effect where the employee is available for work during the period of lay-off. For example, a period of sickness will not be classed as a period of lay-off because the employee was not available for work during this time. Additionally, the employee cannot turn down available work or frustrate their employer’s attempts to convey an offer of available work in order to be classed as laid off.

Additionally, there is an exemption where the lay-off has arisen, whether wholly or in part, because of industrial action (for more information see ‘Strike exemption’ below).  

In practice, short-time working is where the employer requires employees to work fewer hours than their normal contractual hours.

Section 147(2) of the Employment Rights Act 1996 (ERA) outlines the statutory definition of ‘short-time working’.

An employee will be determined to be on ‘short-time working’ where the work that they are provided by their employer under their contract of employment has diminished, which results in their remuneration for the week being less than half a weeks’ pay.

The normal statutory definition of a ‘week’ applies here meaning, under s235 of the ERA, a week is:

  • the seven days ending on the day pay is normally calculated, for a weekly-paid employee or
  • seven days ending on a Saturday, for all other employees.

In certain cases, an employer’s contract may provide employees with pay that is greater than half their weeks’ pay during periods of reduced working (see ‘Contractual pay’). In these circumstances, the employee would not meet the statutory definition of ‘short-time working’.

Employers who do not have the contractual right to place employees on lay-off or short-time working (LOST) without pay will breach their employment contracts if they do not pay employees during this period. This is because there is an implied right for employees to be paid. As such, it is best practice for employers to include an express contractual provision allowing employees to be placed on unpaid LOST and a template contractual clause is available in our 'Lay-off and short-time working' model documents.

In some organisations, however, there may be an implied contractual right to place employees on unpaid LOST. This will usually arise due to the existence of a custom or practice of placing employees on unpaid LOST. Common sectors may include, for example, manufacturing and agriculture where volumes of work are affected by outside factors such as volume of orders, weather, etc. For more information on the existence of implied contractual terms, please see our employment law pages.

If there is no express or implied contractual term entitling the employer to place employees on unpaid lay-off or short-time working (LOST), the employee will be entitled to full pay even when they aren’t working. 

In the absence of a contractual term, placing employees on unpaid LOST will be a breach of the employees’ contracts of employment. As a fundamental breach, employees could choose to resign in response to the breach, and subsequently claim they have been constructively dismissed by their employer.

Employers could seek a mutual agreement with employees to go on to unpaid LOST. This may only be agreeable as a method to avoid compulsory redundancies because individuals are unlikely to agree to be placed on unpaid leave.

The ACAS guide outlines four potential actions for employees who are placed on unpaid lay-off by their employer without a contractual right to do so. The guide highlights that employees may:

  • accept the contractual breach and treat the contract of employment as continuing whilst claiming for statutory guarantee pay (see ‘Entitlement to statutory guarantee pay’ below)
  • take action against their employer for a breach of contract in the employment tribunal or civil courts
  • take action against their employer for an unlawful deduction of wages in the employment tribunal (use our ‘Unauthorised deductions’ pages for more information)
  • resign in response to the breach of contract and claim there was an unfair dismissal, and/or a right to receive a statutory redundancy payment, in the employment tribunal (see ‘Entitlement to statutory redundancy payment’ below).

Whilst placing staff on lay-off or short-time working (LOST) is a practical consideration for organisations who are suffering a downturn in work or finance, organisations need to consider that using these measures could result in employees becoming entitled to a statutory redundancy payment (SRP).

As set out within s135(1)(b) of the Employment Rights Act 1996 (ERA), an employee becomes entitled to a redundancy payment if they have been placed on lay off or short-time working. To be entitled, the employee has to have:

  • a minimum of two years’ continuous service
  • been placed on LOST for the required period of time
  • followed the required statutory procedure to claim their entitlement
  • resigned with appropriate notice.

The employee’s length of continuous service is calculated up to the last day of the week of LOST they are relying when making their claim for SRP.

The required period of time to have been placed on LOST is split into two sections as outlined within section 148 of the ERA. The employee is entitled to a redundancy payment where they have been placed on lay-off or short-time for either:

  • four or more consecutive weeks, or
  • six or more weeks within a period of thirteen weeks, where no more than three weeks are consecutive. 

These weeks may be either made up solely of lay-off, short-time working or a combination of both. Any weeks not worked due to strike action do not count (see ‘Strike exemption’ below).

When calculating the period the employee has spent on lay-off or short-time working (LOST), there is an exemption for strike action.

Under s154(b) Employment Rights Act 1996, any weeks where the employee has been placed on LOST and this is wholly or mainly attributable to strike action, or a lock-out, will be disregarded. This means the employee will not be able to count these weeks of LOST when making a claim for a statutory redundancy payment.

Whether the LOST is wholly or mainly attributable to strike action or a lock-out is considered broadly. The ERA explicitly states that the industrial action does not have to refer to the individual’s particular employment and could be caused by a strike elsewhere within the trade, the industry or at another geographical location.

Where the employee is placed on LOST because of action short of a strike, for example working to rule, this time will not be disregarded under the ERA.

In order to claim a statutory redundancy payment, the employee is required to follow a strict statutory procedure which includes detailed time limits. The employer can also follow a statutory procedure to contest the employee’s claim. A brief overview of the procedure is below:

  • employee provides notice of intention to claim to their employer
  • if they choose to contest the claim, the employer provides counter-notice to the employee
  • if counter-notice is not withdrawn, the employee can refer the matter to an employment tribunal to determine their entitlement
  • employee resigns with notice.

This procedure is outlined in detail within the following sections.

In order to receive their statutory redundancy pay (SRP), the employee has to provide their employment with statutory notice of their intention to claim this payment.

This notice has to be in writing and state that the employee is making a claim for a redundancy payment in respect of being placed on lay-off and/or short-time working. There are no further statutory requirements for the contents of the notice.

In order to serve the notice on the employer, this must be posted or hand-delivered to the employer’s address that the individual works at; given to a nominated person; left at or posted to a designated place or address. This must take place either:

  • on the last day of the week spent on lay-off or short-time, on which the employee is basing their claim on, or
  • within a four-week period of the above date.

This time limit is strictly applied meaning it cannot be extended, even by an employment tribunal, and a notice which is served too early will also not be valid. There is, however, nothing within the statute to prevent the employee from serving a second notice at a later date to comply with the time limit. For example, if an employee serves the notice before the last day of the week spent on LOST this notice will not be valid. The employee can then serve a further notice of their intention to claim and this will be valid so long as this is received by the employer within four weeks of the last day of the week they rely on.

Employers may wish to contest their employees’ claims for statutory redundancy pay, however, there can only contest this in limited circumstances and they are required to follow a statutory procedure.

A claim can be contested, under the statutory defence outlined in s152 of the Employment Rights Act 1996, where it is reasonably expected that:

  • the employee will be provided with a period of employment lasting at least thirteen weeks
  • they will not be placed on lay-off or short-time working for any of these weeks and
  • this period of employment will start within four weeks of the date the employee’s notice to claim was served.

Where the employee is reasonably expected to be provided with work, the employer needs to serve a counter-notice explicitly stating that they contest the liability to pay a statutory redundancy pay. The counter-notice has to be served on the employee within seven days of service of their notice of intention to claim, and must either be given to the employee by hand, left at or posted to their normal address.

As with the employee’s notice to claim, the time limit for the employer serving the counter-notice will be strictly applied and cannot be extended. Additionally, any counter-notice which does not state that the employer is contesting the liability will not be valid, for example, if this merely informs the employee that they can return to work at a specific date.

Contesting the claim, even after serving the required notice, will automatically fail if the employee is not provided with the minimum period of employment within four weeks of their notice to claim, ie they remain on lay-off or short-time working for this four-week period (subject to the exception relating to industrial action).

The employer can decide to withdraw their counter-notice, for example, if they become aware that there is no possibility of the employee being provided with the required period of employment or that this will not become available within four weeks of the employee’s notice of their intention to claim. To withdraw the counter-notice, the employer has to provide the employee with written notice of their withdrawal and this can take place at any time. Where the employer does not withdraw the counter-notice, the employment tribunal will determine whether the employee is entitled to receive redundancy pay (see ‘Recourse to the employment tribunal’ below).

Where an employer serves a counter-notice on the employee contesting their entitlement to a statutory redundancy payment, and this counter-notice is not subsequently withdrawn by the employer, an employee can apply to the employment tribunal to determine whether they are entitled to a redundancy payment, or not.

The employee can make this application to the tribunal whilst they are still employed; they are not required to resign before the tribunal determines their redundancy pay entitlement.

The tribunal will examine whether there was a reasonable expectation of the employee being provided with the minimum period of employment within four weeks of the date of the employee’s notice to claim. This assessment will focus on this period, and it will not matter whether there is work available to the employee at the time the tribunal is assessing the merits of the claim.

Once it is determined that the employee has a right to be paid a statutory notice payment, they are required to resign from their employment within a specified time period, and provide the required period of notice, to be entitled to receive their redundancy pay.

The period of notice that the employee must give when resigning is set out within section 150(2) of the Employment Rights Act 1996. The required notice is a minimum period of one week but will differ dependent on the notice terms set out within the employee’s contract of employment, as below:

  • where the employee’s contractual notice to resign is greater than one week, the employee must provide their contractual notice to resign or
  • where the employee’s contractual notice to resign is silent or less than one week, the employee must provide one week’s notice to resign.

Although the employee has to provide a minimum period of notice of their resignation, this notice must also be received by the employer within a specified time period. This period differs dependent on whether the employer served a counter-notice to their notice of intention to claim, and whether any subsequent withdrawal took place. These time limits are strictly applied and cannot be extended. 

The time periods for the employee to provide notice of resignation are as follows:

  • where the employer does not serve a counter-notice within seven days of the employee’s notice of intention to claim, the employee has three weeks from the end of this seven-day period to provide their notice to resign
  • where the employer serves a counter-notice within seven days of the employee’s notice of intention to claim but decides to withdraw the counter-notice, the employee has three weeks from the date they were provided with written notice of the withdrawal to give their notice to resign
  • where the matter is referred to the employment tribunal because the employer serves a counter-notice within seven days of the employee’s notice of intention to claim and does not withdraw this, the employee has three weeks from the date the tribunal informs the employee of their decision to provide their notice to resign. This period is not affected by the employer appealing the tribunal’s decision to the Employment Appeal Tribunal.

As outlined within section 151 of the Employment Rights Act 1996, an employee who is dismissed by their employer will not be entitled to receive a redundancy payment on the grounds that they have been placed on lay-off or short-time working.

They will, however, remain entitled to a statutory redundancy payment if they have been dismissed by reason of redundancy, and they meet the eligibility requirements. More information on this can be found in our redundancy resources.

The amount of statutory redundancy pay to be paid to entitled employees, who have followed the strict statutory procedure, is calculated in the same manner as when an employee is dismissed by reason of redundancy.

Under section 162 ERA, the payment is calculated on the basis of an employee's age, length of service and weekly pay (subject to a weekly maximum, set at £508 from 6 April 2018, increasing to £525 from 6 April 2019).

When the employee has been placed on lay-off or short-time working, the ‘relevant date’ to determine the employee’s period of continuous employment is the last day of the lay-off or short-time working period.

More information on statutory redundancy pay calculations can be found in our redundancy resources.

There are special provisions within the Employment Rights Act 1996 (ERA) outlining what happens to the redundancy payment when the employee placed on lay-off or short-time working (LOST) dies.

Under s176(6)(a) ERA, if an employee has served a notice of their intention to claim a redundancy period within the proper time limit, but then subsequently dies, the statutory requirement to provide notice of their resignation is removed providing their death occurs during the period to serve this notice (see ‘Resigning from employment’ above). The individual’s estate will be able to pursue a claim for statutory redundancy pay against the employer. The employer will be able to raise the statutory defence against this payment and have an employment tribunal determine the individual’s entitlement to the payment

Section 176(6)(b) ERA provides a different route where the employee dies during the seven-day period following the service of their notice of their intention to claim the redundancy payment. If they die during this period, the employer is deemed to have served a counter-notice contesting their liability for the claim. An employment tribunal can then be asked to consider whether the deceased is entitled to the redundancy payment or not.

In a similar manner to the provisions reflecting the death of an employee, the Employment Rights Act 1996 (ERA) provides special provisions where the individual’s employer dies. These provisions apply where the employer is a personal employer, and not an organisation or corporate employer.

When determining whether the employee has been placed on lay-off or short-time working (LOST) for the required period of time to claim a redundancy payment, the ERA address situations where there is a gap in employment between the employer’s death and any subsequent re-employment. Employees who have been placed on LOST for a minimum period of one week before their employer dies, and are then subsequently taken on by the employer’s personal representative but kept on LOST, can disregard any weeks between the employer’s death and their re-employment. As such, the week of LOST where the employer died and the week of LOST where they are re-employed by the employer’s personal representative, will be classed as consecutive weeks of LOST. 

Whether the employee is re-employed or not by the employer’s personal representative is also important where the employee has provided written notice of their intention to claim a statutory redundancy payment and the employer dies in the four-week period following this notice but before notice of resignation is served, or before the resignation notice expires:

  • where the employee is not re-employed by the employer’s personal representative within the four-week period following their written notice of intention to claim, the employee is deemed to have resigned in accordance with the statutory procedure and their redundancy claim is treated as if the employer had not died. Additionally, the statutory procedure for the employer to contest the claim by serving a counter-notice, and the statutory defence against the claim outlined in section 152 ERA, do not apply to this claim.
  • every week spent on LOST during their employment with the employer and any re-employment by the personal representative is treated as being a consecutive period of LOST within the same employment, and the time period for notice of resignation to be provided is lengthened by the number of weeks between the employer’s death and re-employment, in circumstances where the employee is re-employed by the employer’s personal representative within the four-week period following their written notice of intention to claim and
    • they were kept on LOST for at least one week within the above four-week period and
    • they remain on LOST for at least the week following their re-employment.

Employees who are placed on unpaid lay-off or short-time working may be entitled to claim a statutory guarantee payment (SGP).

SGP is a legal payment set by the government to be paid on workless days. Days spent on lay-off or short-time working will usually fall within the statutory definition of a ‘workless day’.

Payment of SGP is limited to a maximum of five days within any three-month period. More information on statutory guarantee pay can be found on our employment law page on this topic.

Employers can provide employees who are placed on lay-off or short-time working with contractual pay. This will normally be lower than their contractual pay when carrying out work, and the payment of statutory guarantee pay (see ‘Entitlement to statutory guarantee pay’ above) can be offset against the contractual pay.

Providing employees with contractual pay that is more than half their normal weekly pay can be used to ensure employees do not meet the statutory definition of ‘short-time working’ (see ‘Definition of short-time working’ above); avoiding the risk of employees becoming entitled to a statutory redundancy payment by reason of being placed on short-time working.