A design and technology company announced to some of its staff that they would be laid off with effect from 21 July 2014, owing to a drop in work. The company’s employee handbook, which was incorporated into the contracts of employment, contained a contractual right to lay off staff in such circumstances. The employees received no pay other than their statutory guarantee payment.
Mr C, a CAD designer, was one of the employees laid off. On 22 August 2014, he sent an email to the owner of the company, Mr L, saying that he had found a new job which would be starting on 1 September. He argued that after being laid off for five weeks, he assumed that he had been made redundant and was entitled to a statutory redundancy payment.
Mr L replied saying that he was hopeful the work would resume shortly. In response, Mr C reiterated that he was entitled to a redundancy payment and said that he was left with no choice but to bring a claim for constructive dismissal.
Mr L then issued a counter-notice under section 149 of the Employment Rights Act 1996, having told Mr C that he would not be made redundant, as there was still a need for a CAD designer at the company.
Mr C brought a claim in the employment tribunal, arguing that the lay-off period had gone on for an unreasonable period and that he had therefore been constructively dismissed.
The Employment Tribunal found that there was no implied term as to the reasonableness of a lay-off period and even if there had been, the period was not unreasonable in the circumstances of this case. Therefore, as there had been no repudiatory breach of contract, Mr C had not been constructively dismissed.
Mr C appealed.
Employment Appeal Tribunal
The EAT dismissed the appeal and upheld the tribunal’s finding that there wasn’t any scope for an implied term, as to the period for which it is reasonable to implement lay-off and short-time working. They considered the purpose behind the statutory provisions dealing with lay-off and short-time working and found that the scheme could be mutually beneficial. Where there is a real prospect of a future upturn in work, it is unlikely to be in either party’s interest for there to be wholesale redundancies. In this situation, the employer is given an alternative: temporarily lay-off employees, or reduce their working hours.
The legislation governing this – the Employment Rights Act 1996 – is designed to achieve a balance between the rights of employees in this situation and the interests of their employer. If employees are laid off or put on short-time working, it is likely that the criteria for a redundancy situation will be met.
However, unless dismissed, the employees will not automatically have any entitlement to a statutory redundancy payment. Their only option would be to resign and bring a claim for constructive dismissal. This would be in neither side’s favour, as it would involve incurring the expense of a tribunal claim and the employee having to prove that they were dismissed. It was in these circumstances that sections 147 to 154 of the ERA 1996 were put in place to postpone any entitlement to a statutory redundancy payment for at least four weeks but also recognise that the employee should increasingly be put in control as to when after that the entitlement should accrue. Therefore, the ERA 1996 provisions provide greater certainty for both employer and employee.
That said, the employer must be able to demonstrate that they have implemented the lay-off clause fairly. This is judged with regard to whether there was a genuine downturn of work and a reasonable expectation that further work would become available in the future. Employers should never use the lay-off clause for their own gain; the EAT reiterated that keeping an employee on lay-off with no reasonable prospect of there ever being an upturn in work would likely result in a claim for constructive dismissal.