In economic downturns employers are often faced with many difficult decisions. Employers may have cash flow problems and struggle to be able to pay their fixed costs including salaries. Business planning can be particularly hard. Here are a few options for employers to consider.
General temporary lay-offs and downturns
Employers would still be obliged to pay an employee their salary unless the employment contract allows the employer to lay-off. In those circumstances an employee would be entitled to certain statutory guaranteed pay. The maximum an employee can receive is £29 a day for five days in any three-month period. The maximum payout would therefore be £145.
If the lay-off has been for four weeks in a row or six weeks in a thirteen-week period an employee could resign and claim statutory redundancy pay (though this would be subject to eligibility).
The government has announced a new scheme whereby employees are placed on furlough leave. The government will pay grants of 80% of wages for employees not working but being kept on payroll rather than being laid-off, up to £2,500 a month. Payments will be backdated to 1 March 2020 and the scheme will initially be open for three months.The aim is pay the first grants before the end of April 2020. The government has published detailed guidance.
This is a big state intervention, and employers should have this financial support in mind before making any decisions about their workforce.
Can an employer cut an employee’s pay?
Generally, employers cannot impose pay cuts on the workforce and have to get their consent. If an employer imposes a salary cut without the employee’s agreement the employee may continue working but make it clear that they are working under protest.
Alternatively, the employee might resign on the basis that the employer has fundamentally breached their contract of employment. Depending on the circumstances, various claims could be considered.
However, if an employer cannot get the employee’s agreement there is another option for pay cuts. Providing the employer can demonstrate a sound business reason for the lower salary, carries out consultation as required, warns that any continued refusal could result in the employment being terminated and offers re-engagement on the new terms, a subsequent dismissal could be fair.
In downturns is an employer able to force an employee to take annual leave?
An employee does not necessarily have the right to choose when they take their holiday leave and an employer could tell an employee when to take their leave. However, an employer has to give appropriate notice. The required notice has to be twice as long as the length of the holiday. So if an employer requests an employee to take five days’ holiday, they need to give the employee ten days’ notice of this.
In downturns an employer may decide that the only viable option is redundancy.
A redundancy technically occurs when the dismissal is due to the closure of the business, the closure of the workplace where the employee was employed or reduced requirements of the business for employees to do work of a particular kind.
Employees who have at least two years’ service and are made redundant are usually entitled to statutory redundancy pay. The payment is calculated by reference to length of service, age and earnings (up to a maximum of £538 per week) with an overall cap of £16,140). Here is a link for calculating these payments.
In order to dismiss fairly the employer should consult with the individual before a decision is reached, carry out a fair selection if appropriate and search for suitable alternative roles. Also, depending on the number of proposed redundancies, the employer may have obligations to consult the workforce collectively.
Generally, employees would need to have two years’ service to bring an unfair dismissal claim. There is no minimum service requirement though for discrimination claims or collective consultation claims.
This guide is intended for guidance only and should not be relied upon for specific advice.
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