Knowledge Hub | Articles

12 April 2016

Employment law makes concessions for downturns in business

Employment is viewed as a 'wage/work bargain' and it is almost always a breach of contract for an employer to cut a worker's wages. However, in the event of an unexpected downturn in business where there is a real prospect of there being fresh work for the employer and its employees, it is likely to be in the interests of neither for there to be wholesale redundancies and likely to be in the interests of both that there should be lay-off or short-time working. A recent decision of the Employment Appeal Tribunal (EAT) dealt with just such a situation (Craig v Bob Lindfield & Son Limited).

Mr Craig began working for Bob Lindfield & Son Limited, a design and technology company, as a computer-aided designer/draughtsman in October 2004. His contract of employment incorporated the firm's employee handbook and this provided a contractual right for the employer to lay off staff or require them to work short time in circumstances where there was a lack of work. The company had on two earlier occasions experienced periods when demand for its services had diminished such that short-time working occurred, between July and September 2009 and between November 2012 and July 2013.

In the summer of 2014, there was another downturn in business. In mid-July, Mr Lindfield told Mr Craig and other employees that they would be laid off with effect from 21 July. He was hopeful that work would soon pick up again and kept in touch with employees, reassuring them that no one was sacked or being made redundant and he would let them know when orders started to flow again.

On 22 August 2014, Mr Craig resigned and claimed that he had been constructively unfairly dismissed. He argued that he had been laid off for an unreasonably long period and should have been made redundant. His claim was rejected by an Employment Tribunal (ET), however. In the ET's view, there was no implied contractual term as to reasonableness so far as the length of lay-off was concerned and, even if there were, the lay-off period had not been unreasonable taking into account the individual circumstances of the case.

In dismissing Mr Craig's challenge to that decision, the EAT held that where an employee's contract of employment specifically provides for lay-off periods when business is slow, the failure of the employer to remunerate staff in such circumstances is not a breach of contract.

The employer has the option of paying a redundancy payment or it may choose to lay off employees or keep them on short-time working. Parliament has provided a scheme for balancing the rights and interests of employer and employee in circumstances where both are adversely affected by a downturn in business that is expected to be short lived. Section 148 of the Employment Rights Act 1996 provides for a four-week period during which there is no entitlement to claim a redundancy payment, after which it is left to the employee to determine whether the period with no work is unreasonably long. After expiry of the four-week period, an employee can decide to serve a notice on the employer indicating his or her intention to claim a redundancy payment.

As such, the scheme leaves little room in which an implied term of reasonableness could operate.

In handing down its view, the EAT stressed that cases such as this are dependent on the particular facts. There may be situations where an employer acts towards an employee in such a way as to damage or seriously destroy the relationship of trust and confidence between them so that a claim for constructive dismissal would succeed. That was not the case here, however, and the appeal was dismissed.

If you are experiencing difficulties in maintaining full-time working for your workforce, we can help you ensure you do not incur unforeseen liabilities. Contact Kathryn Fielder for advice by calling 01753 279029 or emailing your enquiry to

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