Lay Off Clause

By Andrew Willis
15 May 2020

Laying off an employee can be a difficult conversation. Having a lay off clause is a vital part of the process. With it, you can rest assured you’re operating lawfully.

But not every contract of employment has a lay off clause. Should you be implementing them in your contracts? We explain this for you in our guide.

But you can also contact us on 01455 858 132 for immediate support on this matter.

This is particularly important if you need business advice during the coronavirus pandemic. Don’t hesitate to get in touch.

What is a lay off clause?

Sometimes you just don’t have enough work for your employees. Your organisation might be undergoing a restructure, or the business might be struggling.

If this is the case, you have the option to lay employees off. This means the employee takes a period leave, sometimes unpaid or on reduced pay.

As pay is the main reason employees come to work, asking them to take unpaid leave can be difficult. However, having a lay off clause in your employment contracts is necessary to do this.

A lay off clause is a section of an employment contract that allows you to lay off staff when necessary.

What’s the importance of having a lay off clause in an employment contract?

Without one, you’ll struggle to lay off an employee. You can agree a period of lay off with them, but without a clause you’re vulnerable to employment tribunal claims.

It’s also important as the clause will outline what pay they can expect. If the contract says they’re entitled to full pay and you put them on unpaid leave, you’re going to be in trouble.

However, if your clause says they’re not entitled to pay, they’ll struggle to argue they should receive pay during this period.

How does lay off work?

First, it’s important to note there’s no set time limit for how long you can lay off an employee.

However, if they’re without work for four weeks in a row (or six weeks in a 13 week period) the employee has the right to claim statutory redundancy. That’s if they have two years’ service.

You should start the process of lay off by issuing a letter to the affected employee(s). In this letter you should state when the first day of lay off will begin and how long it will last.

Remain in communication with the employee(s) throughout and ensure they’re kept up to date with the latest developments at work.

Lay off clause and coronavirus

With the current situation, you might be considering lay off as an option. While this is a possibility, it would probably be more beneficial to you and the employee to consider furlough first.

Through the Job Retention Scheme, you can put your staff on leave and claim back 80% of their wages through an online portal.

You can read our guide to furlough and the Job Retention Scheme for further advice.

Employment contract terms—lay off template

If you’d like to lay off an employee, but don’t have a clause in the contract permitting you to do so, you need to add one. This must be agreed with the employee.

But if it's a permanent change, you must confirm in writing what’s been agreed within one month of the change.

Although it’s not needed, we’d also recommend confirming in writing a temporary change to the contract, too.

If you need further assistance with this, use this sample lay off clause in an employment contract in line with uk employment law:

“If it becomes a requirement for the business, full pay won’t be due during periods of lay-off. During this time we’ll pay your statutory guarantee pay. This is payable for up to five workless days in any three-month period.”

If you’re concerned about informing an employee that they’re to be laid off, you can download our letter template here.

Alternatives to laying off an employee

Remember, there are usually other options before you have to resort to laying off an employee.

For example, you could stop hiring new employees. If you’re laying employees off while recruiting for multiple new roles, you need to consider whether the structure of your business is working as well as it could.

A small restructure could be just the thing you need to retain talent and maximise profits.

Salary cuts, benefit cuts, reduced hours, decreased outsourcing, early retirement. These are all viable alternatives to lay off. But do remember that implementing brings with them legal requirements.

Implementing or utilising a lay off clause should be a last resort. There are a number of reasons for this—drop in morale and loss of productivity being one.

You may also find that it ultimately costs you more to lay off an employee than a suitable alternative.

Finally, if you have to insert a lay off clause into a contract, you’ll find that it’s a lengthy process that may require significant consultation with the employee.

By the time the clause is ready for use, you may no longer need it. That’s why it’s important to consider all options before doing so.

Expert support

If you need further information on laying off employees, or contracts and policies, speak to one of our HR experts today on 01455 858 132.

About the Author

Andrew Willis

Andrew Willis is the senior manager of the Litigation and Employment Department and assumes additional responsibility for managing Croner’s office based telephone HR advisory teams, who specialise in employment law, HR and commercial legal advice for small & large organisations across the United Kingdom.