Lay Off Clause

We understand that laying off an employee is never pleasant or what you’d perhaps planned during the growth of your business. We also know that layoffs are often inevitable if the employee doesn’t align with your business goals, or you need to make cutbacks to get back on top financially. Letting a staff member go can be a difficult conversation, and having a lay off clause within their employment contract is a vital part of the process. With this, you can ensure you’re always operating lawfully.   

At Croner, we have experts in employment law and employment contracts that can point you in the right direction. Give us a call on today on 0808 501 6651 to get FREE advice.

What is a lay off clause?

Whatever the reason for laying off your employees, we know it can be difficult. Laying off an employee means that they take a period of leave, sometimes as unpaid leave or on reduced pay. For obvious reasons, this will be an unpopular decision, but one that is often necessary for the survival of your business. Including a lay off clause within the employee’s contract will allow you to legally lay off your staff when necessary.

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

Without a clear lay off clause within the employment contract, you will likely struggle to lay off an employee the right way. You can still agree to a period of lay off with them, but without a legal clause, you will be vulnerable to legal action. In the worst case situation, you may face employment tribunal claims. Remember, Croner are here for you if that happens.

A lay off clause is doubly important as it outlines what pay the employee can expect. For example, if you include in the contract that they are entitled to full pay if laid off, you must adhere to this, or you will likely face legal action. Similarly, if the clause states that they are not entitled to pay, they will be unable to contest this and will struggle to argue that they should receive pay during this period.

How do layoffs work?

It’s important to note that there is no legal set time limit for how long you can lay off an employee. However, if the employee is without work for four weeks in a row, or six weeks in a 13-week period, they have the right to claim statutory redundancy (if they’ve completed two years’ service).

So, how should you start the process of laying off an employee? You should first start the process by issuing a formal letter to the employee in question, stating clearly when the first day of the layoff will begin and how long it will last. You should always remain in communication with the employee throughout the process so they’re fully aware and understanding of the latest developments in their layoff.

Lay off clause template

If you need to lay off an employee but you don’t have a lay off clause in their employment contract, you must add one and this must be agreed with the employee. Although it’s not legally required, we’d also recommend confirming in writing any changes to their contracts, too.

Need more information? Take a look at our resources that include many helpful articles about the end of employment contracts.

A simple lay off clause in an employment contract you could include could look like this:

‘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.’

Alternatives to laying off an employee

While layoffs are sometimes inevitable, there are other options available to you before you resort to this.

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 layoffs too, as long as you remember that implementing these has certain legal requirements.

Layoffs should be a last resort if you can help it, as they contribute a great deal to a drop in morale and a loss in productivity. It may also cost you more in the long run to layoff an employee rather than exploring suitable alternatives.

Finally, if you need 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.

Croner expert employment law support

Our expert team of employment law specialists are always here for you to provide you with all the information you need when it comes to lay off clauses. Why not give us a call on 0808 501 6651 to get FREE advice now.