Reducing labour costs with layoffs and short-time

Last updated: October 17th, 2022

With rising energy prices squeezing business owners, many employers are considering cost cutting measures.

While minimising the impact of any such measures on staff is a priority, some businesses may have no option but to examine their labour costs.

Before making any decisions to reduce headcount, employers should first consider if short-time working or making temporary layoffs can help the business survive the energy crisis.

There are some important differences to note between layoffs and short-time along with some legal risks to guard against.

Graphite’s expert HR consultants set out the law below and the associated risks to help you navigate this technical employment law area.

What is layoff?

The Redundancy Payments Acts 1967 – 2022 set out the law on layoff. There are three essential elements to consider before deciding to make layoffs:

  • You must be unable to provide the work the employee is employed to do.
  • You believe the lack of work will be temporary.
  • You must provide the employee with advance notice of the temporary lack of work.

What is short-time?

The Redundancy Payments Acts 1967 – 2022 likewise set out the law on short-time working.

The essential elements to consider before confirming a period of short-time working are:

  • You must reduce the employee’s pay to less than one-half of their normal weekly remuneration or reduce the employee’s hours to less than one-half of their normal weekly hours.
  • The reduction in hours or pay must be due to a lack of work.
  • You have a reasonable belief that the reduction in hours or pay will be temporary.
  • You must provide the employee with advance notice of the reduction in hours or pay.

Reduced hours versus short-time

If you reduce the employee’s hours by less than half of their weekly hours or pay, this is known as reduced hours. It’s important to note that unlike, layoff or short-time, there is no statutory basis for putting an employee on reduced hours without first securing their agreement.

You must ensure you have the employee’s consent to working reduced hours before you confirm a reduction of working hours or pay. If you unilaterally reduce an employee’s hours by less than 50% without first securing their agreement, you are exposing your business to potential claims for breach of contract, non-payment of wages and even constructive dismissal.

The importance of a LOST clause in the contract of employment

As employers have no legal right under legislation to make layoffs or put staff on short-time, it’s vital to include a relevant clause (sometimes referred to as a LOST clause) in the contract of employment.

A LOST clause allows employers to implement layoffs or short-time even where the staff concerned don’t agree to the changes.

If your contract of employment does not have an express contractual clause reserving your right to put employees on layoff or short-time, you should seek to secure express agreement from the employees before confirming the period of layoff or short-time.

Custom and practice

Even without a contractual LOST clause, it may still be possible to put an employee on layoff or short-time. If you can demonstrate that there is history, custom and practice of using layoff and short-time in your business or within your industry, you may still be able to reduce your labour costs using these measures.

How to manage layoffs

If you need to lay off employees or put them on a short working week, you should provide the staff in question with as much notice as possible in writing. As with a redundancy process, you should consult with the employee and explore whether there are any alternative solutions that might avoid the need for layoff or short-time working.

Discrimination risks

If only some of your employees will be placed on temporary layoff or short-time, you will also need to document the selection method you used to demonstrate that it was fair and objective.

Whether you’re dealing with layoffs, short-time working, or redundancy, the criteria you use for selecting employees must be objective, fair and reasonable.

Under the Employment Equality Acts 1998 – 2015, you must not discriminate against employees on the basis of any of the following protected characteristics:

  • Age
  • Civil status
  • Disability
  • Family status
  • Gender
  • Membership of the Traveller community
  • Race
  • Religious belief
  • Sexual orientation

If an employee believes they were treated less favourably than a colleague on the basis of any of the above characteristics, you risk suffering a discrimination claim. Having a good paper trail demonstrating that your selection criteria were fair and objective is therefore crucial to defend any case that reaches the Workplace Relations Commission.

The link between layoffs and redundancy

If you have laid off a member of staff, the employee may acquire an entitlement to a statutory redundancy payment. The redundancy payment is only available to employees who have been laid off or put on short-time and who provide you with notice in writing of their intention to make a claim for a statutory redundancy payment. The employee can only make this claim after:

  • A continuous period of layoff or short-time of four weeks or more; or
  • A period of six weeks’ layoff or short-time out of the previous thirteen weeks (where no more than three weeks were consecutive).

The onus is on the employee to serve notice of their entitlement to claim a statutory redundancy payment in the above circumstances.

You may wish to serve a counter-notice on the employee. If you wish to serve a counter-notice, you must do so within seven days of the employee’s notice.

You should only serve a counter notice if you are certain you will be in a position to provide the employee with no less than thirteen weeks of work during which the employee would not be laid off or put on short-time.

Minimise the risks of layoffs and short-time with Graphite

Layoffs and short-time working will generally arise when a business experiences a downturn due to difficult trading conditions.

To ensure you don’t make a difficult situation worse, get in touch with a Graphite expert. Our team of employment law specialists provide expert HR assistance on all workplace matters including layoffs, short-time and redundancy.

To speak with a consultant, please contact our advice line on 01 886 0350 or request a callback here.

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