Layoff in UK

Reasoning

A layoff is typically driven by one of two forces. In the first case, the goal is to increase a company's profits. Typically the reasoning is that the company will be able to generate the same gross revenues in the future with a smaller number of workers: if the company's revenues do indeed stay constant while labor costs go down, then self-evidently profit will be increased. However, some layoffs occur even when management believes that revenue might actually go down: this usually occurs when there are other firms in the same industry who are performing better, or when a company needs to reduce excess capacity during times of lower volumes. A layoff, or even the suggestion of a layoff, may motivate workers to be more productive. Often, however, rumors of an impending layoff sap productivity as employees who are likely to be affected engage in searching for a new job.

In the second case, downsizing is driven by macroeconomic forces. A company determines that its workers can no longer profitably produce products at current market prices. A company will only employ workers when the per-hour value of their output (marginal productivity of labor) exceeds the cost to employ those workers.

In the UK…

It is important to distinguish the term "layoff" from redundancy in terms of UK employment law. The normal lay person's understanding of the term "layoff" is that one has been made redundant, i.e. that one has been dismissed. This is not technically correct. Being "laid off" just means being sent home without pay or work. This does not mean you have been dismissed. Being laid off does not preclude a return to work when business picks up under exactly the same terms and conditions as before.

Many employers reserve the contractual right to send employees home for short periods without pay when work is scarce. (Although it is rarely used outside the manufacturing sector.) If this right is indeed reserved in the contract of employment, then the employees are not entitled to immediately seek compensation in the Employment Tribunal.

However, if an employee is laid off for 4 continuous weeks, or for 6 weeks within any 13 week period, he is entitled to give his employer notice and claim a redundancy payment in the employment tribunal.

However, when most lay people in the UK talk about being "laid off" they actually mean that they have been made redundant. In UK employment law, redundancy is the dismissal of an employee when his or her job becomes unnecessary. UK redundancy law allows three reasons for redundancy:

Total cessation of the employer's business (whether permanently or temporarily);

Cessation of business at the employee's workplace;

Reduction in the number of workers required to do a particular job.

The law requires the employer to make a statutory redundancy payment, which is tax-free and is based on the employee's length of service, as long as the employee has served a minimum of two years. The employee is not allowed to claim redundancy if he or she was offered an alternative position with similar salary, status and responsibilities.

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