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Retail, Leisure and Hospitality sector - coronavirus update

On 16 March 2020 the UK Government announced further guidance to slow the spread of coronavirus through much greater use of 'social distancing' than the UK previously had in place.

The guidance states:

  1. Avoid contact with someone who is displaying symptoms of coronavirus (COVID-19). These symptoms include high temperature and/or new and continuous cough;
  2. Avoid non-essential use of public transport, varying your travel times to avoid rush hour, when possible;
  3. Work from home, where possible. Your employer should support you to do this. Please refer to employer guidance for more information;
  4. Avoid large gatherings, and gatherings in smaller public spaces such as pubs, cinemas, restaurants, theatres, bars, clubs;
  5. Avoid gatherings with friends and family. Keep in touch using remote technology such as phone, internet, and social media.
  6. Use telephone or online services to contact your GP or other essential services.

Individuals aged are over 70, who have an underlying health condition or are pregnant are strongly advised to follow these guidelines stringently and to significantly limit face-to-face interaction with friends and family if possible.

It is unclear how long these measures will last but it seems likely that it will be at least several months.   Although schools and childcare settings have not yet been advised to close, it's widely thought that this will take place before long.

Impact on retail, hospitality and leisure

The guidelines are expected to have a major impact on retail, hospitality, leisure and arts businesses across the UK, with significantly reduced demand and footfall.  Many businesses are being hit by a double whammy of severely reduced income and an inability to claim under insurance policies.   Reducing staff costs is likely to be essential to the survival of such businesses even with the additional support for businesses announced by the Government on 17 March 2020.  There are a number of options which need to be considered in the round to ensure that the business adopts the most effective strategy for its individual circumstances.   Businesses will also need to consider how any such strategies will be implemented practically and safely, given Government guidance about restricting travel and avoiding large gatherings. 

Options for reducing staff costs

1. Casual and agency staff

Where workers are engaged under a casual contract that does not impose any obligation on the business to offer them work or on the worker to accept any given shift/assignment, this offers a swift way of reducing costs – likewise with agency workers. 

However, although this is legally a low-risk option, we recommend that businesses seek to communicate their decisions to these individuals in a compassionate and humane way:  there will be widespread concern about the financial impact on individuals and their families and businesses which appear indifferent to this may suffer significant reputational damage. 

2. Lay-off and short-time working

In some cases, employers may prefer to keep staff employed but temporarily offer them no (or significantly less) work and therefore reduced pay.   Where such employees don’t receive pay, they are deemed to have been laid off; where they receive less than half a week's pay they are deemed to have been put on short-time working . 
Employees who meet certain statutory criteria and go through a particular procedure have the right to claim a statutory redundancy payment if they are deemed to have been laid off or put onto short-time working.

This is primarily relevant to hourly-paid employees (or employees paid according to output).  We deal with the position of salaried staff below.

Check the contracts: Employers will only have the right to lay off employees without pay or put them on short-time working where the contract specifically allows this.  If it does not, imposing this would be a breach of contract entitling the employee to bring a damages/unlawful deductions claim and/or claim unfair constructive dismissal. 

What can I do if the contract doesn't permit this?

In this scenario, the employer's main options are to make redundancies (see below) or to agree a period of unpaid leave with staff.   However, staff may not agree – they may prefer to take the chance of being dismissed so that they receive their redundancy pay and notice pay straight away, particularly if they will then be reliant on state benefits.   

What happens if the contract permits the business to lay off employees or put them on short-time working?

Employees who have been laid off or put on short-time working continue to accrue holiday and continuous service (which may ultimately increase costs to the business if it is obliged to make redundancies in the future). 

Those employees may also be entitled to a statutory guarantee payment on up to 5 "workless days" in a three-month period. A "workless day" is a day during which the employee would normally be required to work, when the employee is not provided with work by their employer because of a reduction in the business' requirement for the relevant type of work or there is any other occurrence which affects the normal workings of the business in relation to such work. 

The employee does not need to be on "lay-off" or "short-time working" as legally defined to receive a statutory guarantee payment but laid-off employees are likely to qualify for the payment (currently £29 per day for 5 days, due to increase to £30 a day from April this year). 

Employees who have been laid off or put onto short-time working for 4 consecutive weeks or 6 weeks in a 13 week period, and who have 2 years' service, are entitled to claim a statutory redundancy payment.  To do so, they must serve a written notice of their intention to claim (which must be served on the last day of the period of lay-off/short-time working which they rely on, or within 4 weeks of that date).  The employer can dispute their entitlement by serving a counter-notice.  They can then bring an Employment Tribunal claim to claim the statutory redundancy payment, which (if they satisfy the eligibility rules) they will be entitled to receive once they terminate their employment by resignation (or if the employer makes them redundant in the meantime). 

Once the employee terminates their employment by giving notice of resignation, they will be entitled to receive payment for their notice period.   Whether this is at their usual full pay or the reduced rate under short-time working will depend on the length of their notice period (see below).  

Calculation of redundancy payments

The statutory redundancy payment is calculated by determining 2 key dates: the date on which the employee became entitled to a statutory redundancy payment (the last date of the lay-off/short-time working period) and, working backwards from that date, the date on which the employer would have had to serve notice of termination to comply with the statutory minimum notice provisions (the calculation date).  The statutory redundancy payment is based on the employee's pay at the calculation date.   
Case law suggests that the short-time hours should not be treated as the normal working hours for calculation purposes, so pre-short-time pay should be used.  Likewise, any weeks in which the employee received no pay are disregarded for the purposes of this calculation.  The calculation is somewhat complex for staff with irregular hours/pay and is therefore not dealt with in detail in this note. 

Calculation of notice pay

How much pay the employee is entitled to receive for their notice period in these circumstances depends on the length of their notice period.  If they are entitled to statutory minimum notice only where notice is given by the employer, they are entitled to their full (usual) pay.   If the contractual notice period is at least one week longer than the statutory minimum, their notice pay is governed by their contract (and so may be based on the pay they were actually receiving at the point of giving notice).  

Salaried employees

The position of salaried employees is different because the starting point is that they are entitled to receive their usual salary even if there is less work.  Such staff are more likely to be employed in positions which can accommodate home-working or altered duties but, if this is not feasible, the employer's options are: 

  • agreeing periods of unpaid leave or reduced pay; 
  • changing terms and conditions of employment so as to reduce costs (e.g. reducing benefits); or
  • making redundancies.

Where unpaid leave or reduced pay are agreed, this will need to be carefully documented. 

3. Redundancies

Businesses hit by severely reduced demand due to the coronavirus crisis are likely to consider making redundancies, whether now or as the crisis continues.  In many cases businesses will need to consider the collective consultation obligations which apply when making large-scale redundancies. 

Collective consultation 

Where an employer proposes to make 20 or more employees redundant at one establishment, it is legally obliged to consult collectively with elected employee representatives before the redundancies can be put into effect.  This entails:

  • Completing form HR1 and sending this to the Department for Business, Innovation and Skills
  • Electing employee representatives (unless there is a recognised trade union or a suitable elected staff body already in place)
  • Giving specific required information in writing to the employee representatives and meeting with them to discuss the proposals. 

The obligation is triggered when the business is proposing to dismiss the employees – i.e. it does not need to be a definitive decision.   "Redundancy" is defined widely for these purposes to include some voluntary redundancies and also dismissals made to effect non-agreed changes to contractual terms (where the employer proposes to re-employ the staff on the new terms).  However, it does not include the expiry of a fixed-term contract on the agreed termination date. 

Whether the number of dismissals needs to be aggregated across several sites will depend on whether they operate as autonomous business units.  In many cases they will need to be aggregated but this is fact-specific.

The consultation period begins when the elected representatives are given the required information in writing and must be "in good time" for effective consultation to take place and at least 30 days where 20+ redundancies (or 45 days where 100+ redundancies are to be made) are to be made at one establishment in a 90 day period.  

Penalties for breach and the 'special circumstances' defence

Usually we advise businesses to comply with these requirements because of the stringent penalties for breach – the starting point is an award of 90 days' pay (called a protective award) for each affected employee in respect of whom the employer has failed to comply with its obligations to inform and consult.

However, the coronavirus outbreak will make it very difficult (and possibly inadvisable from a health and safety perspective) for some retail and leisure businesses to comply.  Typically employees are notified of the proposals and the arrangements for election of staff representatives at a 'town hall'-style meeting and given written information delivered by hand.   However, arranging such meetings appears inconsistent with Government guidance and certainly some staff will be unwilling to attend on health grounds.   Where staff are already self-isolating or obliged to stay at home due to school closures, it will be practically very difficult for them to participate effectively in the election of representatives or any consultation meetings – not all staff will have the IT facilities needed to participate remotely and employers may not have staff telephone numbers to enable them to participate by telephone. 

Depending on how their business and workforce has been affected by the outbreak, businesses may be able to rely on the 'special circumstances' exception (although they must still take steps to seek to comply).    Where 'special circumstances' mean it is not reasonably practicable for an employer to comply with its obligation to inform and consult, it will be able to avoid liability for protective awards for failure to inform and consult (although the business must take such steps as it can to comply).  Although insolvency/business instability generally isn't enough to make out this defence, the impact of the coronavirus outbreak may well be sufficient – depending on the impact on the particular business.  We recommend that businesses seek advice before seeking to rely on this exception, particularly in relation to what efforts they need to make to seek to comply. 

4. Changing contractual terms

Where a business wants to change its employees' contractual terms to reduce costs, it can do so by agreement, by terminating the employees' contracts and re-engaging them on the new terms or by seeking to impose the change.   The last option is usually not recommended as it would be a breach of contract potentially enabling the employees to claim constructive unfair dismissal and/or damages.  

Employers usually consult with affected staff, seeking to agree changes to contractual terms with employees and use termination and re-engagement as a last resort, in order to reduce the risk of unfair dismissal claims.  However, given the urgent need that many businesses will have to reduce costs, some are likely to take a commercial approach whereby any consultation period will be as short as possible.    The experience of businesses during the global financial crisis suggests that most staff are likely to be pragmatic and agree to cost-cutting measures rather than face redundancy.  

If the business is proposing to terminate the contracts of employees who do not agree to the changes and re-engage them on the new terms, that would be a proposal to dismiss for the purposes of the collective consultation obligations.   Businesses sometimes try to get around this by arguing that they were not proposing to dismiss such staff and did not have a fixed intention about what action to take if the changes were not agreed.   Employment Tribunals are often suspicious of such arguments. 

To summarise 

Unfortunately, there are no perfect solutions for businesses or their staff in this situation.   Businesses will need to weigh up the financial, legal, practical and reputational implications of these options and decide on the option (or a combination of options) which will best mitigate the negative impact on the business.    This may be governed by other factors such as investor demands, the degree of flexibility shown by landlords, the stance taken by insurers and the extent of any Government mitigation measures.   The situation is developing rapidly and we recommend that businesses seek specialist advice at an early stage.  Our Retail and Leisure group combines expertise from around the firm to ensure that our advice takes into account all the practical and commercial factors to find the best strategy for you. 

This note gives general guidance and an overview but is not intended to be legal advice. 
The situation in relation to COVID-19 is developing rapidly: we have sought to ensure that the contents are accurate as at the date of publication but you are advised to check for the latest information.
Public Health England provides public health information and up-to-date information is available at https://www.nhs.uk/conditions/coronavirus-covid-19/  and https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public.
For any legal advice on specific circumstances please contact your usual Howard Kennedy Employment Team contact or our Head of Employment Jane Amphlett.

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