Redundancy: are there alternatives for businesses?

Businesses are navigating stormy financial seas; and with rises in employer NIC and the National Minimum Wage, on top of ever-soaring business costs, many employers will be looking at how to increase their bottom line or simply minimise losses.

First steps taken by businesses may be to reduce spending on office space and utilities or areas considered to be less vital such as entertainment and advertising. However, if all of those options are explored and the people in the business are a large cost, there may be a temptation to think that making redundancies will be a quick fix. Losing staff members during a redundancy process can be damaging to an organisation’s reputation and to staff morale, and it can be difficult to replace lost talent if the organisation’s financial situation improves. So are there alternatives to redundancy, and can they offer greater long-term prospects of survival and success?

Reducing staff levels

A basic first step in reducing staffing levels may be to place a hold on recruiting new staff, allowing for workforce reductions through natural attrition. A recruitment freeze is easy to implement and there are unlikely to be any employment law implications. However, care must be taken by employers if they decide to recruit or promote an employee during a recruitment freeze as this could give rise to employment law claims, and particularly if redundancies have taken place or are taking place.

Another step will be to consider withdrawing any job offers made to new recruits.  However, again, care needs to be taken as if job offers which have been accepted are withdrawn, contractual terms should be checked to ensure that notice pay does not fall due.  .

If an organisation has agency, temporary or casual staff (i.e. contract staff), the organisation can seek to terminate their engagements. If there is some doubt as to their legal status, namely whether they are an employee, worker or self-employed, legal advice should be sought.

Seconding employees externally could be a good option for an organisation as they allow the organisation to reduce headcount and the secondee to gain valuable experience. The duration of any secondment will need to be carefully considered: too short and the organisation will be back in the same situation; too long and it could find itself regretting the secondment if there is an uptick in workstreams.

Redeployment and/or retraining of staff to other areas of the business  may be considered. Employers will need to navigate this area carefully as it could give rise to a business reorganisation and may give rise to potential claims.

Some organisations may choose to offer early retirement to employees. In such situations, retirement must be entirely voluntary, as otherwise it could give rise to claims for unfair dismissal and/or age discrimination. One potential downside for the business is the loss of experienced employees.

Temporary arrangements

The use of temporary arrangements may be a viable option for some businesses, particularly if their line of business is subject to fluctuations and could experience an upturn at short notice. Examples include offering employees sabbaticals or unpaid leave (which they may have to consent to, depending on the terms of their employment contract). In situations where work volumes are decreasing, following careful discussion with the employer, employees may be willing to use up their holiday entitlements during quieter periods.

If the employer has a contractual right to lay off staff (meaning that the employee is provided with less work and less pay while still being retained as an employee) or to implement short-time working (meaning that the employee is provided with no work and no pay), then using lay-offs or short-time working may enable the business to save labour costs. If there is no such contractual right, the employer will need to propose the change to employees and go through a consultation process; otherwise, it may face potential claims..

Reducing hours

Employers could seek to reduce working hours of employees, either in the short or long term. Employees are more likely to agree to a reduction in hours if the employer explains to them the financial situation of the business and how a reduction in hours could avoid more drastic measures. Alternatively, part-time working and other flexible working arrangements could be proposed to staff. Where such arrangements are agreed, it will be important to formally record any changes in employees’ terms of employment.

Overtime bans could also be implemented if either there is no contractual entitlement to overtime work, or the employee consents.

Reducing pay

Organisations could also consider introducing a reduction-in-pay strategy.  . However, any steps taken by organisations in terms of salary freezes, reductions in benefits, reductions in salaries, changes to pension arrangements, or removal of/reduction in bonus payments must all be carefully managed by consultation with employees aimed at getting their agreement and communicated in order to avoid resignations and potential claims.

Generally, whilst non-contractual benefits such as wellness programs or staff discounts can be removed without consent, organisations should be mindful of the potential impact on staff morale, particularly if the benefits are well utilised.

Communicating with staff

When making decisions about any of the above, organisations should factor in the potential impact on employees’ motivation and commitment to the business. It is often best to be as open and honest with staff as early as reasonably possible, as most employees will want to keep their jobs and will work with employers to find acceptable solutions. Equally, most organisations will want to retain flexibility in the event that trading conditions or revenues improve, making employee support for the survival and success of the business key.

Varying contractual terms

If contractual employment terms are varied, these should be recorded in the employees’ terms of employment by way of written variation or new contract. Depending on the nature of the change, this information must be provided to employees within one month of the change taking effect.

While redundancy can seem like an immediate solution to financial pressures, this may not necessarily be the best or only solution for an organisation.  Before moving to redundancies, businesses may want to consider the available alternatives, as set out above. Exploring these options not only helps protect the workforce but also positions the business to recover more strongly when conditions improve.

In the fast-moving landscape of employment law, getting the right legal guidance will be crucial for businesses to weather financial storms and to minimise legal liabilities.

If you have questions or concerns about redundancy or workforce reorganisations, please contact employment lawyer Asha Kumar.