Redundancy might not be your only option

Introduction

The positive news for businesses, large and small, is that the economy is opening up again as we begin to move out of lockdown restrictions, giving you an opportunity to plan ahead with a bit more clarity.

The conversation since March 2020 has focused on managing significantly reduced revenue streams and cutting whatever costs in order to survive and see out the storm.

Now that businesses are in a position to return to full (or close to full) revenue generation the focus can switch to commercial opportunities and a longer term strategy.

A key element of future strategy for most employers will be that the Government’s Job Retention Scheme (known as furlough) is coming to a close on 30th September 2021 unless a further extension of the Scheme is agreed by Government.

Requirement for Change?

Now is the time to take stock and ensure that you are asking the right questions before you finalise your short to mid- term future strategy. We think you should be asking these fundamental questions:

  • Is change required and what does that change look like?
  • What cost reduction actions are required and how do we achieve them?
  • Do we have the right human resources in place?

For us, these questions are closely linked and should be considered together.

Cost Cutting

Many market observers have expressed the view that the majority of people who are presently on furlough will lose their jobs (when the furlough scheme comes to an end) by reason of redundancy. It has yet to be seen if that prediction is accurate, however, our expectation is that there will be a spike in redundancies around this time.

It is clear that one major issue for SME employers will be – if we require to cut staff in order to remain operational and make employees redundant can we afford to pay the redundancy costs?

Many businesses have employees with significant service and, on the basis that entitlement to redundancy pay is based upon age, length of service and gross weekly pay (albeit subject to a cap of £544),  any redundancy payment could be considerable.

In addition, there is the requirement to serve (and pay) notice of termination of employment.  The combination of associated costs could be enough to close  businesses.

Whilst there is a Government payment scheme for employers who cease to operate, there is no such assistance if the preference is to keep the business running.

As a consequence, for those businesses looking to reduce cost, without incurring redundancy costs, the focus will be on what the options are.

Options for Change

Changing terms and conditions

The first option for employers to save costs will be by changing terms and conditions to reduce contractual entitlements which can include reduced pay, reduced working hours or reducing / waiving benefits, such as company sick pay, holiday entitlement (in excess of the statutory minimum) or bonus payments.

The safest, and quickest, method for making such a variation to contractual terms will be to reach agreement with employees following a consultation process.

Any discussion on terms and conditions will be impacted by the external market and, in the present circumstances, we would suggest that there is a strong possibility that employees and their representatives will potentially agree to reduced salary/benefits if the alternative is headcount reduction.

The recent British Gas case shows the dangers of trying to impose such cuts without going through a full process of consultation, therefore it is essential that there is a strong business rationale in place, genuine commitment to the consultation process and complete clarity in all documentation.   We can assist you at all stages of that process.

Cost control

Employers may be able to impose a pay freeze, defer or not make bonus payments, restrict overtime and limit training costs.

Employers should be careful to ensure that these are not contractual rights before making such changes and where necessary follow an appropriate procedure before making any changes, as outlined above.

Flexible working

Whilst there may be an opportunity to change the way in which your business operates, this article is looking at flexible working as one of the key changes you should be thinking about.

Flexible working has been traditionally been viewed with suspicion by many employers, however one positive aspect of the pandemic has been the way in which employers and employees have required to embrace flexibility of working.

For many employers the results were far more positive than anticipated, which has led to some larger employers drastically reducing office space and moving to a mix of home and office working.  Home working is not something that can be embraced by every businesses, but it is something that you should be considering and should be discussing with your staff.

Research into the needs and wants of employees has shown for many years that flexibility is as important as level of salary.  Employees who have enjoyed the freedom to work from home and avoid the stress (and cost) of the daily commute may be more productive. In terms of retention of staff, employees may actively look to move to an employer who offers such flexibility if your business does not.

Every employee has a statutory entitlement to request flexible working and as part of that statutory process, you, as the employer, are required to consider that request.  Rather than wait for the inevitable flexible working requests to arrive, we recommend that you get in front of it by communicating with staff and engaging with them as to the possibility for change.

Analyse your workforce

If you use casual workers, agency staff or contractors, then you can look to terminate those contracts without the risk of an unfair dismissal claim or obligation to pay a statutory redundancy payment.

Having said that, these people do have contractual and statutory rights, therefore it is important to make sure you are aware of those risks and can manage them before terminating the contract.

Unpaid leave

One temporary way of reducing staff costs is to ask staff to take a period of unpaid leave, since this will retain them as employees without incurring salary costs for a period. This would need to be arranged with agreement, which may be hard to secure amongst employees reliant on a regular salary. However, there may be employees for whom it might be acceptable for a fixed period.

Early retirement

As well as the business taking the time to reflect during the pandemic, there will be a number of employees who have had an opportunity to consider their own futures.  We suggest that you ascertain if there employees approaching retirement who might be willing to take early retirement (if allowed by the relevant pension scheme), or a phased reduction in hours as they approach retirement? Any conversations of this sort would need to be handled with care, so as not to give rise to possible age discrimination claims, but it is definitely worthwhile considering.

Lay-off and short time working

Some employers have express lay-off or short time working clauses in their staff contact of employment which will permit them to take the following steps:

  • Lay-Off – means providing employees with no work (and no pay) for a period while retaining them as employees. The furlough scheme has enabled employers to retain employees and those employers may now look to lay-off employees on a temporary basis. This measure is beneficial if there is a temporary downturn meaning that fewer employees are required for that temporary period of time.
  • Short-Time Working – means providing employees with less work (and less pay) for a period whilst retaining them as employees. This is relevant where a downturn in work means a business does not need all employees to work their contracted hours.

For both of the above actions,  in the absence of express clauses in the contract,  it will be a fundamental breach of contract if an employer lays off an employee or puts them on short time working without that employee’s agreement. In these cases, employers will need to seek to vary their terms and conditions, as mentioned above.

There is specific legislation governing lay-offs and short time working and we recommend that you take advice as to the legal requirements and risks associated with adopting either approach.

Recruitment freeze and withdrawing job offers

Employers may wish to consider restricting external recruitment. This can be done by taking several actions. The first is to review any existing vacancies and decide whether they are required or be filled by redistributing work amongst existing staff.

The second action can be to withdraw any offers of employment before the new member of staff joins the organisation.  An alternative to withdrawing an offer, may be to seek to defer the start date until such a time as the company is better placed for the employee to start.

Summary

We cannot pretend that it will be possible for employers to avoid redundancies in every case, however, hopefully we have given you some food for thought on how best your business can move into the next stage of recovery and possibly avoid the cost of making redundancies.

We are assisting a large number of employers as they navigate through these uncertain times and we would be happy to discuss which options will work best for you.

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