Some, however, bounce back because they’ve taken proactive steps to manage their position – part of which means controlling or cutting costs.
There are various cost-cutting measures that businesses can consider, but one that lawyers are seeing much of right now is a focus on making reductions to headcount.
Options to cut staff costs
It’s a given that in some instances compulsory redundancies may be the only viable possibility. But it is also important to explore the alternatives if you’re looking for better long-term solutions. Tina Chander, a partner and head of employment law at Wright Hassall, has several preferred options that she advises employers consider instead of making redundancies.
Top of her list is a recruitment freeze “with a pause on taking on any more employees for a period of time which could reduce financial outlay”.
Next comes a reduction in hours of work with, for example, bans on overtime or minimising working hours and working days. But to do this, she says that “the business would need to consult with employees to see if they would be open to such changes, whether temporary or permanently; agreed changes should be confirmed in a contract variation letter”. Alternatively, she says that employers could look to a contractual right to implement short-time working.
Her third option is a temporary stoppage of work where an employer makes lay-offs for a set duration until the financial position improves. However, she warns that “unless the employer has a contractual right to implement layoffs then again it will be necessary to consult with employees”.
Ian Steel, an employment law solicitor at the BPIF, would advise clients along the same lines. However, to Chander’s list he would suggest that employers look at seeking increased job flexibility as “staff usually agree to this is they can see a business is struggling”.
On top of that Steel would recommend reducing wages. He would also recommend a company restructure or workforce planning as employers “can set out their ideal objectives from the start”. A restructure, for the record, is not the same as a redundancy as headcount doesn’t fall, it’s just that staff work differently.
Something else that employers could consider are voluntary redundancies where employees leave because they decide they would be happy to move on to pastures new, or even take a break from work.
In this situation, Chander says that “employers should consider inviting employees to apply for voluntary redundancy” which would allow them the opportunity to do so “with an additional payment of redundancy pay in addition to their usual entitlement of notice and accrued but unused holiday upon leaving their role”. In fact, she points out that if there is a good take-up for this option, it could avoid a formal redundancy process and compulsory redundancies.
But following this path isn’t straightforward. Indeed, she notes that “the employer needs to carefully consider whether the role the employee occupies is one that can be absorbed, has reduced, or is no longer sustainable.” On top of that she says that “it is vital to remember that even if an alternative cannot be found prior to a redundancy process being actioned, and employees are put at-risk of redundancy, the business should still continue to consider alternatives throughout the entire process.”
Steel too sees merit in this course of action. But while he knows some companies prefer voluntary redundancies “to avoid a process that is inherently unfair because people are losing their jobs through no fault of their own”, he is aware of the risk “that the most experienced employees who have the highest redundancy entitlements want to apply”.
On this he remarks that “an employer is not required to accept applications for voluntary redundancy and this should be made clear at the start”. He adds that “if employers design the selection criteria based on objective skills and experience they want from the staff who remain, then the staff with the best fit should be kept on”.
Alternative roles
All of this means that ways to avoid redundancy should be at the forefront of an employer’s mind throughout the process, including during any employee’s notice period if their role is confirmed redundant.
In tracking this through, Chander says that avoiding unnecessary redundancies means one of two things: either trying to find suitable alternative employment or looking at filling general vacancies.
On the first she says: “If the business has a role which is similar in nature and terms of employment to that the employee currently undertakes, and this role is to remain, then this should be offered to the employee”. It’s a positive move because if the duties are close to that which the employee currently undertakes, and the terms of employment are roughly aligned, the employee would probably be keen to take up the position. For Chander “this provides the best of both worlds for both employer and employee, as the employee can remain with the business, and a vacant role has been fulfilled”.
But in terms of the other, employers will not always have a suitable alternative for an employee at risk of redundancy to move in to. However, as Chander highlights, employers have a duty to consider vacancies throughout the business and enable them to apply for such a role should they wish to do so. She adds: “If an employee does make an application, this would follow the usual recruitment process as it is not a suitable alternative role that they can simply be offered and slotted in to.”
Interestingly, in Steel’s opinion, employers do not need to find alternatives for those at risk of redundancy, but “they do need to be able to show that they have considered all reasonable alternatives of how redundancies can be avoided”.
He says that this is best demonstrated by giving those affected a list of all current vacancies and asking those affected whether they have any ideas or proposals about how redundancies can be avoided. Clearly not all vacancies will be suitable for at-risk employees, but this route does give them freedom to consider potentially undertaking a slightly different role or applying for a role at a higher, or lower, level than their current job should they be happy to do so. It follows that if the employee is successful, they will no longer be at risk of redundancy.
Redundancies require a fair process
Whatever an employer does, where compulsory redundancies are on the table a fair process must be undertaken with meaningful consultation.
This is important to Steel who says that “anyone made redundant is likely to feel they have been treated unfairly because they have lost their job through no fault of their own whilst others have remained employed”. He says this knowing that employers cannot prevent a claim being made and there is little to lose for an employee to make an application.
As to what a fair process looks like, he states that the redundancy process will be determined by whether there is a redundancy policy in place, whether there is a union recognition agreement, how many employees may be made redundant and how employees are going to be selected for redundancy.
Overall the consultation process, which Steel outlines briefly, involves a meeting to explain why redundancies are taking place; what the proposed procedure is and likely timescale; a meeting to discuss the proposed redundancy procedure and selection process; a final meeting to explain the consultation outcome and whether any suggestions about changes to the proposed process have been adopted and the final decision about what process and selection criteria will be followed; and an appeal hearing.
It’s of relevance that Steel says that “employers do not have to agree with suggestions made by employees, but considering them and adjusting the process to improve the fairness for all, not necessarily an individual is important”.
The law imposes minimum consultation periods on employers depending on how many staff are being made redundant. For 20 to 99 redundancies, the consultation must start at least 30 days before any dismissals take effect while for 100 or more redundancies, the consultation must start at least 45 days before any dismissals take effect.
In terms of a fair selection criteria, Steel comments that “the more objective selection criteria you have the less likely the process can be successfully challenged.
If a tribunal is shown inconsistencies about how people have been treated and no reasonable explanation is forthcoming, it is entitled to query whether the process is not within a range or reasonable conduct”.
“Ultimately,” says Steel, “the legal test of whether a dismissal for redundancy is fair or not is about whether a tribunal would have conducted the process differently.” He continues: “The test is whether the decision to dismiss was within a range of conduct that a reasonable employer could have adopted.”
He believes that a company’s decision to downsize and reduce costs will rarely be successfully challenged. And if a company sets out in writing why it is making redundancies, what the before and after organisational structure was and is to look like, and what the employer considers is a fair and reasonable selection process, and consults staff about before proceeding, the employer will have done most of the hard work.
A more drastic step
Lastly, there will be occasions where none of the steps outlined earlier are enough to keep a business afloat. In this instance employers may look to hive off part or all of it to another employer, along with those workers.
As Steel details, an employer could either sell shares in the business or transfer the business as an asset. If there’s an asset transfer, the Transfer of Undertaking Regulations (commonly known as TUPE) are likely to apply.
“The purpose of TUPE,” says Steel, “is to protect the rights of employees when there is either a change in the ownership of a business, part of a business is transferred to a third party, or subcontracted work is transferred between suppliers.”
And Chander thinks the same, commenting that “where such an arrangement works, any obligations under TUPE must be complied with”.
What all of this means is that where TUPE applies the employment rights of the employees are protected and they retain the same terms and conditions that they had before and after the transfer. As to the practicalities, Steel says that “any rights employees had before can be enforced against the new owner as if there has been no change in ownership. It also means that all liabilities transfer to the new owner as well”. It’s for this reason that new owners often seek indemnities from the seller.
In summary
Employers and employees alike are feeling the effects of the increased cost of living. Even so, it is important to remember that there are a number of mechanisms in place which look to support both employees and businesses in terms of employment law.
The advice is to always consider them carefully with a view to avoid ending up in difficult situations and hopefully retaining your valuable human capital.
BPIF: TOP TIPS
Ian Steel says that all HR problems have solutions and that understanding what the problem is and knowing which solution to select from the menu of options is key. He says: “Employment law does not condemn employers to lose money because costs are rising; instead, it allows a wide range of solutions. But sometimes painful problems require painful solutions.”
To achieve maximum cost reductions quickly, with the minimum cost to the business whilst retaining the best staff, he advises:
● Drawing up an existing organisational structure diagram along with a second detailing the ideal future organisational structure.
● Setting out the terms and conditions that staff have and the terms and conditions staff are to have in the future. Consider, for example, flexible working arrangements so staff can be moved between machines when demand requires it, and flexible hours so that they can be adjusted to meet operational needs.
● Map the route between these points. This will likely be a combination of steps including immediate staff reductions to reduce costs by, for example, making staff with less than two years’ service redundant as they cannot bring claims for unfair dismissal and are not entitled to redundancy payments; asking staff to be more flexible in their work practices and willing to move between machines which can, as a process, then be incorporated as an implied term into future contracts; and letting staff go who are not contributing as much as the business needs.
