When Parker & Collinson (P&C) managing director Ian Collinson started getting fewer orders last year, he realised that the recession was going to be deep. Desperate to avoid making redundancies, he considered other measures to cut overheads and improve the business's cashflow.

"We had a situation where staff were standing idle and we needed to cut back on costs. We did not want to make redundancies as that has an upfront cost," says Collinson. Staff at the company already worked a half day on Friday so Collinson took the decision to move to a four-day week.

The printer is one of a number of businesses in the sector taking similar actions. Another company to have followed suit is Newcastle-based direct marketing business NEMC Group, which successfully completed a period working on reduced days earlier this year, a move that countered any possible redundancies.

NEMC chief executive Howard Matthews explains that the decision to reduce working days was hard but necessary in the face of falling orders. The company had initially planned a three-month period of working on reduced hours, but was able to reinstate the full week early, although managers continued to have their pay reduced until the end of the period.

Business benefits
The rationale behind a four-day week is simple: cut staffing costs by 20% and save on energy and press costs. Paul Holohan, chief executive of Richmond Capital Partners, confirms that a move to a four-day week can be good way of avoiding redundancies and maintaining morale in the short-term and skilled workers in the long-term.

"Making some of the costs variable is good for business," says Holohan. "And remember much-needed money has to be found from within the business to pay for redundancies. This can put the whole firm in jeopardy. I have seen instances where a loan has had to be taken out to pay redundancy costs."

Chris Swerling, head of HR at the BPIF, says that there are plenty of avenues that a company can explore prior to taking the decision to cut pay or working hours. Reducing overtime, modifying shift arrangements and restricting pay increases are all simple measures that can boost cashflow without overhauling pay schemes or working practices.

Companies can also consider banking hours, saving up contracted time to be used when an upturn in orders comes. If, after all of these measures been implemented, there is still a problem, a company could offer sabbaticals, voluntary redundancies or early retirement.

Once all of these options have been exhausted and there is still no material improvement in cashflow, a company could consider cutting working hours or reducing pay. Altering terms of pay and employment is a highly complex area and companies that do not comply with regulations will find they have a far bigger problem than a temporary downturn in orders on their hands so professional advice must be sought.

"Talking to staff is essential," says Swerling. "You will need to present to them a strong business argument and make them understand the position the company is in and why reduced pay or hours are required. Often staff will agree to a cut across the board, but you cannot force them to agree or make changes to their contract without their consent."

In very rare instances, employment contracts will have a clause allowing a temporary layoff. If this is the case, then where there is a strong business argument for doing so, hours can be cut. Staff are entitled to a guaranteed payment of £21.50 a day and in addition, employers stand the risk of employees requesting redundancy.

If staff do not agree to the changes voluntarily and there is no provision in the contract, a company must begin a formal process in order to change staff contracts. A strong business argument at this stage is absolutely essential as it may be called upon in court if the dispute escalates. Swerling says that if there isn't a strong argument, do not proceed.

Once the argument has been drawn up, present it to employees and enter into consultation inviting staff to meetings to explain the need for changes and the impact of their changes giving time to consider the proposals. If agreement has still not been reached, enter a second consultation followed by a third if there are still any dissenters.

The fourth and final consultation should take the form of explanation of the next stage in the process. The employer is essentially faced with two choices: enforcing the changes from a given date or terminating the contract with notice and offering a new contract.

If any employees do not accept the terms they could resign claiming constructive dismissal if changes have been enforced or claim unfair dismissal if the contract was terminated. However, Swerling says that if the procedures have been correctly followed and the business argument is strong, the employer should be able to demonstrate "some other substantial reason".

Long process  
Even following these procedures does not guarantee a resolution. Unite is beginning to sharpen its knives in response to the trend towards four-day weeks. Last week Tony Burke, Unite assistant secretary general, fired a warning shot across the bows of any company considering reduced pay or working hours when he said that companies were "taking advantage" of the current climate to bully staff into accepting a four-day week with "flimsy arguments".

Burke takes a hard line on the issue. "Employers cannot give a cast iron guarantee that a reduction in pay will stave off redundancies. The National Agreement offers full flexibility to manage the problem." He suggests measures such as banking hours as a short-term measure to avoid reducing pay and to operate within the national agreement.

A strongly worded memo from the union to its chapels stated that it would support a ballot for industrial action where members are "prepared to resist cuts in pay and changes to working conditions, which are outside of the National Agreement". It also warned of a growing number of members and chapels who are resisting "any form of attack on pay and conditions".

The advice memo further reads: "Cuts in pay will only damage the industry and will encourage employers to take another bite out of our members' pay and conditions."

Threats of industrial action are unlikely to be hollow. The union last week blocked a 0% pay deal at British Waterways citing the executives' remuneration as a reason to reject the "disgraceful" offer and Burke says that industrial action against pay cuts "will happen" in the print industry.

In the event of the need to accept a pay cut, Unite advises its members to only agree to temporary cuts in pay and then only to do so by waiving entitlement to part of contractual pay rather than agreeing to sign a new contract. The union also says that written confirmation that the employee will not be made redundant during the period of the waiver must be provided by the company.

While not a legal requirement, the bitter pill of reduced pay is sweetened slightly if management also participate in any changes to working conditions. A recent printweek.com poll found that a majority of the respondents would be willing to take a temporary pay cut to avoid redundancies in a business, but only if the management took the lead.

For P&C's Collinson, this was essential. "We couldn't have even suggested it had we not been prepared to do the same. Indeed, we are still working a five-day week on reduced pay - the business needs to remain open after all."

NEMC's Matthews agrees. "It is imperative that everybody from the board to the shop floor is involved; we are all employees ultimately. You have to be honest with your staff about how things are going, pat them on the back when things are going well and let them know when things aren't."

Any business considering moving to a four-day week must have a strong business argument in place - it cannot be used as an excuse to reduce overheads or a reaction to a permanent decline in business. If used correctly, however, the measure can avert redundancies and retain skills for the upturn, while maintaining staff morale.

FOUR-DAY WEEKS: KEY CONSIDERATIONS

• A strong business argument is essential. Not only out of respect for your workforce, but to avoid the potential of being successfully sued for breach of contract

• Do it for the right reasons. Adopting a four-day week is not a way of cutting overheads for any other reason than to mitigate a temporary decline in orders
  Talk to your staff. Let them know why the measure is being taken and what impact it will have on their pay and working hours
  Follow the correct procedure. Seek HR advice and ensure that thorough consultations are exacted and staff have been given access to information and allowed input
• It is a temporary measure. The arrangement must be reviewed on an ongoing basis and full justification provided for any continuation