Alternative Measures to Consider Before Redundancy

By March 17, 2020Latest News

In today’s unprecedented climate amid coronavirus, many businesses are considering their immediate options.  Understandably for any business affected, redundancies immediately spring to mind. But there are alternatives before such drastic action needs to be implemented.

I have highlighted some below.  The list is by no means definitive – and what works for one employer will not work for another.  Each business is different.  

Preliminary measures to consider

Prior to considering any of the more drastic actions, there are a number of options employers should consider.  These include restricting recruitment and withdrawing any job offers. Restricting recruitment is easily one of the more fail safe options an employer has and even withdrawing job offers can be attractive if carried out correctly.  An employer may withdraw an offer of employment at any point before it is accepted, without having to give notice or make a payment in lieu of notice.  Once an offer has been accepted, and any preconditions attached to it met (for example, receipt of references satisfactory to the employer and confirmation of professional qualifications), an employment contract is in place, even if the employee has not yet started work. The employer is unable at this stage to withdraw the employment offer and, instead, has to terminate the contract. This will be done by giving the contractual notice or making a PILON in accordance with the contract. Loosely speaking, as an employee will not have the continuity of employment to make a claim for unfair dismissal, the notice period should be the only financial loss which the employer will be liable for.

Reducing employees’ working hours may also be attractive for all concerned if the alternatives are to be considered.  Employees’ working hours are usually viewed as a condition of the employment contract and so can only be changed with an employee’s agreement.  However, more recently (and particularly with the current challenges) employees are becoming more willing to consent to this rather than face potential redundancies.  Consultations should be held clearly explaining to employees how this will affect them prior to asking for their consent and employers considering this should take advice prior to commencing.

Overtime bans can also be considered where there is no contractual entitlement to overtime work.  Where a contractual right to overtime work is in place however (for example, under a collective agreement), the employer must obtain employees’ consent to stop offering overtime.  It should be noted that if shift patterns are affected as a result of the overtime ban, formal consultation may be required.  Employers are advised to take advice where this is being considered.

Lastly, options such as deferring any new starters, re-deployment and training or reducing non-permanent staff can also be considered.

Early retirement

Employers often offer early retirement under the pension scheme to those who volunteer for redundancies. It is important to ensure that early retirement is indeed voluntary, or it could amount to dismissal giving rise to potential claims. Ideally employers should also ensure they retain discretion as to whether or not they accept a volunteer’s request to retire early, so as not to lose valued and experienced staff members.

On seeking volunteers for early retirement, it is essential to consider the effect of early retirement on employees’ future pension entitlements and to advise employees to obtain independent financial advice on this issue. Matters to be considered include whether the pension scheme allows for early payments on early retirement, and the financial impact of early retirement (especially in final salary schemes). 

Unpaid leave

Arranging for employees to take periods of unpaid leave is another way of stopping or reducing work temporarily. 

Employees’ consent is required unless the employment contract (or collective agreement) contains a clause allowing the employer to place employees on unpaid leave. Where an employer has an unpaid leave policy which contains certain restrictions or preconditions, for example, as to length of service or the number of unpaid leaves an employee may take per year, it may decide to waive or ignore these, to encourage voluntary take-up of leave.

Holidays

As an alternative to unpaid leave, an employer could require employees to take their contractual or statutory annual holiday allowance at quiet times.  Employers must give employees adequate advance notice which will be double the amount of time that an employer requires an employee to take off (so if you are requiring an employee to take one week of annual leave, the minimum notice an employer must give is two weeks).  Although employees are entitled to their normal remuneration during the leave period, by forward planning holiday allowance, the employer may “write off” quiet times and ensure employees’ availability once business picks up.

Lay-offs

An attractive option for employers in economic downturn is lay-off.  This enables employers to lay off all or some employees during a short-term and temporary slow-down in work. Employees remain employed throughout the lay-off period which means this is an attractive option.   However, employers do not have the automatic right to lay their staff off just because trade is poor. An employer must have a contractual right to lay off, and the contract should make clear that employees will not receive their normal salary during the lay-off period.

Importantly, if the contract does not give the employer the right to lay off, then any proposal to lay off will need to be the subject of consultation with employees, and will require employees’ agreement.

Complications can arise where an employer only needs to lay off some staff, as it needs to keep the business going but cannot afford to do so in the short term with its full complement of staff. It may be necessary to go through a selection process to determine which employees are to be laid off. Any selection should be reasonable and based on similar criteria to those used in a redundancy exercise. The criteria should be as objective as possible to avoid disputes and grievances. It is also advisable to try to agree the criteria with the employees when consulting with them about a lay-off.

When seeking agreement to lay an employee off, it is advisable to explain the financial implications for the employee and to record the agreement and any payment terms in writing, as the statutory maximum payments, known as guarantee payments, are very low (the maximum an employee can get is £29 a day for 5 days in any 3-month period – so a maximum of £145.  If an employee usually earns less than £29 a day they will be entitled to their normal daily rate.)

Employers must not keep employees laid off for longer than they need to, as otherwise the employees may treat themselves as redundant and be eligible for a redundancy payment.  This means that the most an employee can be laid off for is: 

  •  4 or more weeks in a row; or
  • 6 or more weeks in a 13-week period

Where an employee is laid off for longer than this, the employee can make a claim for redundancy instead.

Note – An employee’s holiday continues to accrue during a lay-off period. If an employee resigns during a lay-off period or he is dismissed, he is generally entitled to be paid his normal salary during the notice period.

Reducing hours

Employees’ working hours are usually viewed as a condition of the employment arrangements which can only be changed with an employee’s agreement. In the past, employees may have objected to any reduction in working hours sought by the employer, and the consequential reduction of pay and benefits, but under the circumstances and amid todays uncertainty, many employees are agreeing to this in place of more drastic measures.

Hours may be reduced as a temporary measure or by way of a permanent change to terms and conditions of employment.  Again, when seeking to adopt shorter working hours, it is advisable to explain to employees the financial impact of such cuts, both on them individually (in terms of salary and benefits reduction) and on the organisation as a whole (for example, how many jobs might be saved if the measures are adopted). 

Part-time and flexible working

When adopting part-time and/or flexible work measures, part-time workers must not be discriminated against or be treated less favourably than full-time workers.  Employees with at least 26 weeks’ continuous service are entitled to request flexible working arrangements. Employers also are entitled to ask employees to volunteer for part-time and/or flexible working – both temporarily or permanently.  

When entering into such arrangements, advice should be taken in order for both parties to be clear on what is being agreed and for how long.

Ideally, employers should limit the arrangements for a period of time (with an option to extend the arrangements if necessary).  In any event, the employer should at least retain the right to terminate the arrangements by notice to cater for increase in demand once business starts to improve.

I would urge all employers to discuss the above options with their employees at this time.  Additionally, and perhaps unsurprisingly, employers should take legal advice before embarking on any of these options listed above to ensure the correct procedures are followed.