Even in the fast moving world of employment law, it is unusual for a piece to be out of date before you’ve finished the first draft. With the announcement that the United States will (at least at the time of writing) be delaying the imposition of tariffs against most countries, the financial markets seem to be stabilising, and organisations will be breathing a small sigh of relief.
However, tariffs still loom and with the health of the global economy seemingly at the whim of US presidential policy, many will be looking to ensure that they are on as sound a financial footing as possible.
Employees are often one of an organisation’s biggest costs and so the temptation in such circumstances is often to make redundancies. Employers should not rush to wield the axe, though, particularly where the outlook is still uncertain. Redundancy processes can be complex and costly and come with significant legal risk, especially where collective consultation is a factor. Employers could lose valuable staff and struggle to replace them when times improve. There is also an inevitable effect on staff morale. With this in mind, there are a number of alternatives to redundancy that employers could (and maybe should) consider first. However, these approaches are not without their own risks and, as we will explain, the window for taking them may be closing.
The primary alternatives to redundancies are:
- Hiring freezes – stopping recruitment and allowing the workforce to reduce by a process of natural attrition is probably the most straightforward and lowest risk of the approaches we will set out. This being said, it is probably the least likely to give significant results and it may make it difficult to justify critical hires.
- Lay-offs/ short time working – laying off an employee means temporarily not providing them with work or pay (other than a statutory guarantee payment) while retaining them as an employee. Short-time working means reducing their work and pay, again temporarily. In both cases employers need to have a clear contractual right to impose the changes or reach agreement to these approaches with employees. This can be a useful way of retaining staff while reducing costs, although one downside is that employees who have been laid off and/or placed on short time working for more than four weeks (or more than six weeks in any 13 week period), have the right to treat themselves as redundant and claim a statutory redundancy payment.
- Reducing agency staff – reducing the number of staff who are not directly employed by your organisation can be a cost-effective and much more straightforward way of reducing headcount. It is important to check first, though, that any relevant individuals are not actually your employees which will depend on how things work in practice rather than what any relevant contracts say. Organisations should also check the terms of their contracts with the agency that supplies the staff.
- Permanent reductions in working hours (with corresponding reductions in pay) – although changes to working patterns will most likely need agreement from employees, this may be easier to get in a post-pandemic culture where individuals can see the benefit of a shorter working week and more flexibility.
- Reducing pay and benefits- a straight reduction in pay and benefits may, of course, be a harder thing to sell to employees. A easier way to reduce future costs may be to impose salary and/ or bonus freezes, which are unlikely to need agreement from employees (although check your contracts and policies).
Many of these suggested alternatives to redundancy will need agreement from employees to avoid claims for breach of contract, unlawful deductions from wages, and/ or (in extreme cases) constructive dismissal. Agreement could, of course, be hard to obtain although the process may be significantly easier if redundancies would otherwise be on the table. When trying to get agreement to changes, employers should clearly explain the implications of those changes to employees including the effects on things such as pensions and other salary-linked benefits. To try to avoid too much of a reduction in morale, senior staff may be well advised to lead by example and take some of the hit themselves. Whenever a change is imposed, employers should ensure it is not imposed on discriminatory grounds.
When the Employment Rights Bill (“ERB”) comes into force it will make it riskier for employers to try to change employee’s contractual terms. This is because of the so-called “Fire and rehire” provisions of the ERB, which will make dismissals automatically unfair where the sole or principal reason for the dismissal is that the employee did not agree to a change to their contract. These changes were introduced to limit the ability of employers to force through changes to contracts by dismissing their workforces and then re-engaging them on the new terms, following high profile misuse of the practice. Although there is an exemption for organisations in dire financial straits, the threshold is high, and employers may find themselves unable to reach it. Employees may therefore use this as cover to withhold agreement to any changes and employers could find it harder to then make redundancies further down the line. The view among employment and HR professionals is that, as a result, employers may well be more likely to move straight to making redundancies rather than attempting to change terms first. This is ironic given that one of the stated aims of the ERB was to protect jobs.
Organisations may therefore wish to review their arrangements with employees now and think about making changes to terms before the ERB comes into force, to take advantage of the relative flexibility of the current regime. This may leave you in a stronger position for whatever comes next.
Abigail McKean