Roger Tynan examines how businesses can work with staff to avoid making redundancies, through other agreed cost-cutting measures.

As unemployment continues to rise and many sectors feel the pinch of the global financial downturn, employers and employees alike are acutely sensitive to the possibility of redundancies in the difficult months ahead. But, as unpalatable as the notion may be, businesses should not shy away from confronting these challenges before they reach the crisis stage.

Companies already struggling would do well to consider in advance alternative ways of reducing staff costs. And, if redundancies are ultimately unavoidable, the process by which this decision is reached and the sensitivity with which it is handled could have a profound impact on the morale of remaining workers and the confidence of partners and clients.

In order to avoid claims that redundancies have been implemented unfairly, consultation with employees must take place when redundancy dismissals are still a proposal and not a ‘done deal’. The purpose of this should always be to share the problem early, with a view to minimising the number of redundancies.

Timing is vital, as there are statutory requirements which must be met. Collective consultation must take place where it is proposed to dismiss 20 or more employees at one establishment within a period of 90 days or less. Where the number involved is between 20 and 99, there must be at least 30 days’ consultation before any redundancies are implemented, increasing to 90 days in cases involving 100-plus employees. For fewer than 20 employees, individual consultation must be carried out.

Control payroll

Correct handling at an early stage can reassure the workforce over the future direction of the business, as well as providing an opportunity to explore innovative alternatives to compulsory redundancy. However, while there are many possible ways to bring the payroll under control, each carries its own risks to be understood and weighed in the balance.

For example, while a recruitment freeze is an obvious option, it will not provide an immediate reduction in the wage bill if that is what is required.

Lay offs or short-time working can provide the answer to temporary, short-term challenges, but there must be a contractual right of implementation, either expressed in the contract or implied as a result of custom and practice over a long period. Even so, after employees have been laid off or on short-time work for more than four consecutive weeks – or six non-consecutive weeks in a 13-week period – they will gain the right to give written notice that they intend to claim a redundancy payment. Therefore, this approach is likely to be unsuitable for all but the briefest of work shortages.

For businesses that can genuinely see the light at the end of the tunnel, another short-term option is to offer the opportunity for sabbaticals, albeit on reduced or no pay. This allows the employer to save money and the employee to recharge their batteries, while sending out a more positive message to the workforce and the wider business community.

Again though, there are downsides which must be weighed in the balance – the risk of redundancy could still be present at the end of the sabbatical, in which case an employee may have accumulated another year’s service in the interim. The employee is also likely to have sought assurances that any future redundancy payment will be calculated on their pre-sabbatical earnings.

New terms and conditions

Another means of reducing outgoings while retaining staff is to re-negotiate terms and conditions as a whole, agree these with the workforce and issue new contracts. Should negotiations break-down, businesses can seek to impose new terms by terminating contracts and offering to re-engage on the new terms. However, such an approach requires caution. If the changes are so fundamental that the employees are effectively being offered a different kind of job, they could claim to have been made redundant and seek redundancy payments, negating any cost savings.

For those businesses with an occupational pension scheme in place, early retirement can provide a way of accelerating natural staff turnover. However, implementation of a compulsory programme will need to be carefully thought through. Unless properly justified, such a programme has the potential to discriminate against members of staff who are too young to be eligible, as well as against women and part-timers, who are likely to have less pensionable service. Employers may also be constrained by the pension scheme rules and must take professional advice on the steps they would be permitted to take.

If straightforward redundancies are necessary, a voluntary programme may send a better message and be less damaging to morale than compulsory cuts. Those with questionable commitment to the business may be the ones who put their hands up to go, leaving those who remain to roll their sleeves up and focus on business recovery. Conversely, the disadvantage of this approach is that the wrong people may apply, causing problems in respect of retraining, or too many may apply, again creating morale problems when some are turned down. To combat these issues, businesses taking this route should always make clear that redundancy will not automatically be granted to volunteers.

Particularly in the current climate, redundancy will always by a highly sensitive topic. Yet, even for the best employers, there will almost inevitably be situations where the long-term interests of the business will require tough decisions to be made. It is how these decisions are handled and communication takes place with staff which distinguishes truly effective management. Those who get this formula right will be well placed to move forward and get the business back on track, while the rest risk lasting damage to morale and the significant cost of tribunals from disgruntled workers.

Roger Tynan is a partner in the employment team at Maclay Murray & Spens LLP.