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How to Avoid Redundancy

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Employers have to take steps to avoid redundancy by considering alternative measures. It is also generally in the organisation’s interests to exhaust all alternatives to redundancy, given the legal risks and impact on workforce morale that inevitably come with undertaking a redundancy process.

The options to consider will depend on the employer’s reasons for redundancy and the wider circumstances of the organisation. Below we consider some common alternatives, but it is recommended to take advice on your situation to ensure all options have been reviewed before pursuing redundancies.

In addition, from a legal perspective, employers must ensure that before any measure adopted, employees’ contracts of employment and/or contractual handbooks are first reviewed to determine if there is any contractual provision relating to the change.

Even where a measure is permitted contractually in the circumstances, it will be important to notify affected employees and explain the changes clearly. As with all employee relations, communication is key. Informing employees about the current position of the organisation, the reasons for the proposed changes,  and being open about the effects of the current economic situation, can often lead to compromises being more willingly accepted.

Where the contract is ‘silent’ on the proposed measure, imposing such changes unilaterally and without employee consent may be a breach of contract and give grounds for legal claims. It is sensible to obtain advice as to any legal implications when considering making any contractual variations.

 

Suspending voluntary overtime

A relatively straightforward way to reduce workforce costs is to suspend or restrict the availability of voluntary overtime. Any such change in the organisation’s overtime policy should be communicated clearly and in advance to personnel. The change may not be well received by some who may rely on the additional income, but in the circumstances is likely to be accepted as a welcome alternative to more drastic measures such as redundancies. Where compulsory overtime applies, you will need to consider employment contract terms. Any variation in terms has to be agreed with the individual before it can be implemented.

 

Freezing external recruitment

Halting all external recruitment for new roles (aside from any key roles that cannot be appointed internally), will naturally reduce your overheads. However, the flip-side to this is that it is likely to put a strain on existing employees to take on more work to bridge the gap. This may cause their performance and levels of engagement to wane as a result. It is important during such times to try to maintain staff morale, praising outstanding work or celebrating team/individual successes are all good ways to do this. Additionally, try to avoid replacing those employees who exit the business naturally.

 

Offering voluntary redundancy

Not strictly a way to avoid redundancy, however, a point to be considered, nonetheless. You can offer your employees the option of taking voluntary redundancy, however care must be taken as this still counts as a dismissal, and therefore you must follow a fair procedure when terminating their employment. Care should also be taken when offering voluntary redundancy to certain groups, as it may constitute unlawful discrimination. For example, if you only offer voluntary redundancy to older workers, you could be considered as discriminating on the basis of age.

In order to protect yourself and your business, ensure you follow the correct procedure and carefully document the arrangement.

 

Consider unpaid sabbaticals, career breaks, or secondments

This allows you to retain valuable and skilled staff whilst giving them the opportunity to do something else, such as study, voluntary work, or travel. Generally, this is for a fixed period of time. You would need to agree with the employee how the sabbatical or career break would work in practice and iron out terms and conditions reflecting those discussions. Middle term, guaranteeing someone their job back after a one- or two-year break may put you in a difficult situation since it is impossible to predict with any certainty how your business or the market will be performing at that time. You will need to consider what happens if you have restructured and their role is no longer viable or in existence when they return.

You may be able to arrange an internal or client secondment which can work to your advantage by allowing your employee to train in a certain area or provide a specific service for a customer. This could help to consolidate your business relationships as well as developing employees’ knowledge, which serves to benefit everyone involved.

For cases of secondment, you will need a secondment agreement setting out the rights of the employee, known as a ‘secondee’ together with detailing your obligations and those of the ‘host’ business.

 

Review employee benefits

By removing any employee benefits, you could potentially make huge savings. However, you must take great care before arbitrarily swinging the axe and need to identify whether those benefits are either ‘contractual’ or ‘discretionary’.

If the benefit is contractual, you are contractually bound to continue to make those payments where the employee continues to meet the criteria for payment. For example, if you have set clear performance targets that the employee has met, you must pay out the bonus. A benefit can become contractual (e.g., if you pay a Christmas bonus over several years), even in cases where the contract does not explicitly state this, and you have never specified it directly to the employee.

If the benefit is discretionary, you can choose to pay it, how it is calculated and the amount that will be paid out. For example, your firm may have an entertainment budget which could, relatively easily, be withdrawn.

Some employees may relish the opportunity of purchasing additional annual leave for a pro rata reduction in salary. This can save money in the short-term during quieter periods, however the mechanics of this arrangement would need to be set out clearly in writing.

 

Laying off staff

If an employee is told to stay off work for at least one working day, then this will be considered as a ‘lay off’. You are only free to take this action if the employee’s contract explicitly allows it. If you do not have such a provision within your employee contract’s you should see if you can obtain the written agreement of your employee(s). If an employee understands the reasons for the potential lay off and you are using it as a way to avoid redundancy, they may be more receptive to agreeing if they believe it is only a temporary measure.

Although the employee’s pay will be set out within their contract of employment, if they are not paid, they may be able to claim ‘guarantee pay’ subject to certain eligibility criteria. Guarantee pay comprises a maximum of £28 a day for 5 days in any three-month period. If they have been laid off for 4 consecutive weeks, or 6 weeks in a 13-week period, they can give you written notice of their intention to claim a redundancy payment. Although you can reject the claim if you believe normal working hours will be resumed within four weeks.

 

Short-time working

Short time working is when you cut your employee’s working hours and reduce their wages to follow suit, e.g., sending them home early each day. You can only put an employee on short time if it is permitted within their contract of employment, if there is a collective agreement in place, or they give their written consent to the change. Employees are more likely to agree to proposed changes and co-operate if they understand it is a way to avoid redundancies.

 

Adopt flexible working 

You can invite employees to make a flexible working request to reduce their hours, or days worked. Alternatively, you can consider introducing a reduction in hours or days worked for certain groups of employees on a temporary or permanent basis. You would firstly need to obtain consent from your employees to mitigate any risk of a breach of contract and claims for constructive dismissal.

Requesting volunteers for job-shares enables two, or more employees, to split a full-time job between them, whilst entering into an agreement regarding their hours/days of work and how the role will be split.

 

Early retirement

By offering those eligible, early or phased retirement could create vacancies within the business that could be taken up by those employees who would otherwise be at risk of redundancy.

 

Retraining & redeployment

If you have one area of the business that is busier than another, it may be possible to retrain staff to take up new roles either on a temporary or permanent basis. You could also consider restructuring and redefining existing roles in line with work demands. Significant changes must be agreed in writing with each affected employee and then given necessary training to ensure they can properly and adequately perform the new role.

 

Enforcing the use of annual leave

You may dictate the use of statutory annual leave (and, depending on the contract, additional annual leave), but you must give twice the period of notice of any enforced annual leave. This can be a useful short-term solution for a problem with cash-flow.

 

Deferred salary

This is an agreement with the employee whereby they still work, but a portion of their salary is deferred. Salary can then be paid either in a lump sum, or in instalments. Great care needs to be taken to ensure their pay does not fall below that of the National Minimum Wage, otherwise you will find yourself acting illegally. It is important to note that you will need any affected employee’s consent in writing.

 

 

Making redundancy payments

Where alternatives to redundancy have been exhausted and the issues remain, the organisation must be prepared to meet all of its legal responsibilities throughout the redundancy process. This includes meeting the relevant duties to consult affected employees, to give the required notice and to make any statutory or contractual payments due to each individual.

In some cases, where the organisations is experiencing financial difficulties, it may struggle to afford to pay the redundancy costs. There may be options available in such circumstances, but these will depend on the specific situation. If the organisation is still trading, you may able to agree with the redundant employees to pay them in instalments or put forward a payment proposal. If they understand the financial pressure you are under, they may be more willing to receive the money in stages.

If your business is insolvent, and you have entered into a Company Voluntary Agreement (CVA), liquidation, or administration, your staff may be able to claim statutory redundancy payment from the National Insurance Fund operated by the Insolvency Service Redundancy Payments Office.

 

Need assistance?

DavidsonMorris’ employment lawyers can help with all aspects of workforce management and planning, including redundancies, dismissals, settlements and contentious exits. Working closely with our specialists in HR, we deliver comprehensive advice on the options open to you as an employer and provide practical support through the redundancy process, with particular experience in complex circumstances such as managing redundancy during maternity leave. For help and advice with a specific issue, speak to our experts.

 

How to avoid redundancy FAQs

What are the alternatives to redundancy?

There are several alternatives to redundancy, which can be particularly important to the continued smooth running of your business. Freezing recruitment, stopping voluntary overtime, offering a voluntary redundancy package, secondments, and career breaks, reviewing employee benefits, laying off staff, and short time working are all ways to avoid redundancies.

Why should redundancy be avoided?

Research has shown that after employees have experienced redundancy in the workplace, their overall performance and morale and the efficient running of the business is adversely affected, leading to a significant decrease in productivity. Therefore, compounding pre-existing financial concerns.

Can an employee retain their statutory redundancy payment if they are re-employed by the same business?

An employee who has been made redundant and is then re-employed can retain their statutory redundancy payment, whether or not they are immediately employed or return to work at a much later date. However, an employer would need to show the redundancy was genuine and not merely an attempt to obtain a tax-free lump sum payment for the employee.

Last updated: 20 February 2021

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