Insights

Alternatives to Redundancy

As part of a ‘fair’ redundancy process, employers are required to consider whether there are any alternatives to redundancy.  Avoiding compulsory redundancies also avoids the loss of talent and the negative effect on morale that redundancies bring. 

It is essential to inform any ‘at-risk’ employees of other available roles, but are there other ways of avoiding redundancies?

Reducing headcount

This may include a freeze on recruitment or natural attrition and is likely to be a longer-term strategy which will not be an option where costs have already become critical.  A potential downside is that it can lead to later difficulties if the business wishes to recruit an exceptional external candidate and it will be necessary to justify failing to offer the role internally.

It may be possible to withdraw job offers at no cost prior to being accepted but once accepted, the employee will be entitled to notice pay.  A less drastic option would be to postpone any new joiners’ start dates e.g. if new graduates are due to join.  If an employment offer has been accepted, the new joiner will need to agree to a postponement, and it is common to pay some compensation if they agree.

With current staff, secondments may be an option, moving an employee to another group company or client who needs additional resources for a fixed time with the hope that things will have stabilised by the end of the secondment.  Can any staff be redeployed or retrained?  It is often best to do this as part of a  redundancy consultation to ensure fair selection and limit the risk of an employee claiming at a later date that they were pushed into a new role or unfairly selected.  Outside of a redundancy process, check employment contracts as these may include a mobility or redeployment clause which will need to be exercised reasonably.  Cutting temporary, casual or agency staff can be a cheaper option than in-house staff redundancies. 

Employers may be able to invite staff to volunteer for early retirement under the pension scheme.  Employees will need to take independent advice and it is best to allow staff to apply, rather than pre-selecting them to avoid claims for age discrimination, and to retain discretion as to whether applications will be approved to avoid losing key staff. 

Work stoppages

Employers could offer sabbaticals or shorter periods of unpaid leave which employees will need to consent to in the absence of a contractual term.  Holiday can be imposed during quiet periods, provided enough notice is given.  Some contracts allow the temporary lay-off of staff with reduced pay, but if there is no contractual term a period of consultation and fair selection will be required, this should be time limited or employees can claim redundancy.

Reducing work done

This could involve imposing short-time working, so the offer of reduced hours and pay for a temporary period.  There will be an entitlement to guarantee payments on days when no work is provided and employees can claim redundancy pay if it continues long term.  An overtime ban may work but employees will need to agree if overtime is a contractual entitlement which could be imposed by custom and practice.

Reducing the wage bill

This the most difficult category with the highest risk of claims and effect on morale.  To minimise unrest, it is best to ensure it applies across the board to senior staff too.

A pay freeze is one option, although staff may have a contractual right to an annual pay review,  the freeze could take place after the review.  Staff may opt for a salary sacrifice, which is the giving-up of some salary in exchange for a benefit e.g. pension contributions.  Discretionary bonuses may be cut, but this will not be possible where bonuses are contractual and the conditions have been met. 

Pay cuts are clearly the most high-risk option, bringing the risk of claims for constructive dismissal and unlawful deductions from wages.  Careful consultation and agreement will be required, but in particularly difficult trading conditions employees may be prepared to agree for a limited period to avoid redundancy.  Non-contractual benefits can be cut, such as Christmas parties, away days or refreshments, but employers will need to weigh up the effect this is likely to have on morale.  Lighter-touch ways of reducing the bill could be to review other policies, such as expenses policies or reducing sick pay, but this is likely to require employee consent as a contractual variation.

Employers will need to look at not only the legal implications of any proposed action and whether it is allowed for by the employment contract, but also the effect on morale and public image.  Even in the absence of a contractual entitlement, employees may be prepared to accept some changes especially if temporary and if these are put forward as a means of avoiding compulsory redundancies.

To speak to a member of our employment team in complete confidence, please contact 01689 887840 or email laura.claridge@cwj.co.uk

Although correct at the time of publication, the contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.