With the furlough scheme recently being extended to the end of June, it has given employers that have furloughed some (or all) of their workforce more time to consider their next steps. In this article, Selena Baker, Associate Director of Greenway Scott (part of the GS Verde group) looks at two stages for post lockdown planning, initially looking at employee cost savings and alternatives to redundancy, and then exploring considerations if you need to make redundancies.
Stage 1: Employee cost savings and alternatives to redundancy
We understand that many businesses will be experiencing a reduced demand for their products or services and (as a result) lower revenue due to the impact of the pandemic, with little likelihood of any immediate improvement and uncertainty regarding when the situation will improve and what the long-term effects will be.
In these circumstances many companies will be looking to decrease costs, and considering whether they may need to make redundancies or other employment cost savings. In the first of our two part article series on steps after lockdown, we set out some of the things employers may want to consider now in terms of alternatives to redundancy.
Redundancies are costly in the short term and can have detrimental long-term effects, most notably the loss of experienced and valuable staff who might not be easily replaced and the commercial impacts in terms of public image. In the current unprecedented climate, employees may agree to various options, which they would not usually do, in order that their jobs remain secure (at least for the time being). We have listed below some alternatives to redundancy that some businesses in this position may wish to consider. When looking at alternatives to redundancy, companies need to consider carefully their legal and commercial implications (for example, some options may trigger the obligation to collectively consult) and so we would strongly suggest seeking legal advice.
Whichever of the below difficult options (or other alternatives) you consider, during this unprecedented time and difficult economic climate, it is often best to be as open and honest with staff as reasonably possible and, if possible, lead by example from the top.
Some options that employers may want to consider include:
- Delay pay increases/ pay freeze - you could delay any pay increases to keep costs low, however, whilst there is normally no express contractual right to a pay increase (only a review), it is important to ensure there is no implied right through, for example, custom and practice. Commercially speaking, although such a step is unlikely to amount to a breach of contract if there is no such contractual or implied right, a salary freeze is often viewed by employees as, in real terms, a pay cut and so should be carefully managed.
- Delay new starters/withdraw job offers- the impact/risk of this will depend on whether there is a contract in place (which can of course be verbal).
- Delay/not pay any discretionary bonus - you could delay any discretionary bonuses, however it is important to be mindful that discretion in an employment context is very rarely absolute, and whether a bonus is actually discretionary (rather than an implied or express contractual right) will depend on the individual circumstances. Advice should therefore be sought on each occasion in order to avoid allegations of breach of contract.
- Temporary lay-offs and short time working - there is no automatic right to do this, however employees can be placed on temporary lay-offs and short time working if there is a contractual right to do so. If there is not then you can seek to vary the contract via consultation and with the employee's consent. Please seek legal advice should you wish to do this to avoid any allegations of breach of contract (potentially) rendering any terms and conditions of employment void.
- Voluntary redundancies/temporary layoffs/temporary changes to their terms and conditions, such as reduced hours or days - you could invite staff to volunteer for voluntary redundancies/temporary layoffs/temporary changes to their terms and conditions. Some employees will be in a position financially and personally where this would suit them. It is of course important to engage with employees sensitively as this would be a hugely worrying time for them. Please see legal advice on how this should be undertaken correctly.
- Vary terms and conditions (salary, benefits or hours of work) - this would need to be done via consultation and with express consent to the variation even on a temporary basis.
STAGE 2: If you need to make redundancies
As we touched on previously, making redundancies should be considered a last resort as there will be outgoing costs to think of such as redundancy, holidays accrued and notice pay which in the short term does not necessarily reduce costs, along with the longer term effects to a company's reputation or to staff morale. Also, if the business model is based on your employees, skilled staff and so on, then future recruitment costs and the loss of key talent may have a bearing on your decision to make redundancies.
The biggest consideration for employers is whether there is a need to collectively consult on any forced redundancies or variation to the terms and conditions of the employment contract, if there are 20 or more employees within one establishment within a 90 day period. Consultation should take place 30 days before if there 20-99 employees who will be effected or 45 days if there are 100 employees or more.
Failure to consult could mean that a tribunal may award up to 90 days' pay in respect of each employee where there has been a breach of the information and consultation duty (a protective award). A claim can be brought either by the employees individually, by the elected employees or trade unions. An employer may be fined (or a director can in certain circumstances) if it fails to notify the Secretary of State. Failure to provide the notification to the Secretary of State is a criminal offence.
Whenever there is an obligation to consult collectively, the employer will also need to ensure that it has followed a fair procedure in relation to individuals, including consulting with them properly, so as to minimise claims for unfair dismissal.
Making redundancies is always a difficult position for everyone involved and each redundancy situation differs.
The statutory definition of "redundancy" encompasses three types of situation: business closure, workplace closure, and reduction of workforce.
The sanctions for failing to comply with these obligations are severe and so it is really important that you seek legal advice as soon as you become aware you may need to make redundancies.
In any event, employers must follow a fair procedure involving individual consultation and make decisions that are fair and reasonable in the circumstances.
A redundancy dismissal is likely to be unfair unless the employer:
- Identifies an appropriate pool for selection;
- Consults (meaningful) with individuals in the pool;
- Applies objective selection criteria to those in the pool; and
- Considers suitable alternative employment where appropriate, subject to a trial period.
If a redundancy dismissal is unfair, an employee will normally be entitled to (in addition to the redundancy pay and notice entitlements):
- An unfair dismissal basic award; and
- An unfair dismissal compensatory award, to compensate for financial loss arising from the unfair loss of their job.
For step-by-step guidance on adopting a fair procedure when planning to make one or more employees redundant, please contact our employment team who will be able to assist you and provide practical guidance.
The information contained in this article is for information purposes only and is not intended to constitute legal advice. Should you require support and assistance on the employment law implications of the COVID-19 pandemic, our experienced advisors will be able to provide practical advice to support your business through the process. For advice, contact our employment & HR team at email@example.com or call us on 029 2009 5500.