Work drying up, income falling – it doesn’t have to mean redundancies

Redundancy image by Gerd Altmman

As the UK faces a period of significant financial disruption, businesses have already been badly hit with work decreasing, jobs cancelled and many firms forced to close all together. So what can employers do – and how effective is the Government’s new furlough scheme? Employment lawyer Dean Jones argues that suffering a loss of income does not automatically mean businesses need to look to make redundancies and suggests other cost-saving options.

Whilst implementing redundancies may be a necessity for some businesses, there are other more creative options which may allow companies to keep teams intact, keep morale high and avoid the costs and management time spent running recruitment projects when things pick up.

It is likely to be better for your business if you are able to implement changes which affect all staff a little, rather than some staff a lot, to get through this challenging time.

Here are some straightforward measures – and more draconian ones, such as enforcing changes to contracts and compulsory redundancies.

Stop or restrict external recruitment – this option will save the business money, in fees and additional salary costs associated with new hires, but would also need to be a first step before any redundancies should be considered. Assess whether you can fill any vacancies in the business with existing employees, particularly if there is a reduction in work levels.

Reduce or ban overtime – it may not be available in any event, but if it is current practice, make it clear to all that this will no longer be possible.

Spreading out holiday time means not everyone will want to take one as soon as the current restrictions are lifted.

Agree temporary flexible working – this is likely to be necessary for employees who need to work part-time and reduce their hours to look after their children.

You can do this under flexible working arrangements so they can manage their childcare issues and their pay will be reduced accordingly.

Get staff to take holiday – whilst this may be an unpopular move as people in the UK cannot currently travel, employers can nonetheless enforce this (see below).  Spreading it out means not everyone will want to take holiday as soon as the current restrictions are lifted. Getting staff to take holiday during employment will also reduce termination costs in the event that redundancies later have to be made.

Seek volunteers for unpaid leave or sabbaticals – there is typically no contractual right to enforce either. But if you are suffering a downturn in work, you can invite staff to take them and refer to the fact that it is limiting risks of redundancies.

We have found in the past that people may be happy to take up this offer for the greater good of the company, if it means jobs are being saved. You may wish to reserve the right to refuse someone’s request if they are essential to the business.

Reduce staff hours – This should not be forced, so we need to ask: is there flexibility in the employment contracts to do this? Check the duties clause, hours of work clause, a variation clause (sometimes at the end of any contract) or any other relevant clause.

As duties reduce, so you can refer to it in terms of a reduced working week.

Use the furlough scheme – the Coronavirus Job Retention Scheme provides support to employers by paying up to 80 per cent of furloughed staffs’ wage costs, subject to a cap of £2,500 per month.

The scheme will only apply to those staff members who are due to be laid off or made redundant because of the coronavirus outbreak. Therefore, if there is a reduced amount of work for everyone, the scheme is not triggered. The scheme has been set up for an initial three months, with a start date backdated to March 1. It will initially run to May 21.

Do be aware: in certain circumstances, terminating a contractor’s contract may not be free of risk

Whilst this is not tested, it may be possible give the work to one group of employees which then leaves another group with no work, thereby creating a potential lay-off scenario, but this creates risk.

Reduce or stop using self-employed contractors – if you are seeking to keep your core team together, you may wish to review any contractor/worker contracts or agency worker contracts to determine if projects can be paused, hours reduced or otherwise contracts ended and the work absorbed in house.

Do be aware that, in certain circumstances, terminating a contractor’s contract may not be free of risk as contractors may still benefit from employment rights, such as the right not to be unfairly dismissed, if they are deemed to be employees.

Seek volunteers for redundancy – similar to seeking volunteers for unpaid leave and sabbaticals, you may wish to invite people to volunteer for redundancy. For those staff with unfair dismissal rights, agreeing voluntary redundancies can help to reduce the costs associated with unfair dismissal claims.

It can also assist to reduce future costs in the event that the Coronavirus Job Retention Scheme is discontinued beyond May 31. Employers will typically need to enhance the redundancy package and we recommend that settlement agreements are used. This could be a good first step before having to move to compulsory redundancies.

Reduce or don’t pay company and/or personal bonuses – if you have discretion as to the payment of bonuses, you may be able to justify not paying any bonus across the company, though this is not risk-free. If employees have a contractual right to a bonus, withholding or reducing it is more risky.

Enforce part-time working or an hours reduction – if you have no contractual right to reduce a staff member’s hours of work, to avoid the potential risk of claims, you will need to seek the employee’s consent to the reduction in hours and knock-on reduction in pay. A contract variation process, involving consultation, should ideally be entered into.

If you do vary the contract unilaterally, the risks are that employees can leave and claim unfair dismissal if they have at least two years’ service. However, this may be unlikely at this stage as it may be difficult to get another role in the current climate. Otherwise, employees may be able to claim for an unlawful deduction from wages.

Do note that the statutory collective consultation regime may be triggered in certain circumstances, particularly where you are dealing with 20 or more employees, which has serious financial consequences if it is not complied with.

You could consider reducing salaries for all staff by, for example, 10 per cent across the workforce

This would occur where you may have to dismiss 20 or more employees and offer them re-engagement on contracts with the new terms, i.e. reduced hours (as dismissal and proposed re-engagement triggers collective consultation rules).

Reduce all salaries – you could consider doing this for all staff by, for example, 10 per cent across the workforce. You could also consider asking more senior higher paid staff to take a slightly higher pay cut, if appropriate. Taking this step would be considered more draconian than requesting part-time working, as staff would be paid less for working the same hours.

Again, you would need to obtain consent from the workforce for this or seek to impose the change unilaterally, which carries the risks described above.

Financial support from the Government – companies can consider what may be available, including various loan and grant packages, as an alternative to making compulsory redundancies.

Make compulsory redundancies – assuming the various initiatives cannot assist, ultimately redundancies may have to be considered due to the downturn in work.

Employers will need to be clear how and why the company cannot keep staff on and a fair and thorough redundancy process followed to reduce the risk of unfair dismissal claims.

Employers should also consider the need for collective consultation if they are proposing to dismiss 20 or more employees within a 90-day period, which carries significant financial penalties if the regime is not followed.

Lastly, employers can consider letting go employees with less than two years’ service to avoid unfair dismissal claims – but beware of discrimination or whistleblowing claims.

Dean Jones is founder and managing partner of Jones Chase, a specialist employment law firm based in the centre of London.