How to avoid redundancies post lockdown has been brought into focus since Boris Johnson announced the broad roadmap to take us out of lockdown yesterday evening. We know there’s a long and hazardous path the country needs to travel and the impact on the economy is going to be huge. We’re told to expect a recession like never before and the Bank of England predicts that the economy will shrink by 14% this year. However, the Bank also gives us a glimmer of hope by saying that there might be a sharp recovery, albeit with activity in some sectors taking far longer to recover than others. In the light of this, most employers will be needing to cut costs and will be looking carefully at their workforce.
As employment lawyers, we often get an early indication as to which way the wind is blowing in the economy. In late March as lockdown was announced, employers started calling us about making redundancies. However, the introduction of the furlough scheme largely helped to avoid redundancies with employers being willing to see how things developed. Now, unfortunately, we are starting to advise on a number of redundancy proposals.
What options are there to avoid redundancies?
For some employers, redundancies will be unavoidable. However, I find that employers will often look to redundancy first without exploring other options open to them. I therefore wanted to set out some methods used by employers in the recession of 2008. In this recession, I was struck by how many employees were willing to be flexible and consider short-term variations to their employment terms in order to keep their employment alive.
5 options to consider to avoid redundancies
- Temporary cut in pay (keeping hours the same). For example, a 20% pay reduction is agreed to take effect for the remainder of 2020.
- Temporary cut in hours with associated reduction in pay. Here, the rate of pay remains but the employee works, say, 3 days per week.
- Job share. You might have 2 full time employees who will agree to job share for a period of time to keep both in a job.
- Sabbaticals/career breaks. These are rare in the private sector and often have a qualifying requirement. An employer could relax the rules and offer this option broadly.
- Re-training. Good employees can be retrained or redeployed.
Whilst not a job-retention tool, voluntary redundancies can be offered to avoid compulsory job cuts. In this period of lockdown, employees will have reflected and some might not actually want to come back. If you offer employees voluntary redundancy, it gives these people the chance to move on quietly, professionally and amicably.
Temporary change to employment terms
Employers should be sensitive to the hopes and fears of employees. Employees understand that we are in an unprecedented crisis, that costs need to be cut and that this includes employment costs. However, employees will be frightened about compulsory redundancies or permanent/unlimited changes to their employment terms. I find employees to be a lot more receptive to the idea of a temporary variation in employment terms with a defined end or review date and clear understanding of what will happen at that point. Contrast the reaction of an employee in these situations:
1. The employer tells the employee that she has to take a pay cut or her job is at risk.
2. The employer asks the employee if she would agree to a 6 month period of reduced hours working with a review on 31 August and an end date of 30 November, at which point her current terms will be reinstated unless agreed otherwise.
Option 1 might work in the short term despite the threatened unlawful action by the employer. However, even the the employee reluctantly accepts the situation, she won’t last long and the trust and confidence will have been destroyed forever.
I would urge employers and employees to be creative and flexible. If the Bank of England is right then why incur a lot of redundancy costs in dismissing your talent pool only to have to re-hire in 2021? If costs can be cut then maybe you can retain a good number of employees and wait for the economy to bounce back.
One thing I haven’t seen but I would like to explore with employers is linking any pay reductions and recovery with the downturn and the effect on the employer. For example, an employer could link the recovery in pay with the performance of the employer, much in the way that bonus schemes will often have an element linked with employer performance.
Legal point of view
From a legal point of view, employers must remember that the changes referred to above will normally be changes to an employee’s contract of employment. Employers cannot normally change employment terms unilaterally. To do this would be a breach of contract and could lead to a variety of reactions including constructive dismissals, breach of contract claims and claims for unlawful deductions from wages. Don’t proceed with contractual variations without taking advice.
Not all jobs can or will be saved. As well as having redundancies forced on them, employers will also use this period to (put rather bluntly) spring clean the workforce. Redundancy dismissals are fairly straightforward to achieve and far easier than capability dismissals. The least productive employees are at greatest risk now.
Leaving aside the above paragraph, I would urge employers to consider all options before pressing the button on redundancies or at least large scale redundancies.
If you would like to discuss how to avoid redundancies in your organisation or indeed, redundancies generally, please contact a member of the Employment team.
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