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Reducing Business Costs - Alternatives to Redundancy

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Reducing Business Costs - Alternatives to Redundancy inbrief Reducing business costs - alternatives to redundancy Inside Changing terms and conditions Pension scheme changes Lay-off and short-time working Redeployment, secondment and sabbaticals Recruitment freezes Flexible working inbrief Introduction Changing terms and conditions with impunity. Clauses of this type are interpreted restrictively by courts and tribunals When businesses run into financial difficulties Perhaps the most obvious way to reduce and any ambiguity will be resolved against the and need to reduce costs, the knee-jerk business costs without resorting to dismissals is employer. to adjust employees’ contractual entitlements — reaction is often to consider the scope for job for example, an across-the-board pay cut. In addition, the way in which a flexibility clause cuts. But redundancies are not a cheap can be operated may be restricted by general The legal starting point is that employees’ pay, option and , if mistakes are made in the way implied terms of the employment contract - in benefits and working hours will most likely be particular, the implied duty of mutual trust and redundancies are handled, further costs may express terms of the contract of employment. confidence. This may, for example, require the be incurred on account of tribunal claims. Even where terms of this nature are not employer to give staff reasonable notice of any Other drawbacks include the loss of valuable expressly set out in writing, they may be implied changes. into the contract by ‘custom and practice’. In skills and experience and the negative impact addition, terms may sometimes be incorporated In organisations that are unionised, changes to on the morale of the staff that are retained. into individual contracts from sources such as terms and conditions are usually negotiated company policies or work rules. with the relevant trade union. This is another Employers should therefore think creatively situation in which the changes are likely to be and look at other alternatives that may better Any significant change to working permitted by individual employment contracts, arrangements is therefore likely to require the suit the needs of their business. This Inbrief because there is normally a clause catering for variation of employees’ contracts of collectively agreed changes to be automatically summarises some of the options and employment. Depending on the circumstances, incorporated into the contract. Nonetheless, the examines how to avoid falling foul of the even a pay freeze, for example, or a restriction union will generally obtain employees’ legal procedures and obligations that might of overtime working might entail changes to agreement before accepting the employer’s contractual terms and conditions. come into play. proposed changes. Changing terms and conditions is fraught with Variation by agreement legal dangers and employers should proceed carefully and generally take legal advice before Where the employer has no right to impose embarking on such a course. In outline, these unilateral changes, clearly the best route is to are the main options: obtain employees’ consent. Faced with the option of agreeing detrimental changes or > changes allowed by the contract potentially being made redundant, many employees are likely to be amenable albeit > variation by mutual agreement reluctantly. > unilateral imposition of new terms Full and effective communication and consultation, so that employees fully understand > terminating employees’ contracts and re- the business needs behind difficult decisions, is engaging them on new terms a crucial factor in securing agreement. This can Changes permitted by contract be done via staff briefings and meetings but it is best also to offer individual consultation on a The best scenario for the employer is that the one-to-one basis. change it is proposing is authorised by the contract of employment. This can arise in It is essential to obtain employees’ individual different ways. The contractual term in question written agreement to changes, in order to avoid may, for example, be drafted sufficiently broadly future disputes. to accommodate the change. Unilaterally imposing changes Alternatively, the contract may include a What should an employer do in respect of ‘flexibility clause’ – an express right for the employees who, following consultation, still employer to implement changes. This could refuse to agree to the change required? One either be a specific clause covering the proposed option is simply to announce that the change change or a general power for the employer to will be implemented from a set date. vary the terms of the contract. This is a risky strategy from a legal perspective. The presence of a flexibility clause does not Imposing the change as a fait accompli will necessarily mean the employer can proceed amount to a breach of contract by the inbrief employer. This runs the risk that employees conditions counts as ‘redundancy’ for collective short-time working without pay. may: consultation purposes. Accordingly, if 20 or Finally, there is a very modest statutory wage more employees will be dismissed within a 90- protection scheme for employees who are laid > continue to work in accordance with the day period, the employer must consult with the off without pay. They can claim a ‘guarantee changed terms, but under protest — recognised trade union if there is one, or payment’ for days on which they would reserving the right to sue for breach of elected employee representatives otherwise. normally be required to work, but the maximum contract and/or bring a claim for unlawful (See our Inbrief Collective redundancies.) deduction from wages is only £29.00 per day and entitlement is limited Pension scheme changes to five days in any three-month period. > resign and claim constructive dismissal Another option for employers that may appear Reducing use of contract workers > refuse point-blank to accept the new terms attractive is to change its pension arrangements. Dispensing with the services of casual workers, In the third scenario the employer would have Employers should bear in mind that most agency staff and self-employed consultants may little option but to dismiss, potentially giving rise changes will require them to consult with be a relatively low-risk way to reduce to tribunal claims for unfair dismissal from employee representatives, under special employment costs without making ‘permanent’ employees who have at least the two years’ consultation requirements applying to pension staff redundant. The employment status of such service. schemes (although some smaller schemes are individuals should, however, be carefully exempted). The process is broadly similar to the assessed in case they legally qualify as The best outcome for employers adopting this collective redundancy consultation process, but ‘employees’ with statutory rights such as type of approach is that employees would the obligation to consult is not restricted to statutory redundancy pay and unfair dismissal. simply acquiesce in the new working changes affecting a particular number of arrangements and go along with them. After a Employers should also be careful when employees. The consultation period must last at period of time, the legal position would be that terminating part-time or fixed-term staff. They least 60 days. such employees had impliedly agreed to the are protected from less favourable treatment in variation by their conduct. Lay-off and short-time working comparison to (respectively) full-time and permanent colleagues, unless it can be Dismissal and re-engagement Employers looking for alternatives to declaring objectively justified by the employer. Generally speaking, a better way to proceed redundancies may consider laying staff off where employees’ agreement to contractual temporarily or reducing their working week. A Discretionary benefits lay-off is generally understood to mean an changes is not forthcoming is to terminate their Employment contracts often describe bonuses employer providing employees with no work - existing employment contracts - giving the and other benefits as being non-contractual or nor pay - for a week or more. Short-time required statutory or contractual notice - and ‘discretionary’, implying that the employer is working occurs when an employee works only offer to re-engage them on new contracts entitled to withhold or reduce them. Such part of a week and receives proportionately containing the revised terms. contractual provisions do not, however, give the reduced pay. This may seem like a ‘nuclear option’, but it at employer carte blanche or mean they are least avoids the risk of employees suing for If the employer has no contractual authority to immune from legal challenge. impose a lay-off or short-time working, the breach of contract. Because the employment For example, an employer should be in a considerations in relation to changing terms and contract is lawfully terminated with notice, the position to demonstrate that it has not exercised conditions described above will apply. In employer is not in breach. a contractual discretion arbitrarily or irrationally. particular, unless employees’ express and Alternatively, employees may be able to argue Employees with at least two years’ service will, informed consent is obtained, the employer will that they have a legitimate expectation of a of course, be entitled to claim unfair dismissal. potentially face claims for unlawful deduction bonus or other benefit as a result of custom and However, the employer can defend such
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