An alternative guide to making redundancies

Wake Smith Solicitors 09 March 2009

Redundancy can be expensive and potentially ineffective for businesses hoping to ride out the recession. As demands are made by the government and business leaders to invest in skills and talent, just what are the alternatives available to SMEs in the current climate?

No one can predict how long the current economic downturn will continue and when the country will come out of recession. What can be predicted is that those who are prepared for when the economy improves will be best placed to maximise and profit from any investment they make now.

With unemployment expected to rise from today's level of 1.92million to over 3million by 2010 it will not come as a surprise to find that redundancy is on the minds of employers and employees alike. With the high profile departure of Woolworths from the high street, reported falls in profits over the Christmas period and many more firms and retailers expected to fall by the wayside over the coming months there is no wonder that doom and gloom is spreading like norovirus this winter.

Real cost of redundancy

It has been estimated that the 'real' cost of redundancy can be more than £16,000 per employee. This hypothetical figure includes any statutory redundancy payment, payable to employees who have been employed continuously for over 2 years and calculated on a strict formula of half a week's pay for each full year of service for workers aged less than 22, 1 week for those ages 22 to 41 and one and a half weeks for those aged over 41. This payment is subject to a cap of 20 weeks and £350 for a week's pay. There is no cap on the age of those being made redundant. A statutory redundancy payment can therefore be £7,000 for those under 41 at the time of termination or up to £10,500 for those aged over 41.

It may be that some workers are employed under contracts or collective agreements which provide them with enhanced terms at times of redundancy. Especially in situations where employees have been acquired through mergers and buy-outs it is worth checking all contracts of employment for any enhanced terms. Enhanced packages can provide in excess of 4 times the minimum statutory redundancy payment together with additional bonuses that employers might not initially account for.

In addition to any statutory redundancy payment, employees being made redundant will also be entitled to contractual notice or a minimum of statutory notice. This can often be paid in lieu and may or may not be subject to PAYE and NI contributions. Making the correct payments to those who are unable to avoid redundancy is one of the key factors.

Another key factor is fair and reasonable consultation. A proper consultation procedure not only takes time (up to 3 months for those making in excess of 100 employees redundant) it can also be expensive. You must ensure this is compliant with the legislation from day one in order to avoid any potential claims for procedural unfairness.

But redundancies are not an inevitable consequence of tough economic times, despite what the media is reporting.

There are some key opportunities to conserve funds without resorting to cutting employees in the first instance, only two examples of which are lay-off and short-time working. Some other alternatives, such as limiting the use and availability of overtime and curtailing the use of temporary staff will not require any contractual changes. However, other cost-reducing measures do require contractual changes and this is a minefield of procedure which every employer must ensure they get right from the start.

Varying Terms and Conditions

There are a number of ways to vary an employees terms and conditions of employment. The starting point is that there is a written statement of terms and conditions as required by the Employment Rights Act 1996. All employees with over 6 month's service enjoy this right. Where no written contract exists, there will be an implied contract made up of statutory rights, ancillary agreements and custom and practice.

The first, and most simple, method of varying terms of employment is by agreement with the employee. Most employees will be aware of the current economic climate and if a contract variation provides for them to retain their employment it is likely they will be amenable to such change. Any variation should, of course, be recorded in writing.

If there is a trade union in place, a collective agreement may be possible whereby the union will negotiate as agent for its members. This is an attractive proposition where there is a large number of employees and the process can be dealt with by only a few representatives. However, be aware that only in certain circumstances will the variation be express or implied into each individual contract of employment.

In-built flexibility

The second method is by contractual flexibility. There may be some flexibility in certain clauses of an employee's contract of employment. Frequently there will be a mobility clause allowing the employer to change the employees place of work (within reason) or a broad definition of job function which will allow an employer sufficient flexibility in changing duties and roles. The extent of the flexibility will depend on how the clause is worded and how explicit the employer's discretion is.

Reasonableness

Third are general flexibility clauses within contracts that permit the employer to vary terms and conditions at its discretion. Significant and substantial restrictions can be made to such clauses by the courts and tribunals which will always take into account implied terms such as reasonableness and the duty of mutual trust and confidence. What will be important when drafting such clauses is the element of fairness.

Lay-off and short time working is only an option available to employers whose employees have such a term in their contracts. There must be a contractual right to only pay employees for the amount of time they are working. It may be attractive to exercise this right, even on a temporary basis, but employers should be aware that it brings with it certain risks, even where there is a contractual right. An employee who is laid off or put onto short time working may acquire a right to claim a redundancy payment for example. This is a complex area and if you have any concerns you should seek legal advice at an early stage.

Unilateral variation and inherent risk

Finally, and most risky, is the imposition of contractual changes on an employee. A unilateral variation to an employee's terms and conditions will be a technical breach of contract, for which the employee can sue or terminate his contract and claim constructive unfair dismissal. Although common, this should be avoided wherever possible. An employee, if he makes no objection to the variation, will be assumed to have accepted them after a time by continuing to attend work.

A last resort is to dismiss the employee who is refusing to accept changes and immediately re-offer the position and a new contract incorporating the revised terms. An employee may accept these terms however, there is a risk that the employee may leave and claim unfair dismissal.

At this time, whatever course of action a business takes to maintain a flexible and profitable workforce, there are likely to be longer term effects. By considering these sensibly and not reacting with a knee-jerk response to the current downturn, a business is likely to be in a much stronger position once the clouds clear. Investment in talented existing employees, skills training and continued employment at the present time can pay dividends when the inevitable turn around begins once again.

For further information please contact Mark Serby at [email protected] or on 01142666660.

Tags

Archive

March 20247February 20242January 20248December 20236November 20232October 20235September 20232August 20234July 20232June 20235May 20238March 20234February 20235January 20233December 20225November 20224October 20224September 20223August 20221June 20221May 20227April 20223March 20223February 20223January 20224December 20214November 20213October 20215September 20216August 20212July 202111June 20218May 20216April 20212March 20218February 20218January 20219December 20208November 202013October 20209September 20208August 20203July 20208June 202016May 202013April 20209March 202016February 20209January 202011December 20199November 20199October 201911September 20195August 20194July 20196May 20198April 20196March 20193February 20195January 20194December 20186November 20185October 20182September 20185August 20184July 20189June 20184May 201810April 20185March 20184February 20184January 20183December 20175November 20178October 20177September 20179August 20175July 20176June 201710May 20176April 20178March 201711February 20176January 201712December 20169November 20167October 201610September 201610August 20166July 20167June 20163May 20162April 20166March 20162February 20164January 20165December 20153November 20155October 20156September 20156August 20157July 20157June 20157May 20156April 20159March 20156February 201510January 20156December 20145November 20144October 20142September 20143May 20144March 20146February 20144January 20142December 20132November 20133September 20134July 20132June 20132May 20133April 20131March 20133February 20133January 20136December 20121November 20123October 20122August 20122July 20128June 20123April 20123March 20121January 20124December 20112November 20111October 20112September 20113August 20113July 20117June 20119May 20117April 20115March 20119February 20118January 20111December 20101October 20102September 20102August 20103July 20106June 20101May 20102April 20106March 20102February 20103January 20102December 20095November 20092October 20092September 20092August 20091July 20095June 20095May 20093April 20093March 20093February 20091January 20092November 20082October 20082September 20081August 20083July 20081January 20082

Featured Articles

Contact us