Making redundancy a last resort

Reviewed by Suzanne Staunton, employment barrister, Guildhall Chambers


Making redundancy a last resortIf your business is struggling and you need to reduce your outgoings, you can take steps to make redundancies a last resort. We list some ways you can cut your costs, not your workforce

If you are considering making redundancies, take advice early. Be careful about the way it is handled, otherwise you may be at risk of an unfair dismissal claim. You may be able to avoid making redundancies completely. Alternative options might include:

  • rearranging working patterns
  • temporary lay-offs
  • short-time working

Rearranging working patterns

This could include cutting overtime, deferring starting dates for new recruits and freezing future recruitment. Consider job restructuring, too, for example, job sharing and offering sabbaticals or possibly secondments to other organisations.

Review all temporary staff and consider whether to end their contracts. Where fixed-term contracts come to an end, you could not renew and instead offer the work to a permanent employee who is at risk of redundancy.

Consider applications for early retirement, taking into account the effect on employees' pension rights. Also consider whether any employees may be prepared to take voluntary redundancy.

Redeploying employees

More contentiously, consider retraining and redeploying employees - maybe to lesser jobs. Whether you can do this depends on your employee's contract of employment - it must be drafted widely enough to cover redeployment. Employers must also act reasonably. For example, certain employees may expect to be offered a role that fits their experience or qualifications, limiting your ability to pay them less in their new role. If in any doubt, take legal advice before acting.

If redeployment is reasonable and stated within the contract, the employer can agree the move with them (maybe with a financial incentive), impose it on them (and risk legal action) or (if fewer than 20 employees are involved) dismiss them and offer them the new position on new terms. If 20 or more employees are involved, collective consultation is required.

Temporary lay-offs

If an employer believes a downturn in work will be temporary, and employees' contracts of employment allow (or an employee expressly agrees to it), they may be able to send their workers home temporarily - for a week or two - on reduced or no pay, without dismissing them.

Usually, the employer must pay a statutory 'guaranteed payment'. To be eligible, employees must have been employed for a month, be available for work and be prepared to carry out any reasonable, alternative work. They must not be off work because of industrial action. The amount of the guaranteed payment depends on the hours worked and payments can only be made for five days in any three-month rolling period. The maximum payable is £20.40 per day.

If the temporary lay-off lasts more than four continuous weeks or six weeks out of thirteen, the employee can give notice (there are strict time limits) that they wish to claim redundancy payments.

In 2016 the law on temporary lay-offs became more complicated. There is now a risk of a claim for constructive dismissal, so take legal advice about your specific situation.

Short-time working

Short-time working is when employees are asked to work shorter hours (eg three days a week or mornings only). If the result is that an employee does not work on a particular day, again they may be entitled to guaranteed payments. But where they work part of every day, they are not.

Like temporary lay-offs, short-time working is only allowed if it is provided for in the employees' contracts of employment or they expressly agree to it.

If an employee receives less than 50% of their week's pay for four weeks running or six out of thirteen, they may be able to claim a redundancy payment, provided they comply with the strict time limits.

In 2016 the law on short-time working became more complicated. There is now a risk of a claim for constructive dismissal, so take legal advice about your specific situation.

If all else fails, redundancy may be the only answer.

Recommendations

  • Consider alternatives to redundancy.
  • Always take legal advice before varying an employee's contract or when considering redundancies.