5 alternatives to redundancy

Redundancies can be somewhat of a minefield for employers, with a variety of rules and processes which must be followed in what can already be a fraught situation within an organisation when headcount needs to be reduced. Most employers are keen to avoid dismissing staff in whom they have invested time and money but this is not always possible, particularly during tough economic times, and staffing costs are often an employer’s largest overhead.

But are there options available to employer to limit expenditure on staff before the decision to begin a redundancy process is reached? I consider five practical and legal options below.

1. Restricting / freezing recruitment

Before seeking to reduce the number of employees by way of dismissals, the first step when employee costs are becoming unsustainable is for an employer to halt recruitment of any new roles. This can be a particularly useful option for larger employers or those with a higher rate of staff turnover generally. Doing so is unlikely to cost the employer money and usually does not create any employment law issues.

One potential issue, however, arises if the employer needs to make a specific hire whilst a recruitment freeze is in force (for example, because the particular role is critical to the needs of the business and cannot be left vacant). In these circumstances, if any redundancies are taking place within the business, the employer should consider whether any of its potentially redundant employees might be suitable for the role for which it is hiring (and if not, how this can be justified to redundant staff). The employer should also ensure that the decision to dismiss others while hiring a new recruit is not made for a discriminatory reason (for example, the new hire is a man while the redundant individuals are women). If a collective consultation is taking place in respect of potentially redundant staff, the decision to hire someone during a recruitment freeze will also need to form part of that consultation.

2. Withdrawing job offers or deferring start dates

Once an offer of employment has been made, it can be withdrawn at any point before it is accepted without notice or making of a payment in lieu of notice. Once the offer has been accepted however (as well as the candidate meeting any preconditions, such as the provision of positive references), it is not possible for the offer to be unilaterally withdrawn and the employer must terminate the employment of the new hire, either by giving the required notice or making a payment in lieu.

Failure to give the relevant amount of notice (or a payment in lieu) in these circumstances may give the new hire a claim for breach of contract against the employer. The maximum loss which could be recovered under such a claim would be limited to whatever notice period applies however it could in some cases be less. For example, an individual with 4 weeks’ notice entitlement who is terminated 2 weeks before their start date could only be able to claim damages equivalent to 2 weeks’ pay. The employer must also take care to ensure that the decision to withdraw a job offer is not discriminatory in nature.

An alternative once an offer has been accepted is to seek the new hire’s agreement to vary their start date and defer it to some later date. It is not unusual for employers who take this approach to offer some form of compensation to the new recruit in exchange for their agreement to start at a later point. This is, however, only a short-term solution which may come at a cost.

3. Terminating non-permanent staff

Where staff are engaged on a contractor basis or worker basis, or are hired via an agency, it can be legally simpler and cheaper to terminate their engagement than it would be to dismiss an employee. An employer seeking to do so should first ensure that the individuals it is seeking to terminate are not employees. Even if their contract says that they are workers or contractors, it may be that their particular terms and/or length of engagement might mean that they have become employees notwithstanding the original intent behind their engagement or the contents of their contract.

Self-employed contractors and individuals engaged on a worker contract will normally have very short notice periods (or sometimes no notice entitlement). The same is true for agency workers – whatever notice they are entitled to will tend to mirror the notice the agency is required to give, but this tends to be very short.

However, agency workers who have been working for an organisation for more than 12 weeks are required under the Agency Workers Regulations 2010 to be given similar rights to those of permanent staff of the organisation and this will include matching their contractual notice entitlement (which may be longer than what has been agreed with the agency). This legal requirement does not extend to providing such workers with statutory redundancy protections. Any decision to terminate an agency worker’s placement should also be free of any discrimination.

4. Lay-offs and/or short-time working

 Another option which can be very appealing to employers is “laying-off” their staff on a short-term basis. This has the effect of retaining their employment while requiring them not to work and ceasing payment of their salary or wages. “Short-time working”, conversely, is a temporary reduction in an employee’s hours of work with a corresponding reduction in pay.

In order to exercise either of these options, the contract under which affected staff are employed must contain the express right for the employer to do so. Such terms must also specify that employees will not receive their normal salary whilst laid-off. Absent these express contractual terms, a lay-off or implementation of short-time working would likely give rise to a claim for unlawful deduction from wages, or could possibly constitute a fundamental breach of contract entitling an employee to resign and claim constructive dismissal.

Whilst laid-off, affected staff are entitled to a “statutory guarantee payment” which is currently set at £31 per day, for a maximum of 5 days (or £155) in any 3-month period. This is likely to be a substantial saving when compared to an employee’s normal salary. Employees on short-time working are also entitled to receive guarantee payments in respect of any days when they would usually work but are not required to whilst on short-time working, but only providing the change in their working hours is temporary.

A period of lay-off must not last longer than it needs to or there will be a risk of a redundancy situation arising (with all the associated cost and administration).

If an employee is given or gives notice of termination whilst on short-time working, they might be entitled to receive their normal salary during the notice period, rather than their reduced, short-time salary.

5. Sabbaticals or unpaid leave

Many public sector organisations and some large private sector companies have sabbatical policies which allow employees, sometimes at the employer’s discretion and sometimes as a contractual right, to take extended unpaid breaks from work (“sabbaticals”) every few years. Sabbaticals are typically for 6-12 months, but this can vary depending on what is agreed.

This obviously saves the employer on the cost of salary and benefits for an individual on sabbatical for the duration they are out of the business, and the break from work can allow an employee to travel or explore a particular interest or activity. However, the decision to take a sabbatical is ultimately one for the employee and it is unlikely to be possible for an employer to impose a sabbatical on a staff member. If a sabbatical is to take place, in most cases it will be important for the employer and employee to enter into a written sabbatical agreement setting out the terms clearly, including the duration, stoppage in pay and any terms regarding return to work.

Equally, another way to save on salary costs in the short term is to encourage employees to take periods of unpaid leave. this would work in much the same was as a sabbatical but would usually be for a shorter period. Also, where an employee’s terms and conditions contain restrictions or preconditions on employees choosing to take unpaid leave, the employer can choose to relax these to encourage take-up of unpaid leave.

Both sabbaticals and unpaid leave require a variation of the contract of employment unless the contract contains an entitlement to take a sabbatical, or a clause allowing the employer to place the individual on unpaid leave. Either would be fairly unusual. Employers would need to consult with affected employees on any changes to their contracts and seek their consent, in the absence of which a unilateral change by the employer could give an employee a claim for unlawful deduction from wages or constitute a fundamental breach of their contract.