Many UK businesses are still struggling in these tough economic times. A lot of bosses are feeling financial pressure and may have to consider redundancies as a way to make cost savings.
No company wants to lose its talented staff. Losing employees can hamper workforces, slow down processes and cause long-term damage.
Redundancies should always serve as a last resort. But when business rates are soaring with no sign of pressure being eased, is there an alternative?
Terms and conditions
Whilst it may not seem ideal, changing the terms and conditions is one alternative that struggling businesses could consider to keep staff in employment.
You might think about a reduction in benefits that are offered to staff or a reduction in hours worked.
Any changes to terms and conditions whether temporary or permanent are likely to need consent from the employee unless you have an express provision in the contract entitling you to make those changes such as lay-off or short-term working provision.
Even then it would be advisable to inform and consult with the employees regarding any changes, the need for the changes and to seek their agreement as referred to below.
You may agree with employees that the change is temporary and if so, you should ensure that the terms of the temporary arrangement are clearly documented and stipulate that the employee will revert back to their old terms at the end of the temporary period.
Otherwise reverting back to the original conditions may cause a problem as it may be difficult for staff who have, for example, lost a childcare day at nursery because they were asked to change their working days.
Employees need to be treated fairly in respect of changes to terms to avoid claims including constructive dismissal, breach of contract discrimination and equal pay.
Reduction in pay
Reducing salary would be regarded as changing a fundamental term of the contract and therefore consent from the employee should be obtained as referred to below.
Consideration will also need to be given to the effect on other terms of the contract as it is likely to affect holiday entitlement as well as things like pension, commission schemes and notice pay. You may need to consider safeguards to mitigate any impact, for example, the calculation of redundancy pay.
What about employment contracts?
Once you have an idea of how you would prefer to make changes that are alternatives to redundancy, you must consider whether the contracts permit the changes you seek.
Some may contain a clause allowing an employer to make changes without the consent of the employee.
However, significant changes like pay cuts may not be considered effective if courts become involved.
If employees’ contracts do not permit changes to terms and conditions, you should get their voluntary written consent to the changes.
Failing to get consent could lead to potential claims and even constructive dismissal if the employee resigns because of the change.
Notification of proposed changes
Employees will need to be notified of the proposed changes.
Employers should set out the proposed changes and explain the reasons for doing so. Staff are much more likely to conform if they are told what is going on during a conversation.
Consultations are advisable and may be necessary should employees refuse consent to make changes to their terms and the business wants to consider ending their employment and offer re-engagement on the new terms.
If employees don’t agree to the changes, businesses may consider terminating their employment and offering re-engagement on the new terms but this should be a last resort and you should seek legal advice before taking this action because there is a risk that employees could bring claims of unfair dismissal if their employment is terminated.
Also, if the employer is considering terminating the employment of 20 or more employees, collective consultation regulations will apply.
Collective consultation takes place with elected employee representatives and must last for a minimum period before any dismissals can take effect (30 days if the proposal is to dismiss 20 to 99 employees or 45 days for 100 or more employees).
Failure to carry out collective consultation can lead to successful claims for protective awards of up to 90 days’ pay to all employees affected.
Once agreed, changes to contracts should be recorded in writing. This could be a new contract to sign or letters of amendments that have been countersigned by employees.
Staff may be more likely to accept a change if there appears to be a genuine need for it and there has been an adequate consultation.
Taking the time to make changes lawfully and through engagement with the employees will limit the potential for long term damage to employee relations as well as the risk of legal action.
Before taking any action in relation to alternatives to redundancy we strongly advise that you take legal advice.
Our Employment Law Team can help. Contact us today on 01772 799 600.
Article by senior associate solicitor, Lisa Clark