Considering alternatives to redundancies

Where there is a “reduced requirement for employees to carry out work of a particular kind” or some form of business closure, the statutory redundancy definition is likely to be met. Employers may decide to commence a redundancy consultation process in this circumstance. However, whilst redundancies will reduce staff costs due to a reduction in head count, they involve significant costs by way of redundancy payments, management time, the risk of unfair dismissal claims and the loss of employee skills, leaving employers less able to take advantage of more favourable market conditions and facing recruitment costs when the economic effects of the coronavirus pandemic eases. For employers that are able to weather the storm by putting in place agreed alternatives to redundancy, or are able to reduce the numbers of redundancies by offering alternatives, this is likely to be a more satisfactory outcome. The consideration of viable alternatives to redundancy is also one of the requirements of a fair redundancy consultation for employees who have at least 2 years’ employment service, where consultation for compulsory redundancies becomes necessary.

Alternative measures are likely to be more palatable to employees wishing to retain their employment, than the alternative of redundancy. Employees may be willing to accept these if the need for the measures is explained clearly, particularly if they are introduced on a temporary basis.

There are a number of alternatives measures that employers can consider, depending on how viable these are for the business. We look at some of these.

1. Redeployment: Moving staff from quieter areas of the businesses to cover needs elsewhere, including on a temporary basis, can help keep staff motivated and enable employees to try out different work areas and develop new skills with appropriate retraining, while saving on recruitment costs.

2. Lay-offs: Where employers anticipate a temporary downturn in work or experience temporary cashflow issues, but it is not financially viable to keep employees on furlough due to the introduction of compulsory employer contributions under the gradual tapering of the Coronavirus Job Retention Scheme (CJRS) from August, or where employees do not qualify for furlough under the CJRS, employers may wish to consider a temporary period of unpaid lay off with the payment of statutory guarantee payments only, outside the CJRS.

3. Short time working/reduced hours: Where the employee works for some of the week but is laid off for the rest of the week, this is classed as ‘short time’ working. Employers may be using or decide to use the flexible furlough scheme for eligible employees where there are reduced hours available for employees, such that employees receive their normal rate of pay (or any reduced renegotiated pay) for the hours they actually work and furlough pay for the unworked hours. Members may refer to the factsheet on flexible furlough on the FSB Legal Hub for guidance.

Alternatively, employees may be placed on short time working (reduced hours) outside the flexible furlough scheme where there is a temporary downturn in work.

If an employee’s contract of employment contains an express contractual right for the employer to impose a lay-off or short time working on that employee, then this is binding on the employee. However, where there is no such contractual right, the express consent of the employee is needed. The employee should be made fully aware of what exactly they are consenting to and consent should be obtained in writing for the avoidance of doubt.

Employers should be mindful that employees have a statutory right to treat themselves as dismissed by reason of redundancy (and are entitled to a redundancy payment, unless the employer serves a counter notice stating otherwise where certain conditions are met) if the period of lay-off or short-time working (whereby employees receive less than 50% of a normal week's pay) extends beyond four consecutive weeks, or beyond six weeks in any twelve-week period.

4. Short-term or long-term temporary pay reductions: As recently reported in the news, Ryanair staff have agreed to a temporary pay cut to be introduced on a tiered basis in proportion to salary levels. The airline has promised that the pay cuts will be reversed in two tranches in 2023 and 2024, but will be ended sooner if the airline returns to pre-Covid-19 levels of business sooner. Employees may agree to a temporary pay cut if this may avoid redundancies. As part of the salary negotiation, employers may choose to offer to revert to existing pay rates by a certain date, or if certain business conditions are met, or if the pay reduction does not ultimately avoid the need for redundancies within a set time period. Employers may also wish to consult for permanent pay reductions, if this is required as an alternative to redundancies. Alternatively, employees may be willing to agree that they will still work, but part of their salary is deferred (in which case, employers need to ensure that pay in the reference period does not fall below the National Minimum Wage). A pay cut or deferred pay cannot be implemented lawfully without the employee’s agreement. By contrast, instituting a pay freeze, while unattractive to staff, is unlikely to amount to a breach of contract, as few employers give their staff a contractual guarantee of an annual pay rise; although doing so may not be sufficient to avoid redundancies.

5. Government Job Retention Bonus grant: In his summer statement, amongst other measures set out in the Government ‘Plan for Jobs’, the Chancellor announced a £1,000 “job retention bonus” for employers that bring workers back from furlough. This is a grant that is payable to the employer. To qualify for the grant, the employee must remain continuously employed through to the end of January 2021. Employees must also earn above the Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme on 31 October 2020 and the end of January 2021. This grant may assist employers in retaining furloughed employees in employment, alongside other measures that may potentially avoid redundancies. We await further details of the bonus scheme.

When implementing alternatives to redundancy, unless the contract of employment gives the employer the contractual right to make the change, or the employer is able to reach a binding agreement with any recognised trade union, the employer will need each employee’s consent to make the proposed changes.

Guidance and template letters on alternatives to redundancy are available on the Legal Hub. members should also contact the Legal Advice line if they have access prior to carrying out any dismissals, including redundancy dismissals. This may also be a requirement of the member’s legal protection insurance.