Western Mail, Thurs 16th October
The economic slowdown is hitting businesses where it hurts and forcing many to cut back on their overheads. For some, staff costs are the first in line but employment law partner at Capital Law, Elin Pinnell, asks “when the chips are down, shouldn’t you do everything to keep your people on board?”
Redundancy seems to be the word of the moment, never more than a breath away from “credit crunch”, “slumping profits” and of course the dreaded “recession”. Aside from being a legitimate way for struggling businesses to steady the ship, redundancy is inherently negative and not the easy option or quick solution some employers believe it to be. Above all, it is easy to get wrong.
The law has a specific definition of redundancy: where a particular kind of work has diminished so that employees have become surplus to requirements, or where there is the same amount of work to be done, but fewer employees are needed to do it. It is the first scenario which tends to apply when a business is in financial trouble - there is less work and the business cannot sustain existing staff levels.
Employers in financial difficulty often assume that they are in a redundancy situation but that is not always the case. If they go on an dismiss employees for redundancy in non-genuine redundancy circumstances they will be making an expensive mistake. A successful employment tribunal unfair dismissal case could cost the employer more than £70,000 in compensation alone.
Unfair dismissal and other employee detriment claims don’t just arise from an employer’s mislabelling of the circumstances. Even a genuine redundancy situation (one that falls within the legal definition) can lead to a successful tribunal claim if the employer gets any part of the process wrong – perhaps not offering an “at risk” employee an alternative job in the organisation, or being subjective in assessing the record, skills and other attributes of a pool of employees.
Businesses that understand the risks of falling foul of redundancy law can feel daunted and often ask us to design a guide and timetable for them to follow, to help make sure that they do everything properly. It pays for employers to get the redundancy procedure right, but this means accepting that it needs investment and won’t happen overnight.
So, whilst properly planned and executed redundancies can reduce a company’s ongoing liability to pay salaries, the process can involve significant administrative and managerial, as well as legal, input. It can also be an emotionally charged time for all involved. Employers find themselves dealing with loss of morale, or parting company with loyal, long-serving employees and, particularly in close-knit teams or organisations, this can be difficult for everyone to accept.
Aside from the sentimental angle, shedding staff when times are hard can be a false economy. Every organisation invests in its employees – whether this is through direct financial outlay like training, or the intangible benefits of employees absorbing an organisation’s culture and way of working. Cutting back on staff can be a lost investment. Worse still, it can work out more expensive in the long run when the business finds itself having to recruit and train as the market recovers.
So what options are open to employers? The first has to be identifying other overheads and areas of potential cost cutting. It sounds fairly obvious, but it is surprising how often businesses ignore their less significant expenses. Even the smallest savings here and there can make a difference and this sort of effort shows staff that you are doing all you can to save the situation.
Even when you have exhausted all options for reducing liabilities, don’t assume that redundancy has to follow. The truth is that the majority of employees would far rather remain employed in some shape or form than be made redundant. That means that they might be prepared to share their job with a colleague. So, rather than halve jobs, perhaps look to halve hours and agree that two employees will to do the job of one for a short time. That keeps the workforce intact.
Other employee-based options include asking all staff to reduce working hours, for instance, take a 40-hour week down to 37.5 and reduce salaries accordingly. Also, ban overtime in a bid to cut costs and protect margins. Getting staff involved in this process is critical. Businesses shouldn’t just impose changes to an employee’s normal working patterns and benefits – to avoid successful legal claims, there must at the very least be a process of consultation.
It may seem strange that a lawyer is advising against embarking on a redundancy process. However, my experience of acting for employers of all shapes and sizes – from SME’s to multinationals – has elicited one strong and common theme: employers don’t want to make staff redundant, but they don’t know what else to do. My advice is always: cut back on everything you possibly can before looking to shed employees. This really should be a last resort.
For further information please contact Elin Pinnell T: 029 2047 4487 E: e.pinnell@capitallaw.co.uk
