Best practice: Making redundancy a last resort in a downturn

If you are considering redundancies, take advice early. You may be able to avoid making redundancies at all, retaining skills and experience and maintaining morale. Options open to you might include:

• Rearranging existing working patterns.
• Temporary lay-offs.
• Short-time working.

Rearranging existing working patterns

This could include:

• Cutting overtime.
• Deferring starting dates for new recruits.
• Freezing future recruitment.
• Job restructuring, eg job sharing and offering staff sabbaticals and/or secondments to other organisations.

Review all temporary, casual, agency and self-employed staff, and consider whether to end their contracts. Where fixed term contracts come to an end, consider non-renewal where that might deny a reasonable opportunity to redeploy a permanent employee who is at risk of redundancy.

Sound out whether any employees are considering early retirement, taking into account the effect on employees’ pension rights. Consider whether any employees may be prepared to take voluntary redundancy.

More contentiously, consider retraining and redeploying employees – maybe to lesser jobs. Whether you can do this will depend on the job description in your employee’s contract of employment – it must be drafted widely enough to cover the redeployment. The employer must also act reasonably. For example, certain employees may expect to be offered a role that fits their experience or qualifications, reducing your ability to pay them less in their new role. If in any doubt, we strongly recommend that you take legal advice before acting.

If the redeployment is within the contract and reasonable, the employer can either 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, this last option will require collective consultation with the employees concerned.

Any thoughts of ‘firing and rehiring’ should be checked with specialist legal advisers as early as possible, particularly given recent public interest – and condemnation – of this practice. Check out the Acas guidance first ‘Making changes to employment contracts – employer responsibilities’ written to help employers avoid having to fire and rehire, except as a last resort.

Temporary lay-offs

If an employer thinks a downturn in work is likely to be temporary, and if employees’ contracts of employment allow (or an employee expressly agrees to it), the employer may be able to send workers home temporarily – say for a week or a fortnight - on reduced or no pay, without dismissing them.

Usually, the employer has to pay statutory ‘guarantee pay’. To be eligible for guarantee pay, 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 strike or other industrial action.

The amount of the guaranteed payment depends on the hours worked. The maximum statutory requirement is £31 a day for 5 days in any 3-month period - so a maximum of £150. Employers can choose to offer their own, more generous scheme.

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

Short-time working

Short-time working is when employees are asked to work shorter hours – for example, three days per week, or mornings only. If the result is that an employee does not work on a particular day, they may be entitled to guaranteed payments, as discussed above. 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. This is rare.

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

If all else fails, redundancy may be the only answer – but at least you’ll know you tried your best to find alternative solutions first.

Operative date

• Now

Recommendations

• Consider alternatives to redundancy.
• Always take legal advice before varying an employee’s contract or when considering redundancies.
• Check out the guidance on the Acas website to avoid firing and rehiring.