The alternatives to redundancies

Q: I need to reduce workforce costs but don’t want to make redundancies. What are my options?

A: When looking to cut costs, it is easy to overlook the alternatives to reducing headcount, and redundancy is often seen as the only option. However, redundancies are not necessarily the most cost-effective or efficient option. Employers should therefore be open-minded in considering alternative options, which may better suit their business needs. Here we look at a selection of these alternatives, some of their merits and potential pitfalls.

Voluntary redundancies can offer a feeling of empowerment to employees. Packages need to be attractive enough to encourage volunteers, and this can be expensive. Volunteers will often come from surprising quarters and there is a risk of employers losing their talented staff. Employers should be mindful of the way in which applications for voluntary redundancy are considered and of the potential for unfair dismissal claims which remains.

Occupational pension schemes can, in certain circumstances, be used to offer favourable early retirement packages. However, potential dangers include: an unfair and discriminatory selection process based on age; the exclusion of younger employees; and a policy that indirectly discriminates against part-time or female employees (who typically have fewer years’ pensionable service).

Laying off casual, agency or self-employed workers or consultants can often cut significant costs. In the case of agency workers, employers should ensure that there is no implied contract of employment between the employer and the worker. Employers must also be careful not to dismiss part-time or fixed-term employees, who are protected from less favourable treatment by reason of their status.

Employment contracts may state that bonuses and benefits are either non-contractual or entirely discretionary, enabling employees to reduce or remove these entitlements. Zero bonuses may be acceptable with an entirely discretionary scheme, as long as discretion is not exercised irrationally or perversely, and that custom and practice has not implied a legitimate expectation of a bonus payment into the contract. If bonus clauses set out criteria such as individual performance, it may not be open to award zero bonuses simply on the basis of poor market or firm performance.

Changing terms and conditions to introduce salary cuts can be achieved but may not be as straightforward as shift changes or bans on overtime where these are non-contractual arrangements.

Sabbaticals may appeal to employees seeking lifestyle opportunities and can help to incentivise and retain key talent. The key here is clarity: what happens to employment status during and after the sabbatical? The most employers may want to offer is to conduct a reasonable search for employment opportunities on the employee’s return.The improved work-life balance that employees have been seeking in recent years may also prompt some employees to welcome part-time or flexible working or job-shares, which may not have been open to them previously.

Used creatively and with careful consideration of why changes are necessary, a combination of some of the options outlined above is likely to go a long way to easing most businesses’ biggest financial burden – the cost of their employees – while recognising that this burden is also a huge asset in a recession.

This article was written by Mishcon de Reya partner Mark Levine and solicitor Jennifer Millins.

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