Furlough has been a lifeline for businesses and their employees. It is likely that we’re now moving towards a measured economic re-start in the coming months and this means businesses will face tough decisions including cost-cutting. As redundancies are neither cheap nor easy, the alternatives to achieve savings yet retain skilled, valued staff are very much worth examining. This article examines some of the options, together with the legal issues to consider.
Changing employees’ terms and conditions
Adjusting employees’ contractual entitlements, such as pay cuts or reducing benefits, can make good savings. It can be surprising how often staff will be willing to agree to pay cuts in order to give a business a fighting chance of remaining solvent.
Pay, benefits and hours of work will be contractual terms of employment for your staff and changing them can be legally challenging. Sometimes making minor changes may be permitted under the contract (if the wording is there to allow it) but will probably not be sufficient for significant changes that will have a notable impact on income.
For significant changes you will either need to obtain your employees’ individual consent or, if not forthcoming, taking the ‘nuclear option’ of terminating existing contracts and offering new ones containing the changes needed (so called ‘fire and re-hire’).
Either route requires careful handling. If you decide to take the fire and re-hire option, you’ll need to be mindful of the legal pitfalls such as triggering your legal duty to consult and potential unfair dismissal claims. It will require specialist advice from an employment lawyer, and I’d be happy to help.
If you recognise a trade union for any sections of your workforce you have the additional option of using collective bargaining to reach an agreed change to pay and hours. But bear in mind that this will only cover those roles that are agreed to be within the collective agreement. Usually management roles will be excluded and so you will have to reach individual agreement with your managers.
A reduction to employer pension contributions can look attractive but may still require you to consult with employee representatives. Special consultation requirements apply to pension schemes. Also bear in mind the minimum employer pension contribution thresholds set by current pension law.
Lay-off and short-time working
The Coronavirus Job Retention Scheme (CJRS) has, for many, avoided the need for lay-offs or reducing working weeks. However, when the scheme ends (30th June at the time of writing), it may be that employers will reconsider these more traditional options.
Check your employment contracts to see if you have the power to impose any lay-offs or short-time working. Very few businesses currently have such terms although they were common until the 1980s. Without this sort of contractual ‘permission’, you are back to the ‘changing terms and conditions’ section above. Without your employees’ express and informed consent, you risk claims for unlawful deduction from wages, breach of contract and constructive dismissal if you were to impose a lay-off (temporary suspension without pay due to having no work for the employee to carry out) or short-time working (reducing hours and work and therefore pay).
However, looking to the future, it seems worthwhile thinking about adding in a power to lay-off and short-time working for new starters. It would be good to be better prepared if we ever face a similar sort of crisis.
Reducing use of contract workers
Dispensing with the services of casual workers, agency workers and/or self-employed consultants may well reduce your costs but do make sure none of them qualify as ‘employees’. If they do, they will have statutory redundancy pay and you might fall foul of unfair dismissal law. This risk can sometimes be hidden. It is well worth a few minutes with a friendly employment lawyer to ensure you are in the clear.
Also check any fixed-term contracts to ensure there is a ‘break’ clause allowing you to make an early termination. If not, you could be liable to make payments to the worker until the end of the fixed term.
Non-contractual (‘discretionary’) benefits are easier to reduce/remove in hard times. Employees would probably rather lose these benefits or have them reduced, rather than face a reduction in salary or hours or losing their jobs, so this definitely an option to consider early on.
Redeployment, secondment and sabbaticals may also be on your list. Redeployments or secondments need your employee’s consent (unless there is an express right to do so in the contract of employment.) A sabbatical or career-break is simply time away from work and some employees can afford some time off. Continuity of employment is preserved during a sabbatical and usually annual leave entitlement will continue accrue, which is a cost to bear in mind.
Part-time working or job-sharing can help reduce costs. Seek consent here and set out the new ‘regime’ in writing. Remote, home or flexible working all reduce overheads but be aware of our advice above on changing terms and conditions. Also consider important issues such data security and health & safety.
Communication, communication, communication!
With any changes, engaging with your workforce will be key to getting buy-in. In our experience, open communication goes a long way to getting consent to changes, and obtaining their consent reduces your legal risk to almost nil.
Anne-Marie Boyle is a Partner at Menzies Law, a boutique employment law firm. We’ve been advising businesses through difficult times for over two decades and have plentiful experience guiding businesses through these types of changes. Please get in touch if we can help: 0117 325 0526 ⃒ ⃒ www.menzieslaw.co.uk