Reducing workforce costs in difficult times

18th March 2020

The financial impact of coronavirus on business is hitting hard. Inevitably, many employers are starting to look at ways in which workforce costs might be scaled back, at least on a temporary basis until the crisis abates.

This is a time to think creatively about the options available. Headcount reduction by way of redundancies may not be the best option given that the current situation, whilst extreme, will not last forever.  A well-skilled, knowledgeable and effective workforce is a business asset that may have taken years of investment to build and nurture. Redundancy may be seen as a ‘last resort’ by many employers who are loathe to sacrifice hard-earned and valuable skills and experience to what is likely to be a short to medium term issue.

These are unprecedented times. Consequently, staff and staff representative bodies are more likely to be open to (or at least prepared to have a dialogue about) creative, short to mid-term proposals that might present an alternative solution to job cuts.

These might include:

Lay offs and short time working

It may be tempting to consider laying off employees temporarily or offering short time working (whereby you reduce their hours) however, currently you must have the express contractual right to do this, which is unusual. There are also detailed rules about safety net payments and how long people can be put on lay off or short time working. Although there is some speculation that the government may introduce emergency measures introducing a statutory right to lay employees off, until that happens, in order to introduce either of these options you would need to look to vary contracts instead, see below.

Changes to terms and conditions of employment

The current economic situation means that changes on a temporary or ‘under review’ basis may be an option to consider.  Minor changes to terms of employment may be permissible if the contract of employment allows them or it might be possible to mutually agree certain changes with staff i.e. seek their consent (be sure to document any such agreement).

Potential considerations that might assist during the current crisis:

• Flexible working
• Home working
• Part-time hours
• Job sharing
• Change in duties or work location/area
• Change in shift patterns
• Change in payment structures/timings

Always take advice before imposing contractual changes.  Fundamental changes carry a high degree of legal risk and it is important to navigate the process correctly in order to minimise exposure to claims.  Regardless of how extreme the business circumstances may be, fundamental changes to terms imposed on staff unilaterally are highly likely to be unlawful and the cost of legal claims could well outweigh any short-term benefits.

Dismissal and Re-engagement

Alternatively, there is a potential legal route available where employers wish to invoke more substantial changes, that is to dismiss employees on their existing terms and immediately re-engage them on new terms (for example with reduced hours). Having a genuine and solid business reason and following a text-book consultation process will be paramount to avoid unfair dismissal and failure to consult claims.  As the outcome of such consultation could be multiple dismissals, collective consultation obligations may apply (i.e. a 30 day process for between 20-99 potential dismissals and 45 days for more than 100). The usual requirements to elect representatives, complete a S188 letter and lodge an HR1 form with the secretary of state will apply. Again, it is sensible to take advice to ensure following the correct procedures, not least because there are criminal sanctions attached to the lodging of the HR1.

Reducing use of contractors and agency staff

Reduction of non-core/off-payroll staff could be an option to consider.  Before terminating or suspending such contracts do first check that you are doing so in accordance with the contract terms.  Also, check that such staff haven’t gained employment or worker status.  As recent case law (e.g. Uber, Citysprint, Pimlico Plumbers etc) has shown, it is the reality of the relationship and not the ‘label’ applied to it that counts when it comes to determining the employment status of contractors and gig workers.

Temporary unpaid or part-paid sabbaticals

This will either be a conceivable option or not depending on the business.  If not, skip this section.  If it is something that might work in your business then a period of unpaid or part-paid time off can be mutually agreed between employer and employee.  The employee normally retains their continuity of employment and the right to return to their job at the end of the leave period.  Properly documenting the parameters of the sabbatical agreement will be essential. For example, give thought to what would happen if the job is not available at the end of the leave period.

Secondment or transfer to another business area

It may be that under-utilised staff could be re-trained or transferred to areas of the business where there is a greater staffing need.  Staff may be prepared to consider this is if it presents an alternative to outright job losses.  As before, imposing changes without agreement or consultation could give rise to employment claims so it is important to take advice on process.

Freeze on recruitment/deferring job offers

Freezing recruitment is a simple and easily achievable step. If job offers have already been issued, exercise caution before withdrawing them or unilaterally deferring start dates as this could give rise to breach of contract claims.

Consider other business areas where savings might be made

As stated at the beginning of this article, a well-trained and effective workforce is a business asset not to be underestimated.  Cutting staff can be inherently costly and carries associated legal risk.  With this in mind, it is worth looking holistically at all areas of the business to identify any non-workforce related measures that might present an alternative to staff cutbacks.  It is worth mentioning that, in difficult times such as these, solid leadership and maintaining good staff morale will pay dividends.

Ultimately, and after consideration of all feasible alternatives, it may simply not be possible to avoid redundancies.  If this is the case, the key will be to follow correct legal process thereby minimising the risk of legal claims and the additional cost this would represent.

Our employment team are here to help with any queries you may have arising from this article. Please contact David Smedley or Andrew Rayment.