1. The true cost to your organisation;
2. The alternatives;
3. The legal implications of incorrect redundancy procedures or any changes in terms of employment?
1. The Hidden Cost of Redundancy
According to the Chartered Institute of Personnel and Development Chief Economist, ‘businesses are under huge pressure right now and restructuring is a fact of economic life that can never be ruled out’. That said, when calculating the actual cost of redundancies companies should bear in mind the costs additional to the redundancy packages offered eg. the costs of re-hiring, induction and training, low morale and fall in staff productivity for the survivors of the restructuring. The CIPD has produced a lengthy formula estimating the average cost of redundancies to be beyond £16,000 per employee.
As an employer perhaps you should ensure that if you go down the restructuring or redundancy route, it is with a view to long term not just short term cost cutting.
2. The Alternatives
Some employers who have invested a great deal of resources in recruiting and training high calibre individuals are looking at more creative ways of retaining such staff in challenging times and finding alternatives to the dreaded ‘R’ word.
The following measures can be put in place as a forward planning exercise which would give employees an opportunity to play their part in helping themselves to protect their jobs:
Pay freeze – ensure staff are aware that this may be necessary in order to provide some job security. This may include a cut in bonuses and reduced overtime;
Recruitment freeze – take on no new employees. Instead redeploy staff from quieter areas to those areas in demand. Offer re-training, save on recruitment and redundancy costs.
Terminate agency or temporary worker contracts instead of cutting back on permanent staff. Cutting back on freelancers/temps may require giving permanent staff greater or different responsibilities
Offer flexible working and/ or a shorter working week
Offer sabbaticals to your staff, this may be unpaid or on reduced pay. This may be a good opportunity for your staff to increase their skills in other areas or to travel to those adventurous places they always meant to visit as students.
3. The Legal Implications:
Whichever route you take forward should be carefully planned to ensure you minimise the possibility of any potential legal claims.
Change in Terms and Conditions:
If you choose to avoid redundancy by changing the role of your employee(s), or if you decide to cut bonuses or overtime, you need to be careful; changing any of your employee’s terms and conditions may result in a breach of contract. When making any changes, your first priority should be consultation with the affected employee or employees to try and get them onboard. If you make a significant change and the employee does not consent, you may be in fundamental breach of contract which could lay you open to, amongst other things, a constructive unfair dismissal claim. You should ensure that you seek professional legal advice before implementing any changes as there may be better ways to introduce the changes and to minimise any potential claims.
Compromise Agreements:
If you decide redundancy is unavoidable then the procedure you follow to implement any dismissals will be important in order to avoid claims for unfair dismissal. If you know there may be potential claims against you and/or you wish to incentivise an employee to accept a redundancy package you should consult your solicitor. If appropriate your solicitor will be able to draft an agreement known as a Compromise Agreement to suit your needs. Such an agreement should enable you to achieve a clean break from the employee - without risk of them bringing any future claims against you in return for the severance payment which you will offer. The employee will need to take the Compromise Agreement to an independent legal adviser to understand the legal implications of it and get it signed. It is common practice for the employer to contribute towards the employees’ legal fees in seeking the necessary advice.
At Morrisons Solicitors LLP we are happy to advise you on the different options and take a commercial and pragmatic approach to dealing with redundancies and contract matters in the current climate. We often draft compromise agreements on behalf of employers and are also able to advise individuals on the terms of their compromise agreements or in relation to any contractual changes. Additionally, if you are planning large scale redundancies and wish to offer compromise agreements to your employees we may be able to offer special rates for signing off agreements for employees.
*Survey conducted by the Chartered Institute of Personnel and Development (CIPD) and KPMG
