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Home > Feature Articles > Alternatives to Redundancy

Alternatives to Redundancy

Email Update 55
It has been widely reported in the Press that unemployment in the UK has risen to 2.43 million. This figure is taken from the Office of National Statistics Labour Market Report that was published on 12 August 2009.

You can access the Report by clicking on the following link:

http://www.statistics.gov.uk/cci/nugget.asp?ID=12

The statistics show that the number of redundancies in the three months up to June 2009 was 277,000, which was down 9,000 over the quarter but up 150,000 over the year.

It will not come as breaking news that businesses continue to experience difficult trading conditions in the current recession and that many, if not most, have had to look to control or reduce their cost base. Among the measures that companies may have taken, or may be considering, is the possibility of making redundancies.

In email update 37 we gave an overview of the law and emphasised the importance of proper planning prior to declaring a redundancy situation.

You can access email update 37 by clicking on the following link:

http://www.justemploymentlaw.co.uk/features/Update37

Before declaring a potential redundancy situation, it is worth remembering that there can be a number of alternatives to making compulsory redundancies.

Indeed, if alternatives to redundancy are not considered, as part of meaningful consultation with the affected employees, it is likely that an Employment Tribunal will find any subsequent dismissal on the ground of redundancy to be unfair.

Assuming that an employee who is dismissed is paid all statutory and contractual entitlements due on termination, the maximum amount of compensation that an Employment Tribunal can award, in most circumstances, is £66,200. Please note that the statutory cap of £66,200 does not apply to unfair dismissals where the employee is dismissed unfairly or is selected for redundancy for reasons connected with Health and Safety or for making a Public Interest Disclosure.

What are the possible alternatives to compulsory redundancy?

Perhaps the most obvious alternative is to seek volunteers for redundancy. Some employees may, depending on their particular circumstances, welcome voluntary redundancy and the payments which will be made as a consequence. Often as an incentive for employees to apply for voluntary redundancy, enhanced terms are offered. This can make it much more attractive for a particular employee to apply for redundancy. However, if there is a desire to cut costs on behalf of the business then this may not be commercially desirable or even viable.

If an employee applies for, and is granted, voluntary redundancy this still amounts to a dismissal in law. As such an employee could raise a claim for unfair dismissal before the Employment Tribunal, but the risks of being successful with such a claim would be extremely low.

Cost of Making Redundancies

The cost of making redundancies, whether voluntary or compulsory, have to be factored in to any decisions as the costs can be significant. Statutory or contractual redundancy pay, notice pay, payment in lieu of accrued but untaken annual leave and any other contractual benefits must be taken into account. In addition, there is the risk of the employees who are dismissed, for a reason relating to redundancy, raising claims before the Employment Tribunal. In addition to direct costs, your business may also lose valuable and skilled employees, who may not wish to return to work for you if your particular business picks up in the future. Accordingly, it is prudent to consider the costs of future recruitment and training of new employees. While cutting costs by making redundancies may make a significant positive difference in the short term, over the medium to longer term, this may not be the case.

What are the other alternatives?

There are many other alternatives to redundancy such as:

Recruitment freezes
Pay freezes, or pay cuts
Pay deferral schemes
A limit on, or stopping entirely, overtime
Introducing short term or flexible working
Reducing the use of agency staff
Allowing employees to have sabbaticals, or ‘career breaks’
Seconding employees to particular projects, or even to other employers

The CBI and Harvey Nash have published “Employment Trends 2009: Work patterns in the recession”. The report refers to the challenges facing businesses during the current recession and highlights some of the ways that businesses have been attempting to reduce costs while retaining employees’ jobs where possible.

You can access the report by clicking on the following link:

http://www.cbi.org.uk/ndbs/Press.nsf/0363c1f07c6ca12a8025671c00381cc7/56ebefb25149a68b802575da00308471/%24FILE/CBI%20-%20Harvey%20Nash.%20Work%20Patterns%20in%20the%20Recession.%20June%202009.pdf

Taking advice at the earliest stages of redundancy planning will not only ensure that risks can be identified and managed, but will also give you the opportunity to consider whether or not there are any viable alternatives the business. Whichever path you decide to take Just Employment Law is well placed to advise on the employment law implications.