An Alternative to Redundancy

Posted on: Thursday March 5, 2009

As a knee jerk reaction to the onset of recession many employers automatically turn to redundancy as a quick fix solution when the immediate imperative is to reduce overheads as quickly and deeply as possible.

Many prudent employers however will want to look at alternatives. Redundancies can badly affect moral and can deprive the business of key skills and individuals. Those spared may be made to feel insecure and start looking elsewhere and, of course, when the recession ends there is a mad scramble to recruit and good staff are often only available for payment of a premium, if at all.

As an alternative, and where the contract permits it, employers may consider lay-off or short -time working hours as alternatives to redundancy. This is an option much favoured in the motor trade at the present time as recently exemplified in the case of Nissan in Sunderland.

Lay-off and short-time working may represent a good temporary fix but a more permanent, root and branch, solution might involve a change to employee’s terms and conditions of employment in cases where the employer wants to pay cut, hours or benefits or introduce more flexible working practices.

Special rules apply to contractual changes relating to a transfer of an undertaking under the 2006 TUPE Regulations which introduced provisions designed to encourage the rescue of insolvent business but more commonly employers will be faced with the need to change contractual terms and conditions outwith any insolvency context.

Changes by Agreement

A useful starting point is to remember the old adage that you can “do anything by agreement”.

It is surprising how many employers automatically assume that employees will be reluctant or unco-operative if it is suggested that they should accept a change to the status quo which, on the face of it, has an adverse financial effect. In fact, when faced with the harsh reality of a recession and the alternative of redundancy most employees are prepared to entertain the prospect of a change to working practices, different shift patterns or even a reduction in remuneration and/or hours.

In work places where there is a recognised Trade Union matters should be dealt with through a collective bargaining process. The major advantage to collective bargaining is the ability to negotiate with one body representing the entire workforce rather than a myriad of individual negotiations or the protracted process of electing work place representatives.

It is however dangerous to assume that agreement with the Union will automatically bind all its members or individual employees who are not members of the Union. In such circumstances a careful analysis of the legal position is necessary to ascertain for example, whether agreements with the Union are deemed incorporated in individual Contracts of Employment or whether the Union is acting in an agency capacity.

Flexibility provisions

In the absence of agreement employers would be well advised to look closely at the terms of individual Contracts of Employment in order to ascertain whether or not flexibility provisions are expressly or impliedly incorporated. Such provisions typically give the employer the ability to change shift patterns, hours of work generally or may even require the employee to move location from end of the country to another.

Employers should not assume that Courts will always uphold the enforcement of these provisions. Courts will always intervene to imply terms into a Contract of Employment to prevent employers acting in a draconian or unreasonable manner e.g. imposing changes without any notice or consultation.

Any vagueness or uncertainty in flexibility clauses will invariably result in the Court finding in the employee’s favour. Even where contractual provisions are clear and well drafted employers need to be circumspect and careful in their application.

Employers should also be careful before withdrawing what they see as discretionary benefits such as bonus schemes. Even in cases where bonuses are said to be entirely discretionary and not guaranteed the Courts have previously decided that an employer’s discretion is subject to an implied term that the employer will not exercise its discretion irrationally or perversely. Additionally what were once seen as discretionary benefits may become a contractual entitlement by virtue of custom and practice. For example in one case the Employment Appeal Tribunal held that the payment of 4 weeks wages to every employee as a Christmas bonus for several years constituted an implied term of their Contract despite the employers argument that the payment was a discretionary gift. The employer’s attempt to withdraw the Christmas bonus therefore amounted to a breach of Contract.

Unilateral action

In the absence of agreement or contractual authority the employer can always act unilaterally although this clearly has its risks. Whilst the unilateral change necessarily involves a breach of Contract on the part of the employer it is always possible that the employee will fail to challenge the change and so over a period of time be deemed, by their conduct, to have accepted the employers unilateral variation. In such circumstances employees have a variety of options:-

  • Accept the change
  • Refuse to work under the new conditions
  • Resign and claim constructive dismissal
  • Work on but challenge the change in writing reserving the right to sue for loss in the County Court – so called “stand and sue”.

Whilst unilateral action certainly has its attendant risks many employees will be reluctant to adopt a confrontational approach in the current climate reasoning that any job is better than none.

Dismissal and re-engagement

The employer’s final option is to dismiss all employees and offer them re-engagement on new terms.

Again, adopting this option runs the risk of losing staff and facing unfair dismissal claims although a carefully structured approach involving appropriate work force consultation can serve to minimise the risk. If an employer can show that the Company had a convincing business case for dismissing employees who refused to accept changes this is often sufficient to persuade an Employment Tribunal that the employer had “some other substantial reason” for dismissing the employee within the meaning of Section 98 (1) of the Employment Rights Act. In this context the employer would need to be able to tick a number of boxes including:-

  • Whether there was genuine consultation
  • Whether the employer dealt with employee’s objections in a reasonable manner
  • Whether the majority of employees accepted the changes or whether a Trade Union recommended them.
  • That the balance of disadvantage favoured the need to implement the proposed changes.

Summary

Times may be hard but appropriate strategy, planning and advice should enable businesses to emerge from this downturn leaner, stronger and more efficient than their competitors.

For more information contact our Employment Department

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