There are several alternatives to redundancy that it is well worth employers considering before starting a redundancy process. These can save cashflow on redundancy payments and maintain valuable skills and experience in the business for when demand inevitably picks up. Given the tight nature of the employment market and high costs of recruitment, these are important strategic considerations. Alongside the redundancy procedures you need to know, this article includes our check list of the alternatives to redundancy worth considering.

The aim for the business may be to retain the skills with less ongoing expenditure rather than the disruption and immediate extra cost of redundancy. It is estimated the average redundancy costs £15,000 per person and it takes a business 15 months to consolidate afterwards and regain any benefit. The skills are then permanently lost for the upturn.

If redundancies are necessary, we have included a short list of the main considerations for collective consultation and individual consultation procedures. Legal advice must be taken on these procedures, as they are complex and can lead to employee litigation at Employment Tribunals.

Alternatives that are easiest to implement

1. Non-contractual/discretionary arrangements

• Imposing holiday when work is slow
• Removing overtime
• Changing discretionary bonus scheme
• Reducing discretionary sick pay – go back to just Statutory Sick Pay
• Change personal objectives/targets to match the changing objectives of the business, and review quarterly.
• Check that there are no job vacancies being offered or outstanding job offers which (subject to checking) it may be possible to withdraw or consider deferring new joiners
• Check for any non-permanent staff and whether agency, temporary or casual staff are actually required
• Recruitment freeze 
• Reduction of workforce or natural wastage
• Removal of temporary or contract staff
• Temporary office/factory shutdowns/home working
• Lay-offs if the contract already permits them

How best to go about making these changes

• Impose changes on reasonable notice and follow consultation with employees as necessary.

2. Contractual arrangements where employer may have the ability to change terms

NB Check bonus schemes and employment contracts to see if the employer can change them without employee agreement.

• Cutting/changing contractual bonus schemes and commission arrangements – eg whole/part of commission only paid on company receiving money from customer
• Agreed downgrading or removal of benefits
• Redeployment to other parts of the business (changing locations and/or duties and/or responsibilities) possibly with retraining.

How best to go about making these changes

• Impose changes by giving reasonable notice to the employee and consult with employees
• It may be appropriate to seek prior written consent before making these changes if they are unfavourable to employees.

Alternatives that are hardest to implement

3. Contractual arrangements where the employer has no ability to change

• Short-term or flexible working (reduction in working hours – e.g. four day working week)
• Salary sacrifice schemes which can reduce NICs for employers but also have income tax benefits for employees
• Lay-offs 
• Pay freezes or cuts
• Job Sharing
• Pay deferral schemes
• Sabbaticals (paid or unpaid – e.g. on 30% of base salary for 4 to 12 weeks)
• Unpaid leave (probably shorter than a sabbatical)
• Cutting/changing pension payments
• Secondments to other companies
• Changing/cutting bonus schemes without reasonable notice
• Redeployment to be self-employed

How best to go about making these changes

• Explain the seriousness of the business situation so that employees realise that they have to agree to the changes so this avoids breach of contract and unfair dismissal claims at the Employment Tribunal.

Other methods of making these changes

• Imposing changes unilaterally but there is a risk of breach of contract and unfair dismissal claims
• The safer way to achieve the same aim is to dismiss and re-engage the employees on new terms, but this again carries a risk of unfair dismissal claims. This is done as follows. If employees do not agree to the changes then the employer may have to impose changes by giving equivalent notice which the employer is required to give to the employee to terminate the employment contract and issue a new employment contact alongside consultation with employees. This is the so the called “fire and rehire” process. There is the risk that employees with over 2 years service still bring an unfair dismissal claim at the Employment Tribunal for an unfair process or reason. If the correct notice has been given then employees cannot bring a breach of contract claim.
• Commence a genuine redundancy process and the above options may be alternatives which can be agreed with employees but there is need for collective consultation (see below).

Redundancy procedure

Companies are expected to adopt the following 3 steps when implementing redundancies:

1. to give as much advance warning of the impending redundancy as is reasonable in the circumstances that the role is “at risk”
2. to consult individually with the affected employees to consider and, if applicable, offer any available vacancies
3. to pay redundancy payments (both notice pay and statutory redundancy payments for employees with 2 + years’ service)

It’s vital to follow a full and fair procedure when making employees redundant and keep copies of all letters and emails sent and minutes of meetings. If you don’t follow these mandatory steps, the redundant employees can bring claims for unfair dismissal.

Redundancy procedures for collective consultations (over 20 staff)

If an employer is considering making 20 or more employees redundant within a period of less than 90 days, then the employer must also run a collective consultation procedure, in addition to consulting with the affected employees individually, before making any dismissal decisions.

In a collective consultation procedure, employers must

1. notify to the Secretary of State of the potential redundancies
2. collectively consult with all affected staff
3. individually consult which each affected member of staff

Collective consultation requires the election of employee representatives. This takes time and is more complex when staff are homeworking or not regularly attending the office. If the workplace has a recognised Trade Union, the Trade Union reps can act as employee representatives.

There are set periods of time required for the various stages. As an example, where the employer proposes to dismiss 20 to 99 employees within a 90-day period, the notification to the Secretary of State must be at least 30 days before the first dismissal takes effect. A proposal just to change terms and conditions of employment which if not accepted by the employees would lead to dismissal also requires collective consultation if 20 or employees are affected.

There are fines and criminal offences for management for failure to notify the Secretary of State and there is the ability for employees to seek a ‘protective award’ from the ET of up to 90 days gross pay each in the event that there is a failure to consult. 

Both the collective and individual consultation processes involve decisions by employers about the size and type of the pool of selected employees (looking at roles where similar work is carried out), the process and criteria for selecting employees for redundancy and the process for allocating alternative jobs. There is numerous case law at the various Employment Tribunals about these other issues. Please seek legal advice while planning this process.

Compensation for redundancy

An employee may be entitled to some or all of the following when dismissed for reasons of redundancy:

• statutory redundancy pay
• enhanced/company redundancy pay
• pay in lieu of notice
• time off for job hunting

If an employer thinks an employee will be difficult, obtain a signed settlement agreement as part of the package for the payments made.