Cost Saving Options To Avoid Redundancies

Dean Jones and Zainab Hakim -Jones Chase–17 June 2020

The UK Government has announced that companies will be expected to contribute to their furloughed employees’ salaries from 1 August 2020 and the scheme is due to come to an end on 31 October 2020. Many business have suffered during the pandemic and may now be looking to take drastic action for survival. 

Whilst implementing redundancies may be a necessity for some businesses, it is the people who work for you who make the business what it is. To assist you through this time, here are five creative employment law options which will help to keep good teams intact, keep morale high and avoid compulsory redundancies. 

1. Seek volunteers for unpaid leave/sabbaticals

Whilst there is typically no contractual right to enforce unpaid leave or sabbaticals, if you are suffering a downturn in work, you can invite staff members to take unpaid leave/sabbaticals and refer to the fact that it is limiting the risk of redundancies.  We have found that staff are generally happier to take up this offer for the greater good of the company, if it means that jobs are being saved.  Such staff can be re-engaged when business picks up.

2. Part-time working/hours reduction

If you have no contractual right to reduce a staff member’s hours of work and in any event, to avoid the potential risk of claims, you will need to seek the employee’s consent to the reduction in hours and knock-on reduction in pay.  A contract variation process, involving consultation, should ideally be entered into, and can certainly be successful. Getting staff to consent to reducing their hours of work and corresponding pay levels, will help the company get through a potentially difficult period whilst keeping the team intact.

3. Reducing or not paying company and/or personal bonuses

Whilst risky, most employers may not realise that they have an element of discretion built into a well written employment contracts as to whether to pay a bonus and if so, the amount of the bonus being paid.  In the current circumstances, you may be able to justify not paying any bonuses across the company.  If employees have a contractual right to a bonus, withholding or reducing the bonus is riskier, but steps can be taken to mitigate this danger.

4. Reducing all salaries

This is more severe than asking people to work less hours for less pay at point 2 above, but businesses should remember that they can still ask staff to take a pay cut, for example, a 20% reduction across the workforce, particularly if this helps to save jobs. More senior, higher paid staff could be requested to take a slightly larger pay cut if appropriate.  Again, you would need to obtain consent from the workforce for this and a contract variation exercise should ideally be followed. 

5. Layoff and short-time working

Laying off employees means that you do not provide them with any work or pay for a period whilst keeping them employed.  Short-time working means providing employees with less work (and less pay) for a period whilst employees remain employed by you. This is a temporary solution to the problem of no or less work. Typically, lay-off and short-time working are used in sectors such as manufacturing, and for certain types of workers. However, recent economic downturns have seen lay-off and short-time working used more widely, sometimes in the professional services sector and for salaried employees. 

Most employees do not have an implied right to be provided with work, but do have an implied right to be provided with pay.  So when an employer lays off (or puts on short-time working) an employee without pay, without having reserved the contractual right to do so, it is the non-payment which is likely to give rise to the breach of contract rather than the failure to provide work. Side letters can be used to vary an employee’s contract in this regard and add contractual provisions providing for lay off and short time working.

Reducing risk 

Whilst helping to save jobs, several of the options above will most likely involve a change to employees’ contracts, which is not without risk. The safest and therefore best way to effect such a change is by obtaining consent from employees. This can be done via consultation with employees or employee representatives, depending on the size of your workforce. Obtaining consent limits the risk of employment claims being brought. It is important that a proper contract variation/consultation process is followed and that, if relevant, any change to staff contracts is drafted such it has temporary effect and can be reversed by the employer when needed. If you are in doubt, legal advice should be obtained which will help to reduce risk and assist with keeping good teams together.