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Alternatives to Redundancy - September 2008
Employers across all industries and sectors are currently tightening their belts in order to survive the economic downturn. The summer 2008 Labour Market Outlook Survey, prepared jointly by CIPD and KPMG, provides gloomy reading; over a quarter of the organisations surveyed were planning redundancies within the next three months. However, many employers regard redundancy as a last resort and would prefer, in the first instance at least, to utilise other strategies to cut costs in the hope that they can ride out the storm whilst retaining a loyal workforce. In this month's working times we consider the practical pros and cons, and legal implications, of some of the most common alternatives to redundancy.
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Temporary lay-offs
If an employer does not have sufficient work for his or her staff, but this reduction in workload is expected to be temporary, lay-off might provide a solution. Lay-off allows an employer to send employees home without actually having to dismiss them and allows the employer some breathing space in which to secure additional work. There is no general right to lay-off employees so an employer can only do so if the contract, or a collective agreement, expressly allows it or with the express agreement of the employees in question.
Employees can only be laid off without pay, or on reduced pay, if the contract or collective agreement allows this or if they expressly agree that the employer can do so. An employer who lays-off employees without the express right to do so risks claims for unlawful deduction of wages, breach of contract and constructive dismissal. Even where an employer has the right to lay employees off without pay, most employees will be entitled to receive a minimum statutory guaranteed payment (GP) from the employer.
To be eligible for a GP an employee must have been employed continuously for at least one month, make sure they are reasonably available for work, not refuse any reasonable alternative work (including work that they are not contracted to do), and not have been laid off because of industrial action. GPs are made for a maximum of five days in any rolling period of three months. Employees who normally work fewer than five days a week are paid for the number of days in their normal working week. GPs are worked out by multiplying the number of normal working hours for the day in question by the average hourly rate, but this is currently capped at a maximum of £20.40 per day.
If a lay-off situation continues so that an employee is laid-off for four consecutive weeks, or six weeks in a period of 13 weeks, the employee may be able to claim a redundancy payment. He must give the employer notice of his intention to do so and comply with strict deadlines.
If work picks up sufficiently so that the employer can provide the employee with enough work to fill his normal working week, any period of lay-off is deemed to be a temporary cessation of work and the employee's continuity of service remains unbroken.
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Short-time working
The introduction of short-time working is similar in many ways to lay-off. The key difference is that employees can be laid off for one-off fixed periods of a week or two due to sudden dips in workload whereas short-time working may be introduced for longer periods; many weeks or even months. Short-time working can take many forms but commonly an employee will be required to work fewer days per week or may start or finish work at a different time than usual, e.g. only working half days when they ordinarily work full-time.
Employees working fewer days than they ordinarily would may be eligible to receive a GP (as mentioned before) for any normal working day (24 hours starting at midnight) during which they are provided no work at all, whereas those working reduced hours will not be entitled to receive a GP. Like lay-offs, short-time working can only be introduced by an employer if permitted by the contract or a collective agreement or with the express agreement of the employee. If short-time working continues so that an employee receives less than 50% of a weeks pay for four consecutive weeks, or six weeks in a period of 13 weeks, the employee may be able to claim a redundancy payment. The notice requirements and strict time limits referred to above will apply. If work picks up sufficiently so that short-time working is no longer required, any period of short-time working is deemed to be a temporary cessation of work and will be ignored for the purposes of calculating continuity.
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Job restructuring
Many employers are reducing staff numbers, and in turn costs, through natural wastage e.g. not recruiting someone to replace an employee who has retired or left. Other employers are refocusing their businesses so as to diversify or concentrate on areas which are performing better, for example, many estate agents are placing more emphasis on lettings and less emphasis on sales. Achieving those objectives is largely dependant upon restructuring the roles of existing staff so as to meet the new needs of the business.
In order to restructure an employee's existing role the first consideration will be the contract and job description. Is the newly allocated work, or re-focused role, encompassed by the existing job description? If not, does the contract of employment have an express provision allowing the employer to introduce new functions to the role? It is worth remembering that any express flexibility clause will be construed narrowly by the tribunal or court and any ambiguity will be decided in favour of the employee. An employer must also act reasonably in the manner it exercises such a clause e.g. it may not be reasonable to change the role to such an extent it is barely recognisable or in such a way that the new role is not commensurate with the employee's qualifications or experience. If, having looked at the contract and job description, it is clear that a variation of contract will be needed the employer has three options:
Agree the change with the employee - perhaps offering a lump sum payment in consideration for the change
Impose a variation on the employee without agreement- this option carries a considerable risk that the employee will sue for breach of contract or resign and bring a constructive dismissal claim, or
Dismiss and re-engage the employee on revised terms and conditions - this option is often considered the last resort and if 20 or more employees will be affected, collective consultation will be required.
A full consideration of the legal ramifications and practicalities of those options is outside the scope of this article and advice should be sought before you commence on changes to terms and conditions.
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Are you prepared to beat the economic downturn?
An employer's ability to utilise these alternative strategies relies upon a well drafted contract of employment or union negotiated collective agreement which includes a contractual right to lay staff off or introduce short-time working and gives the employer some flexibility when seeking to avoid the need to make redundancies. All the recent predictions are that the economic situation will get worse before it gets better so now is the time to act to ensure that you have robust and flexible contracts of employment in place. |
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If you would like any more information about this, or related employment matters, please do not hesitate to contact Adrian Berkeley Principal or Craig Oldale, Head of the Employment department, on 0161 371 0011 or by e-mail: craig@claim.co.uk
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