The prospect of the Furlough Scheme ending will inevitably lead many employers to consider whether further cost cutting will be required.
Whilst there are many possibilities open to employers with regards to making cost savings, for many organisations, employee wages will be a substantial element.
There are a number of options open to employers in respect of employee costs, each of which has potential benefits and disadvantages. In particular, there are a number of alternatives that fall short of redundancies and these include:
If an employee’s contract of employment contains a layoff/short-time working clause, the employer will be able to take steps to temporarily reduce the employee’s working hours with a pro-rata reduction of salary.
Even without an express layoff/short-time working clause, in exceptional circumstances an employer may be able to justify such a decision by pointing to a long-standing layoff/short-time working precedent within the business, to justify such a decision.
The term ‘layoff’ should not be confused with redundancy. Layoff is where an employee on a temporary basis is not given any work at all each week, whereas short-time working is where an employee has a temporary reduction in working days or hours.
During a short-time working or layoff scenario, the employee is entitled to £30.00 per day for the initial 5 days of non-working within three months.
The advantages of a layoff/short-time working strategy is that it can be implemented swiftly without notice pay or redundancy pay having to be paid. Although, after 4 continuous weeks of layoff, an employee can apply to be made redundant.
A disadvantage of a long-term layoff or short-time working position is that an employer is faced with many unhappy employees who are still employed within the business. Compare this to a redundancy situation, which involves perhaps fewer unhappy employees, who ultimately will no longer be engaged by the organisation.
Another consideration is that there is a real risk that employees who are earning less than they would earn normally may look for alternative employment. Inevitably, the most skilled employees will find it easier to secure employment in the job market, meaning the organisation could lose its more skilled individuals.
Reduction in Salary
Organisations may be able to secure a voluntary agreement from employees for a reduction in salary. However, in the absence of a voluntary agreement, an employer has the option to consult and ultimately give notice to terminate the employment of an employee and to re-engage immediately at the newly reduced salary rate. This is not without its dangers and the reduction in salary will need to be reasonable. It will also be limited by National Minimum Wage considerations.
Any employee whose employment is terminated by this method and refuses to be re-employed at the new reduced salary rate could potentially bring a claim of unfair dismissal. The business reason behind the reduction, the consultation process to bring about the reduction, the procedure itself and the test of whether the changes were reasonable will all contribute to the question of whether the dismissal was fair.
Employers also need to be aware, if they are contemplating terminating and re-engaging the employment of twenty or more employees, the requirements around collective consultation will also apply.
If employers are finding that the options short of redundancy will not provide the cost savings required, then an organisation may be able to pursue a redundancy process.
There are, as mentioned above, different requirements where an employer is proposing to make fewer than twenty employees redundant compared to the collective redundancy consultation requirements where twenty or more redundancies are being proposed.
The latter scenario will require the election of Employee Representatives or a consultation with a recognised Trade Union for a minimum period of 30 or 45 days, dependant on the proposed number of redundancies. The consultation needs to take place at the earliest opportunity before the plans are finalised and an HR1 form also needs to be completed and submitted.
A fair redundancy process will need to demonstrate a thorough consultation process, a fair redundancy pool and a reasonable search for alternative employment.
An unfair redundancy procedure can give rise to substantial compensation due to the number of employees being made redundant. In addition, if a collective consultation is required, employees can claim 13 weeks’ pay each, where the collective consultation requirements have not been met.
Employers should also be aware that it may be difficult for employers to justify a fair redundancy dismissal, without first fully utilising the government’s Furlough Scheme.
There are a number of cost saving options open to employers post-furlough. The option of redundancy is only one possibility, along with a number of other cost saving alternatives.
However, the cost saving benefits of these changes can be quickly outweighed by unfair dismissal claims. Employers who are embarking on a variation of contractual terms, layoff or short-time working and particularly redundancies ought to take specialist employment law advice to minimise the risk of being on the wrong end of an Employment Tribunal finding.