Employment lawyer Laura Evans looks at how to avoid redundancies in a recession

This article was written for and featured in Menswear Buyer, Womenswear Buyer and Childrenswear Buyer.

Whether you are a retailer, manufacturer, supplier or agent, the impact of the global recession is hard to escape. Faced with budget reductions and a squeezed bottom line, many businesses in the fashion sector and beyond have resorted to making redundancies. With the headlines taken up by retail giants such as Arcadia,  it is easy to forget the countless smaller fashion businesses that have done the same in an attempt to stay afloat. Although the financial forecast is undoubtedly gloomy there are alternatives to consider before making compulsory redundancies, which should always be the last resort.

Before planning redundancies, every employer should ask itself whether it has exhausted all other options. For example, have voluntary redundancy or “early retirement” been considered? Compulsory redundancies damage morale and can be costly in terms of management time and liquidity if poorly executed. Most of the measures below are less draconian and are reversible, allowing fashion businesses to respond swiftly to the extra workload if business picks up.

Consider whether some of the alternatives below might work for your business:

• Buying extra holidays: who wouldn’t jump at the chance of extra holiday?! Consider offering employees a proportionate reduction in salary if they agree to “buy” extra holiday, which can then be controlled by reference to workloads – a little-known provision in the Working Time Regulations allows employers to require holiday to be taken at specified times.
• Reduction in hours/days worked: If the workload of certain groups of employees has reduced, this can be an acceptable option for those employees who might otherwise lose their jobs, and an effective way of reducing costs without making compulsory redundancies. Obviously it requires employee agreement. Care should be taken to ensure that the employer has the right to require those employees to work full time again once levels of work pick up.
• Reduction in salary: Clearly this also needs employee consent, but many employers are considering these types of arrangements. Where these changes are led by management (and where management therefore accept cuts themselves), this can be a successful cost-saving strategy. Dismissal for refusing to agree to such a change can be a fair dismissal.
• Recruitment freezes: It goes without saying that recruitment freezes can be effective methods of achieving necessary reductions – natural wastage, with those that remain having to work harder.
• Retraining and reorganisation: Can employees be retrained to fill vacancies in other departments? This is all part of a fair redundancy process.
• Removing discretionary benefits: This needs to be done very carefully (as in some circumstances a benefit may have become contractual, even if it is stated to be “discretionary”), but this can assist with cost-cutting and may remove or at least defer the need to make redundancies.

Top tips:

1)       Ask employees if they can come up with any innovative ways of reducing costs to help avoid redundancies. By involving them in the process, employees are likely to feel a greater sense of camaraderie and may therefore be more open to some of the above options.

2)       If any fundamental changes are made to employees’ contracts of employment, their consent will be required.

3)       If none of the options are viable, ensure that a fair selection process is used to decide who should be made redundant and a fair consultation process is followed before the final decision to dismiss is taken.