Avoiding Redundancies : It’s Time to Get Creative!!

Dear Auntie

I am the HR Director of a large advertising company. Along with most employers, our company’s management group is undertaking a review of our current staffing needs, and trying to anticipate what reductions in headcount might be needed to ensure that our business stays profitable in the current economic climate. I have been asked to come up with some alternatives to redundancies which can be considered by management as part of any redundancy process. I think this would get the support of our employees, who are anxious to avoid redundancies. Can you help me?

Yours sincerely

R. E. Sourceful


Dear R. E. Sourceful

There have been a number of companies recently considering this same issue. Whilst many organisations have had no option but to make compulsory redundancies in response to a downturn in work, others are starting to think creatively about ways of reducing costs without making people redundant. Clearly the viability of these options will differ from one business to the next, depending upon a number of factors including the organisational structure, the type of work the employees are engaged in, management’s assessment of how long the downturn is likely to last, and the extent to which profitability has been impacted by the credit crunch.

Employees can be expensive to replace and recruitment can take time. Considering possible means of avoiding redundancies is a good idea, and there is no harm in starting to think about whether those options are appropriate for your business before any redundancy process is commenced. If a redundancy process has already been started, some of these points will still need be considered to ensure that a fair redundancy process has been followed. As part of any fair redundancy process, whether that redundancy is individual or collective, employers should be considering not only suitable alternative positions for affected employees, but also looking at whether there is any way of avoiding those redundancies. This is an essential part of the process in order to avoid unfair dismissal claims. Sometimes ideas may also be raised by the employees themselves during a redundancy process. We have, for example, heard of groups of employees who have as a group voluntarily proposed pay cuts or a reduction in working hours as a means of avoiding the redundancy of some members of the group.

Below are some of the possibilities you could explore. These suggestions come with a health warning though: you must ensure that you follow the correct process before implementing any change. In most cases the changes proposed will require the express consent of the employee before they can be implemented (please refer to our article last month on Changing Terms and Conditions):

Deferral of job offers made to graduates: This is not a solution which will work for all businesses, but some organisations (including a number of City law firms) are offering graduates a fixed sum of money (between £5,000 and £10,000) if they agree to delay their training contracts for a year. This gives the graduate the chance to go travelling or undertake some voluntary work, whilst at the same time reducing immediate overheads for the firm.

Voluntary sabbaticals: A number of other organisations have been reported as offering their employees the possibility of a voluntary sabbatical of between 3 and 12 months, which is either unpaid or paid at a greatly reduced rate of pay. Consider though what the employment status will be for employees during that sabbatical period. In particular, will the contract of employment (and, therefore, continuity of service) continue, and will there be a guaranteed job for them at the period? These issues will need to be resolved prior to the sabbatical.

Buying extra holidays: At least one law firm has reportedly offered employees a proportionate reduction in salary if they agree to “buy” an extra two weeks’ holiday. This is a similar idea to the voluntary sabbaticals, but for a shorter period. If you adopt this idea, you may want to ensure that the option is only available for a limited period of time, and not indefinitely.

Reduction in hours / days worked: Another option which is being considered by a number of organisations is whether to introduce a reduction in hours or days worked for certain groups of employees, where their work might be suited to a 3 or 4 day week. Whilst the statutory right to request to work flexibly only applies to employees who have 26 weeks’ continuous service and have parental responsibility for a child aged under 16 (or under 18 for a disabled child), there may be other groups of employees who would be willing to work flexibly, and this can be an effective way of reducing costs without making compulsory redundancies. If this approach is adopted, care will need to be taken to ensure that the company has the right to require those employees to work full time again once levels of work pick up. You may also want to consider a “trial period” for any new arrangements, so that they can be changed if they are not working out.

Seek candidates for voluntary redundancy / early retirement: Before making compulsory redundancies it is often a sensible idea to see whether there are any employees who would be willing to take voluntary redundancy or early retirement. Note though that this is still deemed to be a dismissal by the employer, so a fair process will still need to be followed. Additionally, an attractive redundancy package will usually need to be offered to incentivise employees to accept. One disadvantage of this is that the company has no control over which employees volunteer for redundancy, and it is possible that you may lose some of your good people, whilst retaining some of those who are performing less well.

Recruitment freezes: These have already been adopted by many employers in response to the downturn in current economic conditions. Even if you have a recruitment freeze, you may need to review this if employees in certain key roles leave unexpectedly or for opportunistic hires which add to the growth of a business e.g. a lawyer or accountant joining with large book of business.

Retraining and reorganisation: Can you re-train employees and fill vacancies in some departments with those who are at risk of redundancy in other departments? This is particularly useful where there is a recruitment freeze. Could any employees be transferred or seconded to overseas offices?

Reduction in salary / cease overtime payments: Clearly this will need employee consent, but many employers are considering these types of arrangements as a means of avoiding compulsory redundancies. Where these changes are led by management (and where management therefore accept cuts themselves) there has been some success in implementing those changes across the workforce. Freezing levels of pay at last year’s level is another possibility.

Lay off casual workers: Care needs to be taken to ensure that agency workers do not have a contract of employment with the company, but where a company engages casual workers, terminating those arrangements may assist in reducing costs.

Remove discretionary benefits: This needs to be done very carefully as in some circumstances a benefit can have become contractual (even if it is stated to be “discretionary”).

Ask the employees: Ask the employees if they can come up with any ingenious or innovative ways of reducing costs whilst avoiding redundancies. They may have some good ideas!

Whilst these measures won’t suit all businesses, it is worth considering some creative solutions to see whether it is possible to avoid compulsory redundancies and to retain some key employees until the market recovers.

Rebecca Davidson is an employment and HR lawyer and Senior Associate at Fox Williams LLP. She can be contacted on 0207 614 2636 or rdavidson@foxwilliams.com.

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