Alternatives to redundancy: A guide for UK employers

Introduction

The economic effects of the outbreak of coronavirus (COVID-19) for many businesses are significant and likely to endure for a long period of time. As a result, businesses are considering what steps they can take to ensure that they can continue to operate, including meeting their liabilities towards their employees. In the UK, the Government has introduced the Job Retention Scheme which provides for funding for employers who place the employees on their payroll on “furlough”. Since furloughed employees should not be assigned any duties, this may not be an adequate solution for all businesses. Accordingly, employers who wish to retain their staff and protect them from redundancy may wish to consider alternatives to this scheme.

This briefing looks at steps companies may consider taking before having to make redundancies. When deciding whether to implement these measures, employers must also consider:

• The need for employees' consent and if so, how will consent be obtained?
• Any obligation to collectively inform and consult.
• The impact any measures will have on the morale of the workforce and the reputation of the company.

1. Job Retention Scheme

The UK Government has introduced the Coronavirus Job Retention Scheme, which will help employers pay their workers’ wages. Any employer (regardless of size or sector type) will be eligible for the scheme. Employers can apply to HMRC for a grant to cover most of the wage costs (up to 80 per cent) of salary of workers who are temporarily not working but kept on the payroll (furloughed workers) for up to a total of £2,500 per worker each month. The scheme will apply to employees on the payroll on February 28, 2020 and will be backdated in effect to March 1. It will run for three months, but the Chancellor may extend it if required. In order to access the scheme, an employer will need to designate affected employees as ‘furloughed workers,’ and notify the employees of this change. Depending on the terms of the employment contract, an employer may have to obtain the employee’s consent to such change. Information must be submitted to HMRC about the employees who have been furloughed and their earnings through a new online portal when it has been opened – currently targeted for the end of April 2020.

2. Reduction in working time

One measure that employers could take to reduce costs is to seek agreement with employees for a reduction in their working time either by decreasing their hours of work or reducing their number of working days. Employees would also be asked to agree a corresponding reduction in pay to reflect the decrease in working time. In order to implement such a change, the employer would need the express consent of the employees (unless there is contractual provision for lay-off or short-time working). Any change to terms and conditions relating to pay without the consent of the employee would amount to a fundamental breach of contract. As a result of breach of contract, an employee could resign and claim constructive unfair dismissal, claim for breach of contract or claim for unlawful deductions from wages.

3. Period of unpaid leave

Some employers may ask staff to agree a period of unpaid leave, for example, where the business has had to close and if the employees do not qualify for the Job Retention Scheme. In this case, employers should again seek agreement from the employees to this unless the employment contract (or collective agreement) contains a clause allowing the employer to place employees on unpaid leave. Some employers’ unpaid leave policies contain certain conditions such as length of service or the number of unpaid leaves an employee may take per year. An employer can decide to waive or ignore these stipulations, to encourage take-up of leave.

4. Lay off or short time working

Where employees do not fall within the criteria for the Job Retention Scheme, then the employer will need to consider lay-off or short-time working. The employer would not pay employees their normal wages in these circumstances, but the employees may be entitled to a statutory guarantee payment.

Lay-off

An employer can impose a lay-off or short-time working, without employees' agreement, if it has a contractual right to do so and the contract must make it clear that employees will not receive their normal salary during the lay-off period. If there is no contractual right to lay-off, the employee may be able to claim a repudiatory breach of contract which would entitle the employee to resign and claim constructive dismissal; and an unlawful deduction from wages.

If the contract does not give the employer the right to lay off, then any proposal to lay off will need to be the subject of consultation with employees, and will require the employees’ consent. Employers must not keep employees laid off for longer than they need to, as otherwise the employees may treat themselves as redundant and be eligible for a redundancy payment.

Short-time working

Short-time working is a reduction in the hours that employees are required to work and normally a corresponding reduction in pay and is set out in the Employment Rights Act 1996. Employees are guaranteed some work and a proportion of their pay. An employer must have a contractual right to put employees on short-time, or seek express consent from the employees. Employees are entitled to receive guarantee payments in respect of any day that they are normally required to work but are provided with no work at all. If an employee's hours are reduced, but he is still required to do some work each day, he will not be eligible for guarantee payments in respect the hours he hasn’t worked.

If an employee is on short-time working hours for four weeks or more, then that employee can claim a redundancy payment in the same circumstances as those who are laid off, provided, however, that for redundancy purposes an employee is only treated as on short-time for any week if he is paid in that week less than half of his normal remuneration.

5. Withdrawing job offers or postponing new starts

If the business has recruited new employees to join the business, who have not yet started, the employer may need to consider withdrawing those job offers.

An employer may withdraw an offer of employment at any point before it is accepted, without having to give notice or make a payment in lieu of notice. Once an offer has been accepted, and any preconditions attached to it met, a binding employment contract is in place, even if the employee has not yet started work. Any refusal to allow the employee to start work will amount to termination of a contract. Any failure to give notice or pay in lieu, will give rise to a breach of contract claim. The compensation that would be awarded for such breach would be the loss that the individual has suffered as a result of the breach and is therefore is likely to be limited to the notice period under the contract. As the individual’s employment would not yet have started then the individual will be unlikely to have a claim for unfair dismissal because they will not have the necessary service requirement to bring that claim (except if they have continuous employment with a group company).

The other option for the business is to seek to vary the term of the contract by offering the opportunity for the new recruit to accept a delay to their start date. If the new joiner has already accepted the offer of employment, then there is a contract in place and a change to the start date will require their consent. As a result and to maintain their reputation, employers may offer compensation for the deferral.

6. Retraining and redeploying staff

Businesses may need to consider if there is an opportunity to offer staff alternative positions with appropriate retraining where necessary. For example, retail outlets are finding that their online offering is now being stretched and therefore may utilise redeployed staff. Where the job role is a key term of the employment contract, this can only be varied with the employee's consent or under an express term of the contract.

If the proposal to retrain or redeploy staff arises after a redundancy programme has commenced, the employer can make the offer to retrain or redeploy as part of an offer for any available suitable alternative employment.

If there is no contractual provision, an employer will usually have to obtain an employee's consent to the change. If an employer undertakes a large-scale redeployment exercise, it may need to conduct a collective consultation with all affected employees, in addition to individual negotiations.

7. Introducing flexible working

Employers are also having to consider the use of their flexible working policies, particularly for staff who have young children who now will no longer be in school. The formal flexible working regulations only apply to employees with at least 26 weeks' continuous service and are also a permanent change to an individual’s contract. The employer could agree to waive these requirements and if so, must make it clear: the precise change to work conditions (such as hours, days and location); how long the arrangements will stay in force; and how the arrangements affect employees' pay, benefits and pension arrangements.

8. Sabbaticals

Employers may wish to consult with staff about the possibility of taking sabbaticals for a defined period of time, or simply invite staff to apply for sabbaticals of a defined length and on defined conditions. Some staff may be happy to take a sabbatical, particularly if they are having to look after children during school closures. A sabbatical could be on either an unpaid or a part-pay basis (e.g. a percentage of basic pay).

When entering into a sabbatical, the employer should consider: the duration of the sabbatical; whether the sabbatical can be prolonged or shortened by either party and, if so, under what circumstances and on what notice; whether the employee will be paid during the sabbatical and, if so, at what rate; which benefits will continue during the sabbatical; the effect of the sabbatical on the employee's pensions arrangements; the effect of the sabbatical on an employee's continuity of employment; a reminder that the employee remains subject to the contractual terms on confidentiality and restrictive covenants; which job the employee has a right to return to at the end of the sabbatical; the salary rate to which the employee will return from a sabbatical; and what restrictions will be place on the employee’s activities during the sabbatical leave.

9. Implementing a pay freeze or pay cuts

Most contracts of employment will not provide for a contractual pay rise each year and therefore, a pay freeze is unlikely to amount to a breach of contract. If the contract is silent, the employee could try to claim that there is an implied term that has arisen by custom and practice. However, an employer would argue that circumstances are fundamentally different. A reduction in pay would however represent a fundamental breach of contract and so the employer would need to obtain the consent to the change in terms. Employers who intend to cut pay should advise the workforce in advance, setting out the reasoning and benefits of the exercise.

10. Bonus payments

Whether failure to pay a bonus payment or reducing the level of bonus would amount to a breach of contract will depend on whether or not the payment of the bonus is a contractual entitlement or is a discretionary bonus. If the bonus arrangements are contractual and the preconditions for making the payment have been met, employees' consent will be needed for any variation. However, even where a bonus is stated as being "discretionary", employers must exercise their discretion as to whether to award a bonus or the amount of the bonus reasonably.

11. Limiting or banning overtime

It is likely that an employer will consider that there is no requirement for overtime. However, they will need to consider whether there is a contractual entitlement to overtime. If there is, then the employer must obtain employees' consent to stop offering overtime whilst also considering whether any ban has an indirectly discriminatory effect on the workforce.

12. Practical considerations

When considering alternatives to redundancy, employers may consider that employees are more likely to agree to changes in their terms where this avoids redundancies.

Good and transparent communications with staff will be critical even where collective consultation under s188 Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A) is not a legal requirement.