Organisational Re-Design: Downsizing and Redundancy Post Pandemic

Author: Paul Middlemast, Chartered HR Practitioner

 

Organisational Re-Design: Downsizing and Redundancy Post Pandemic

 

The government’s job retention scheme offered some immediate help to organisations during the Covid-19 pandemic. However, from 1 July 2021, the level of grant will be reduced and employers will be asked to contribute towards the cost of your furloughed employees’ wages and come to an end September 30th.. Businesses are already starting to look at how to manage the longer-term economic impacts of Covid-19. Which is why having access to advice is so beneficial for many a small and medium business (SME’s).

Meeting the cash flow challenge in light of the Pandemic in the employment context, is not straightforward, but must be faced by many businesses quickly and effectively.

To help address the most pressing of some of these emerging themes this article; is the second of three exploring the new world of work from a people management and compliance perspective in jurisdictions of the UK and Ireland.

Where thousands of businesses during the pandemic have experienced a burst of acceleration: fast-forwarding into the future of work in ways that stress-tested their ability to blend people and technology in the most dynamic business environment many of us have ever seen.

The three articles are:
  1. Management Strategies: Organisational Change in a (Post-) Pandemic World
  2. Organisational Re-Design: Downsizing and Redundancy: Post Pandemic
  3. Remote and Flexible Working: Post COVID-19

The vast majority of companies affected are otherwise good solid businesses, but because of the pandemic, are facing supply chain challenges and/or a reduction in demand.  In order to manage their cash flow, businesses need to consider every way in which they can manage their costs in the short to medium term.  One major cost in many businesses is the cost of employees.

Reducing employee cost is not easy and companies would be unwise to wait until they are in financial difficulties before addressing the matter.  Changes cannot be achieved quickly, without significant risks and the potential to irreparably damage the business, so that it is not in a position to flourish when the difficulties associated with Covid-19 lift, is real and significant.

The choices facing businesses generally boil down to the following:
  1. Dismissal on the grounds of redundancy
  2. Reducing employee’s pay; and/or
  3. Laying off employees or moving to short time working

Redundancy due to coronavirus

Where a business is struggling to make ends meet, it may be forced to make some of its employees redundant. For a redundancy to be lawful there must first be a “redundancy situation”, such as a business or workplace closure or a diminished requirement for employees doing a particular kind of work.

Coronavirus is likely to reduce demand for services and may also restrict important suppliers or force workplaces to close entirely for a time. Each of these could potentially give rise to a redundancy situation.

Mitigating against redundancy

Organisations could consider to ‘pivot the business’ this where for example, in retailing, the low footfall; caused by the pandemic and the general decline in people shopping in the ‘high-street’ business have come to realise there’s enormous traffic online not only locality also wider afield.

So, diversifying with the appointment of a new role of a Sales and Social Media Associate whose primary remit is at first through a basic retail website, combined with astute use of social media to draw attention to both our online and offline in-store presence. While many customers may prefer to buy online, a business can also use an online presence to drive in-store footfall.

Redundancy – what do you need to consider?

During these unprecedented times of a national pandemic which have crippled the economy, many businesses are facing tough decisions ahead, one of which may be to consider redundancies.

Not surprisingly, a large number of my queries are currently related to making redundancies due to the current pandemic.  Some clients are wanting to rush through the process as they are really struggling to stay afloat and survive during the current times.  We understand wanting to get through the process quickly but as nothing has changed in terms of redundancy process, is it worth the risk of a possible claim which could actually cost you more money in the long term?

It is important to note at this point that redundancies should be the last point of call for businesses even during these exceptional times.  Businesses may expose themselves to the risk of unfair dismissal claims being brought against them if they do not follow the correct procedure or indeed, it may be argued in the current situation, if they have not placed employees on furlough leave prior to considering redundancies.  This is especially bearing in mind that the concept of furlough leave was introduced in order to keep people in work.

If a business is considering making redundancies, it must be mindful that this will have an impact on the rest of the workforce and should expect to experience a drop in workplace morale.

Redundancy Dismissal

Almost the last resort that an employer will consider for managing a short-term impact on its business, which the Covid-19 pandemic may prove to be, will be dismissal on the grounds of redundancy.

An employee with 2 years’ service or more can challenge the fairness of their dismissal.  Such a challenge will be successful if the employer has not followed a fair and proper procedure and where the selection process, determining which employees are made redundant, is not sufficiently robust and reasonable.

Employees with 2 years’ service or more are entitled to a statutory redundancy payment (and possibly an enhanced payment if their employer has a contractual obligation to make such a payment).

As already set out above, a dismissal on the grounds of ‘redundancy’ falling within Section 195 of TULRCA will trigger the onerous obligations to inform and consult collectively under TULRCA, if the employer is proposing to dismiss 20 or more employees in a 90-day period.  A failure to do so could land them with the liability for 90 days’ pay for each employee dismissed.

Redundancy defined

Redundancy is defined in section 139(1) of the Employment Rights Act (ERA) 1996.  Redundancy is where the dismissal of the employee is “wholly or mainly attributable to” the employer:

  • Ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure); or
  • Ceasing or intending to cease to carry on that business in the place where the employee was so employed (workplace closure); or
  • Having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees). Note that this particular situation means that the business does not necessarily having to be experiencing a downturn in work.

So, what is the true meaning of redundancy?

A redundancy occurs in three situations:

  1. Where there is an actual or intended closure of the whole business.
  2. Where there is an actual or intended closure of the business at a particular workplace.
  3. Where there is a reduction in the need for employees to carry out work of a particular kind.
  4. To dismiss fairly for redundancy an employer must establish that the role is genuinely redundant, follow a fair consultation procedure and consider whether there is suitable alternative employment.

What is a genuine redundancy?

A genuine redundancy could be where the work is no longer needed due to a downturn of business, a new line of work which requires a different skill set, or a new process being introduced.  It could also be where the job no longer exists because the work is being done by other employees.  A common reason in the current pandemic is where there is a need to cut costs resulting in a reduction in staff numbers.  The workplace could be closing because the business is ceasing trading or has become insolvent.  The employer’s business and the work might be moving to another location or the employer’s business is transferred to a different employer.

The redundancy process

It is imperative that a business follows the correct procedure when considering redundancies in order to reduce the risk of an employee pursuing an unfair dismissal claim against them.

An employer should first identify the pool for selection of whom may be subject to redundancy, discuss voluntary redundancies with applicable employees (if deemed appropriate) and then proceed with consultations.

Consultation should be meaningful and for under 20 employees can be completed within 1-2 weeks.  If you have employees on furlough, you can still consultant with those employees who are ‘At-Risk’ of redundancy.

Minimum consultation length

There is a legal minimum length of time consultation for redundancies must follow, the process can take longer if the company wants but it must be at least:

  1. 30 Days – If there are between 20 and 99 redundancies, the process must start at least 30 days before the first dismissals take place.
  2. 45 Days – If there are 100 or more redundancies planned, or the company ends up dismissing more than 100, then the consultation must start at least 45 days before any dismissals.

These rules do not apply to fixed term contracts or for those who are self-employed or where there are less than 19 redundancies proposed. These groups should be consulted in a timescale that is deemed to be fair and reasonable to avoid the employee claiming unfair dismissal e.g., 1-2 weeks.

After selecting those individuals who are at risk of redundancy the employer should conduct a least one further consultation with the relevant individuals.  The employee’s viewpoint should be carefully considered and any suggestions that the employee makes should be noted.  Employers should also consider whether they are able to offer alternative employment in another area of the business.

If after consultation there are not any employees willing to take voluntary redundancy (if it was deemed appropriate to seek volunteers), then an employer must make a selection from the pool of individuals who may be made redundant after applying objective selection criteria.  The employer must write to the employees concerned and inform them they are at risk of being made redundant.

If after following all of the above procedures an employer decides to make an employee redundant then they should inform the employee in writing, allowing for the sufficient redundancy notice and detail any redundancy payment.

It is good practice to give an employee the right to appeal the decision in accordance with the ACAS Code of Practice although there is not a statutory right to an appeal.

What process should you follow?

For employees with under 2 years’ service, you can terminate their employment without following a redundancy process with no risk of an unfair dismissal claim as long as you pay the correct notice and accrued holiday pay, however, this does come with a large health warning, particularly if you are making others redundant with over 2 years’ service.

The only time you not want to risk this is if there is a risk of a discrimination (no length of service required) claim due to a protected characteristic (age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marriage and civil partnership and pregnancy and maternity).  If there is a risk of a discrimination claim, then you will want to follow the process so that you demonstrate their protected characteristic was not the reason for making them redundant.  If you are making others redundant with over 2 years’ service, you may want to still include them in the redundancy process you are carrying out with others.

For employees with over 2 years’ service, you should warn employees of proposed redundancies, you should meet those employees affected explain they are at risk of redundancy, give each employee a letter explaining and informing they are at-risk of redundancy, confirming the length of consultation and the number of posts affected. Consult with them (and collectively via union reps or employee reps if you are making over 20 employees redundant in one location), choose objective selection criteria and consider other solutions, including alternative employment opportunities.

It may seem pointless consulting when you know that there aren’t any alternatives to the redundancy or any alternative roles but to ensure that you have followed a fair process this is required.

Reductions in Pay

In the majority of cases, employers are contractually obliged to make payments to employees on terms that have been agreed and often in place for many years.  A reduction in that rate of pay can only be achieved either through an agreement with the employee or, in extreme circumstances, dismissing the employee under their existing terms and conditions and offering to re-employ them on the same conditions, but with a reduced rate of pay.

Dismissals in those circumstances will likely amount to a ‘redundancy’ within the terms of Section 195 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).  Although an employee will not be entitled to a redundancy payment, if dismissed in these circumstances, where an employer proposes that 20 or more employees are at risk of dismissal within a 90-day period, reasonably onerous legal obligations are placed on the employer.  These entail the employer in obligations to collectively inform and consult, either with the recognised trade union or works council or, in the absence of either, specifically elected representatives.

Consequently, employers should be incredibly careful if they are seeking to embark upon dismissal and re-engagement, to achieve pay reductions.  If collective consultation is engaged, there will be a minimum consultation period imposed by TULRCA of 30 days if fewer than 100 employees are at risk of dismissal or 45 days if more than 100.

Employees dismissed in this way will be entitled to their contractual or statutory notice, whichever is the longer and consequently, they will be entitled to be paid their contractual rate of pay throughout that notice period.  This means that it can take many months for an employer to achieve a pay reduction of this nature, something which in the context of Covid-19, is not helpful and may not achieve the results quickly enough.

Many employees, of course, will agree to a reduction in pay, if it means that their employment can be continued, and employers should talk to their staff as soon as possible to see if such pay reductions can be agreed.  Any agreement should be recorded in writing for the sake of good order and to protect the employer in the future if there is a challenge.

If an employer unilaterally imposes a pay reduction, it runs the risk of employees resigning and claiming constructive unfair dismissal and/or bringing claims for breach of contract and/or unlawful deductions from wages.  This would also most likely render any post-termination non-compete clauses void, which leaves the employer vulnerable to arguably unfair competition from ex-employees.

An employer, in extreme circumstances, might choose to take the risk of facing such claims rather than go out of business, but it is not the ideal choice.

Who is eligible to receive statutory redundancy pay?

The rules for statutory redundancy pay are fairly strict. To qualify, the employee must:
  • have worked continuously for your employer for at least two years.
  • have lost your job because your employer genuinely needed to make redundancies.
  • have been an employee.
There are many workers who will not qualify for statutory redundancy pay. These won’t receive this kind of pay-out if:
  • The employee has worked in the job for less than two years.
  • are not an employee, e.g., a casual worker.
  • self-employed.
  • a police officer or in the armed forces.
  • a Crown servant, parliamentary staff, or holder of public office.
  • are domestic staff working for the immediate family.
  • an employee of a foreign government.

Even if an employee fall’s into the categories above, their contract may still include a right to receive a ‘redundancy’ payment.

Redundancy pay for an employee on a fixed term contract

The two-year rule also counts if an employee is on a fixed-term contract. If the employer doesn’t renew your fixed-term contract because the job doesn’t exist anymore, the employee will only be eligible for statutory redundancy pay if either:

  • The contract was for two years or more even where the employee worked shorter contracts that followed on from each other, i.e., without a break in service, adding up to two years or more.

Can an employee lose their right to statutory redundancy pay?

Even if the employee is entitled to redundancy pay, that doesn’t mean they will always receive it. There are three main reasons why the employee may lose out on the money when they leave their job:

  • The employee leaves before the end of your notice period: If they found another job, for instance, and you choose to leave their current position before the end of the notice period, the employee will no longer be eligible for a redundancy pay-out. The employee is only officially made redundant once the notice period has ended.
  • The employee is fired for misconduct before their job finishes: As redundancy won’t be the reason the employee leaving and won’t receive redundancy pay.
  • The employee turns down a suitable alternative job the employer offers: Before making them redundant, employers must attempt to find any ‘suitable alternatives’ and offer them to the employee. A suitable alternative will usually be of similar pay and require similar skills to their previous role. If the employee unreasonably decide to turn it down, they won’t be entitled to redundancy pay.

Lay-Off and Short-Time Working

The term “lay-off” is often confused with redundancy.  Lay-off is different from redundancy in that it is a temporary measure whereby an employer provides employees with no work (and therefore no pay) for a period while still retaining them as employees, generally, as a temporary solution to a problem such as a shortage of work or in this context the impact of a pandemic.

Short time working means providing the employees with less work and therefore lower pay for a period, whilst also still retaining them as employees.  Like lay-off, it is a short-term measure often designed to deal with a short-term shortfall of work.

This is different from dismissal, a short-term measure, which can, at first sight, seem attractive. Whilst this route may seem attractive to employees, it is fraught with a number of difficulties, including:

  1. Without the express contractual right to lay-off or place on short-time working, an employer is in breach of contract if it does not provide work and therefore pay for employees. They may claim constructive unfair dismissal in such circumstances.
  2. It is possible for an employer to argue that there is an implied contractual right to lay-off or to introduce short-time working, but it would need to demonstrate that this was a regular practice in its business (or industry) and well known to its employees; something which it may struggle to demonstrate.
  3. Even if the employer has the contractual right to lay-off or introduce short-time working, where the employee has more than 2 years’ service and has been laid off or kept on short-time working for at least 4 or more consecutive weeks (or a total of 6 weeks, of which no more than 3 are consecutive, in any period of 13 weeks) they can claim an entitlement to statutory redundancy pay. An employer can serve counter-notice to an employee’s claim for statutory redundancy pay, but they would need to demonstrate that there was a likely need for future employment in the not-too-distant future.

Frustration

There is a concept within common law of ‘frustration’, which if triggered, automatically discharges a contract where there is a significant change of circumstances which renders it physically or commercial impossible to perform the contract or would render contractual performance radically different from the obligations to which the parties originally agreed.

Frustration is a common law concept and does not generally find favour with the courts in an employment setting.

There is some speculation in the context of the Covid-19 pandemic over whether an employer might claim no longer to be obliged to make payment or indeed employ employees where the employment contract has been frustrated by the intervention of the pandemic.  There is a case from 1945 in which the intervention of the Second World War, and the conscription of an employee, was found to have frustrated the contract and thereby discharged the employer’s obligation to make payment.

Employers should be slow to see this as an easy and quick route to solve the headache caused by current commercial difficulties, but in extreme circumstances, no doubt many employers will try to run that argument.  Only time will tell whether that is something which employers can rely upon in these straitened times.

Osprey HR Practice can help

The pandemic presented a multifaceted challenge to employers and employees alike. With business closures likely, and the potential for business to radically slow down, many employers will be seeking to cut costs to keep their businesses afloat. But reducing staff numbers without following the proper procedures can expose employers to liabilities for breach of contract and unfair dismissal.

We at Osprey human resources consultancy practice are very experienced in business re-organisation and the difficulties associated with the short-term challenges to business in these contexts.  If we can assist in any way with the challenges that your business is facing, then please do not hesitate to contact me or one of my colleagues:

Paul Middlemast, Senior Partner by email at or call 07831 427234. Please visit our website www.opsreyhrc.com to see how we can help.
Follow the government guidelines

There is fake news and propaganda in plenitude.  Employers should follow the guidelines set out by the government but are not required to do more in the vast majority of cases –  https://www.hse.gov.uk/news/coronavirus.htm

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