Ten tips for businesses that want to save costs but avoid redundancies

Published: October 12 2020

In this article, guest author Louise Brenlund from the Employment Law Team at Brachers, looks at tactics businesses could use to avoid redundancies, and how to implement them without breaching contracts.

One of the sad effects of the COVID-19 pandemic is the daily stories of businesses forced to make job cuts. Some of the big-name companies include: 10,000 from BP, 12,000 from British Airways, 4,000 from Boots, 1,300 from John Lewis, and 35,000 from HSBC.

On 1 August 2020 Government guidance changed from encouraging employees to work from home, to giving employers more discretion to decide how staff can work safely. As you will be aware, we have now returned to a situation of ‘work from home if you can’.

Coupled with this, on 1 August the furlough scheme also changed with employers required to pay increasing proportions, including employer National Insurance and pension contributions until the end of October when the scheme finishes. Following this, the new Job Support Scheme will begin and operate for six months.

All these factors are leading some businesses to consider the viability of continuing to employ their full workforce and the possibility of job cuts. However, before moving straight to redundancies, which could mean a loss of key employees and the need to collectively consult, it’s important to consider the alternatives.

Below are some solutions you might be able to put into practice to avoid redundancies:

1. Sabbaticals

A possible option for employees could be a sabbatical. You could consider consulting with employees about taking voluntary sabbaticals or invite staff to apply for sabbaticals. This could be for a defined period and may be unpaid or paid, potentially at a greatly reduced rate compared to normal pay.

If you go down this route you will need to consider the terms of the sabbatical and it is advisable to enter into an agreement which sets out those terms.

2. Reduction in hours or days worked

Look at seeking agreement with employees to reduce working time which could involve decreasing hours of work or reducing their number of working days and agree a corresponding reduction in pay. This could be an effective way of reducing costs without the need to make redundancies.

You may also want to ensure you can require employees to increase their working time again once levels of work pick up.

3. Deferral of job offers

Some organisations have offered a fixed sum of money (between £5,000 to £10,000) to people who have been offered a job but agree to delay their contract for a year or longer. This may give them other opportunities, for example the chance to travel or consider voluntary work.

4. Pay freezes or cuts

Most contracts of employment do not offer a contractual pay rise each year, so a pay freeze is unlikely to be a breach of contract and avoids potential claims from employees.

A more risky but possible approach would be to consider pay cuts, however, this would need to be dealt with carefully. A reduction in pay may represent a fundamental breach of contract and it is advisable to obtain the express consent from an employee to any proposed pay cuts.

If you intend to implement pay cuts regardless of consent, we recommend you get legal advice before doing so.

5. Limiting or banning overtime

You may look to limit or remove overtime on the basis that there is no requirement for it. If you go down this route you should be careful as you will need to consider whether there is a contractual entitlement to overtime.

If there is, you will need to get employee consent before stopping overtime. You will also need to consider whether a ban may have a discriminatory effect on the workforce.

6. Bonus payments

Another way to reduce costs while avoiding redundancies is to stopping or reduce bonus payments. However, this may amount to a breach of contract. Again, if you are considering this, you would need to check whether the payment is contractual or discretionary. Even where a bonus payment is discretionary, employers should exercise this reasonably.

7. Flexible working

Review and refresh your flexible working policy. The flexible working regulations only apply to employees with at least 26 weeks’ continuous service and are a permanent change to an individual’s contract.

You might consider waiving these conditions, for example, allowing anybody to apply regardless of length of service or applying arrangements for a set period. If you do this you should make clear the precise change to working conditions, how long arrangements will apply, and how they affect pay, benefits and pension arrangements.

8. Retraining and re-deploying staff

Could you retrain and re-deploy staff in alternative positions that may have become vacant or need filling? But bear in mind that unless an express term of the contract provides for this, it is likely to need employee consent.

9. Periods of unpaid leave

Consider whether you can agree a period of unpaid leave with the employee. This would mean that they remain employed and you would leave their job open for them which would be reviewed again on a later agreed date.

Possible negatives of this approach are that the employee would continue to accrue leave as well as continuous service, for example, in relation to calculation of redundancy pay.

10. Ask your employees

Ask your employees if they can come up with any innovative ways of reducing costs while avoiding redundancies. Even if employees are not able to formulate any good ideas, by involving them in the process they may feel a greater sense of inclusion and be open to options.