Hot topic
Managing your workforce in an economic
downturn
In turbulent times employers need to
think laterally about their workforce.
We have seen an increase in activity related to the need
for employers to address issues affecting their workforce
in these uncertain times. In this article I will share with
you our recent experiences which may assist you in
approaching some of the issues in your own business.
It is possible to achieve remarkably positive outcomes
from a difficult situation if it is handled correctly. It is also
possible to face severe penalties and damage to the
business where it is not.
The law can also work to help employers who acquire
businesses that are suffering because of market
conditions. Conversely, there is the potential for
company directors to become personally liable where a
company continues to trade when it is insolvent.
Managing costs
Many businesses will be looking to reduce exposure to
unnecessary cost by:
• Cancelling all but the most necessary projects.
• Reviewing contracts with suppliers to identify savings
or source alternative cheaper supplies.
• Redeploying employees to areas of the business
where human resources may be scarce or where
demand is expected to increase on international
assignments.
• Reviewing employee utilisation by combining or
eliminating roles which are no longer required.
• Reviewing terms and conditions of employment, roles,
salaries, bonus schemes and benefits to reduce costs
where possible.
• Considering favourably requests for flexible working.
• Making individual or collective redundancies.
• Selling or outsourcing discrete parts of the business
Redeployment
Employees, contractors and other workers are usually
engaged to perform a specific job role. Employers
should examine the contract to see if it allows for
individuals to be redeployed. Even where the contract
does not expressly allow for this, redeployment should
be considered as an alternative to making employees
redundant.
We are seeing more clients focusing on emerging
markets and seconding employees to develop those
markets. This can involve secondments from one
employer to another or developing new employment
opportunities around the world.
Our experience is that where clients are creating new
employment contracts in different countries it is best to
focus on getting the contracts right for each country and
then looking to apply international policies and
organisational goals as an umbrella over the local
contracts.
Changing terms and conditions
Employment contracts are like any other contract. They
cannot be varied without the agreement of both parties.
There are ways in which employers can seek to achieve
agreement ,or failing that, and usually as a last resort, an
employer can give notice to terminate the existing
contract and start the employee immediately on a fresh
one incorporating the amended terms and conditions.
Such action is fraught with legal difficulties not least
because the termination of the existing contract (even if
the employee is given the proper contractual notice) can
still give rise to claims for unfair dismissal and if more
than 20 employees are affected in this way the collective
consultation obligations can be triggered (see over).
Flexible Working
Employers should consider extending the right to
request flexible working to all employees as an
alternative to looking at redundancies.
Individual redundancies
Making employees redundant because they are surplus
to requirements may have to be considered.
osborneclarke.com
Redundancy is a potentially fair reason for dismissing an
employee and employers should take care that any
redundancy falls within the statutory definition of
redundancy in the Employment Rights Act.
Under the Act an employee is dismissed by
reason of redundancy if the dismissal is wholly or
mainly because:
• the employer has ceased or intends to cease (i)
to carry on the business for the purposes of
which the employee was employed by him, or (ii)
to carry on that business in the place where the
employee was so employed, or
• the requirements of that business (i) to carry out
work of a particular kind, or (ii) for employees to
carry out work of a particular kind in the place
where the employee was so employed, have
ceased or diminished or are expected to cease
or diminish.
In many cases, redundancies can be limited to those
employees who cannot be redeployed and who are in
roles that are no longer required.
When carrying out any redundancy procedure, an
employer must consider (amongst other things):
• alternative roles available for the affected employees in
the employing company or in a related group company;
• the correct pool of employees from which to select
candidates for redundancy. Employees can be "pooled"
when they have interchangeable roles and skills;
• the correct selection criteria, which must not be
discriminatory in order to avoid claims for unlimited
discrimination compensation in an Employment Tribunal;
• the application of the statutory dismissal procedures.
Getting the procedure wrong can lead to claims for unfair
dismissal (with a potential for a compensatory award up
to £63,000 for each employee) and a 50% up-lift in any
award for failing to follow the procedure;
• whether the employer has a more favourable
redundancy policy either written down or through a
custom and practice which is contractually binding; and
• the entitlement of employees' with 2 or more years'
service to a statutory redundancy payment: ways of
avoiding compulsory redundancies such as voluntary
redundancies, career breaks, temporary laying off and
professional "outplacement support" to help redundant
employees to find new employment.
In any redundancy situation good internal and external
communications are vital.
Whilst an employer can navigate through this process
and often achieve approval from employees for the way
a difficult situation has been handled, employers should
recognise that the penalties for getting the process
wrong can be severe. Employment Tribunals can and do
make awards of up to 90 days' actual pay for each
affected employee in circumstances where the correct
procedures are not properly followed. Our experience is
that Tribunals do make these awards which when they
are applied to the whole work force can be significant.
Transfers of Undertakings
Some employers also look to sell or outsource discrete
parts of their business in circumstances where the
Transfer Regulations ("TUPE") apply.
TUPE also imposes an obligation on employers to
inform and consult with appropriate employee
representatives of the employees who are affected by
the sale or outsourcing. These obligations are in addition
to the employer's obligations to inform and consult in a
collective redundancy situation and often have to be
undertaken at the same time.
The penalties for failing to inform and consult under
TUPE are similar to those for Collective Redundancies
and can be awarded in addition. We have already been
involved in one case where the employer was facing this
"double whammy" from the Employment Tribunal
running into millions of pounds. This could have been
avoided had legal advice been taken earlier.
To achieve a positive result in these circumstances,
careful and detailed planning of any redundancy or
TUPE process is key before any action is taken.
Acquisitions
TUPE also applies to the acquisition of a business that
is either insolvent or on the brink of insolvency to help
buyers to make redundancies or change terms and
conditions favourably in order to save the business and
the jobs in it. If you are thinking of taking advantage of
the economic climate to make acquisitions then you
should consider how TUPE might assist you.
Company directors
Company directors can attract personal liability if they
continue to trade the business when it is insolvent and
advice should be taken if any director suspects the
company may be facing that risk.
If you would like to discuss any issues in this article
which may impact your business then please contact me
or your usual Osborne Clarke contact.
Collective Redundancies
There are special rules that apply in circumstances where
20 or more employees are to be dismissed which require
an employer to inform and consult with appropriate
representatives of the workforce. The representatives are
either a trade union recognised by the employer or
representatives who have been specially elected for that
purpose.
osborneclarke.com
Regulated by the Solicitors Regulation Authority
Julian Hemming
Partner-Head of Employment Pensions and Incentives
julian.hemming@osborneclarke.com
© Osborne Clarke July 2008
Publication number 5279524