The Confederation of British Industry (CBI) has predicted that the UK unemployment rate will rocket to 1.8m in 2009. With thousands of British jobs at risk during this worsening economic period, many businesses are investigating cost-cutting measures to ensure profitability and sustainability.
In this bulletin we will look at some of the measures employers are likely to consider, including:
- Changes to roles and benefits to improve productivity and save costs
- Layoffs
- Redundancies.
For more information please contact employment@withyking.co.uk , or call 01225 425731 / 01793 536526.
Changes in employment terms can help reduce costs and increase productivity. However, imposing changes on employees is a minefield. Getting it wrong can result in liability for unfair dismissal.
An employer cannot change contractual terms unless the employees agree although consent may not be required when:
1. The proposed changes do not relate to contractual terms
Provided there is no breach of the ‘implied duty of trust and confidence’; an employer is free to vary non-contractual terms.
Provided there is no breach of the ‘implied duty of trust and confidence’; an employer is free to vary non-contractual terms.
or
2. The proposed changes are already permitted by the contract
It may be possible to interpret certain terms to accommodate a change, or it may be the right to vary terms is built in. Regardless, care should always be exercised as applying such flexible provisions is subject to ‘the implied duty of trust and confidence’.
In every other situation it is necessary to obtain employees' consent to changes in employment terms.
Ideally, any changes (and subsequent agreement to terms) should be obtained in writing to avoid discrepancies over consent. In some cases, (to prove validity), the contract may require any variations be in writing. When the change does not have an immediate effect, it should usually be coupled with some compensation, such as tying the changes in with an annual pay rise.
Consent can be inferred when an employer unilaterally imposes changes, then relies upon employees to continue working without objection. This does not work in every case and courts are reluctant to imply consent unless the changes have immediate effect (such as a change in hours or pay) or if the employee has been told that a failure to object will be taken as consent.
An alternative to obtaining employees’ agreement to changes in terms
An employer should always seek agreement to changes. Where agreement is not obtained and cannot be inferred, the preferred option in most cases is to terminate the employment contracts and offer employment on the new terms. If so, it is essential that:
- Contractual notice is given (or payment in lieu made where appropriate) to avoid claims for wrongful dismissal
- There is a strong business reason for the change (otherwise the employer will not be able to establish a fair reason for the dismissal)
- A fair procedure is followed before giving notice (to avoid claims for unfair dismissal on procedural grounds).
A fair procedure would normally require an explanation of the reasons for the changes, reasonable notice to the employees of the proposed changes, explaining the consequences of not agreeing and giving employees a chance to have their views heard.
For more information please contact employment@withyking.co.uk , or call 01225 425731 / 01793 536526.
Economic down-turns increase the possibilities of layoffs. However, there is much confusion over the difference between layoffs and redundancies and when a layoff of staff, rather than redundancy, is an option.
Redundancy means the permanent dismissal of an employee because their job disappears.
Layoff means a temporary suspension of a contract of employment of an employee or (more commonly) a group of employees. This usually occurs due to a lack of work during a business slow-down. It is sometimes wrongly applied to the permanent elimination of positions.
It is important to distinguish between layoff and redundancy because they are treated quite differently under employment law.
Many people’s understanding of the term "layoff" is that a contract has been permanatly terminated. This is not technically correct. Being "laid off" means being sent home without pay or work. It does not mean permanent dismissal. Being laid off does not prevent a return to work (when business picks up) under exactly the same terms and conditions as before.
Because of its flexibility, layoffs can be very useful in business slowdowns. One might ask why more employers are not using them. The simple answer is most contracts are not written to permit layoffs.
In order for an employer to have layoffs as an option, it must have the contractual right to do so. In the absence of that right, an employer who lays-off an employee will be in fundamental breach of contract, entitling the employee to resign and claim constructive dismissal.
As there are no signs of an early end to the current economic difficulties, many employers may want to look at their employment contracts to see if it is worth introducing a contractual right to lay off employees or put them on short-time working.
For more information please contact employment@withyking.co.uk , or call 01225 425731 / 01793 536526.
Because redundancy means dismissing workers through no fault of their own, it is one of the hardest things any manager has to do. In addition, if redundancy is mishandled, employers can find themselves facing a claim for unfair dismissal. In such a claim, an employment tribunal can order compensation to the dismissed employee of up to £63,000.
What can go wrong?
Redundancy is a complex issue, full of pitfalls.
The most common mistakes are:
- Not following the right procedures or timetable
- Using unfair redundancy selection criteria or methods
- Failing to consult properly with the individuals involved.
Avoiding redundancies
Redundancy should be a last resort. Employers are legally obliged to take reasonable steps to avoid compulsory redundancies. The possibilities include:
- Ban on overtime working
- Freeze on recruitment and short-time working
- Cancelling temporary or contract labour
- Lay-offs
- Transfers
- Redeployments
- Early retirements
- Calls for volunteers.
These should usually all be considered before there are any compulsory redundancies.
Criteria for redundancy
Redundancy is not about targeting under-performing employees for dismissal. It is the job, not the person, that is redundant and someone dismissed under the pretext of redundancy can ask the tribunal for compensation or reinstatement.
Genuine redundancy only arises when an employee is dismissed for one of these reasons:
- The business closes down
- The employer closes down the workplace at which the employee is employed
- There is a reduced need for workers doing the work the employee is employed to do.
Most employees (including part-time and fixed term workers) who are made redundant are entitled not to be dismissed unfairly.
Employees with less than one year’s service do not have this right, unless unlawful discrimination is involved in the dismissal.
Identifying and selecting redundant workers
Criteria for redundancy covers a wide range of identifying factors. Employers can adopt selection criteria that best suits their business needs. Their choice will not be challenged by an employment tribunal unless it is unreasonable or discriminatory, but the employer must be able to show criteria were applied fairly and consistently.
Selection could be based on skill levels, experience or attendance records. Selection should only be based on performance if objective measures exist (perhaps through an existing appraisal system). Selection should never be based on gender, age, race, disability, marital status, pregnancy or recent childbirth, sexual orientation, religion, philosophical belief, membership or non-membership of a trade union, or part-time status.
Maternity Leave
Employers have a legal obligation to offer any available alternative work to those on maternity leave. Employers must not make redundant anyone who is on maternity leave if there is another job she could do.
Correct process and timing
In redundancy situations, it is essential to observe the correct process and timing.
If there are 20 or more employees involved, the employer must begin consultations with employees’ representatives and send form HR1 to the Department for Business (etc…) at least 30 days before the dismissals will take effect (90 days if 100 or more employees are involved). Failure to do this enables an employee to ask for up to 90 days pay compensation from an employment tribunal
Employers must also be able to show they have consulted employees individually. In most cases, this will require two meetings.
The first meeting is usually to describe the:
- Process
- Timescale
- Selection criteria
and to
- Discuss possible alternative work
- Explain redundancy pay calculations.
A second meeting may be needed to give feedback on the employee’s representations, give notice and explain the appeals procedure.
These discussions must be genuine. There is a legal duty on the employer to consult ‘with a view to reaching agreement’.
Where fewer than 20 employees are being made redundant, the statutory disciplinary and dismissal procedure will apply.
For more information please contact employment@withyking.co.uk, or call 01225 425731 / 01793 536526.
There is an entitlement to statutory redundancy pay for everyone made redundant. The exceptions are:
- Employees with less than two years’ service
or
- Those who unreasonably refuse an offer of suitable alternative employment.
Statutory redundancy payments are calculated according to the number of years a person has worked (service is counted up to a maximum of 20 years) and their weekly pay (‘week’s pay’ is currently capped at £330 a week).
For example:
- Service between ages 17 and 22 counts for half a week’s pay per year.
- Service between ages 22 and 41 counts for one week’s pay per year
- Each year from age 41 onwards entitles a redundant person to 1.5 weeks’ pay
Employers can pay more than the minimum and will be required to do so if there are provisions for such written into their employees’ contracts. Redundancy pay of up to £30,000 is usually free of tax.
For more information please contact employment@withyking.co.uk, or call 01225 425731 / 01793 536526.
In addition to any redundancy payments, employees under notice of redundancy have the right to be considered for ‘suitable alternative employment’. If an offer is unreasonably refused, the employee loses the right to a statutory redundancy payment.
‘Reasonable’ refusal might be based on a major change in working hours, a cut in pay or the need to travel or move house. Employees can trial the new job for four weeks (or longer by agreement).
If the new job proves unsuitable, he or she may choose to leave and still get full statutory redundancy pay.
The employee also has the right to reasonable time off with pay for job-hunting or to arrange training.
For more information please contact employment@withyking.co.uk, or call 01225 425731 / 01793 536526.
