The recessionary climate has forced many companies to cut costs and trim excess capacity. Too often, this means layoffs. In a survey of more than 300 senior HR professionals by Speechly Bircham, employment lawyers and Kings College London, the overwhelming consensus among HR managers was in favor of considering alternatives to a redundancy programme. What are these viable alternatives and their pros and cons.
Alternatives to redundancy can be classified into three main types:
- alternatives that do not directly affect employees (eg, hiring freeze, reduced use of agency staff)
- alternatives that affect employees, but only on an individual and usually voluntary basis (for example, sabbaticals, reduced work hours, redeployment)
- alternatives that have a collective impact on employees (for example, salary freezes, salary reductions, outsourcing of certain functions).
Alternatives that do not impact employees
A hiring freeze is often put in place as a step before any other steps to reduce costs, although in isolation, it may not be enough to weather the storm. The advantage of a hiring freeze is that it’s relatively simple and reduces the likelihood of being saddled with redundant employees waiting for the business to turn around.
However, a freeze is not without its difficulties. During the last recession, many large companies found they had cut back too much and were short on resources when the recovery hit. Graduate recruiting is often the first area targeted, although this is essential to ensure a steady stream of new talent entering a company.
Organizations also tend to favor reducing the number of temporary or agency workers. However, employers must check the employment status of so-called temporary or agency staff before firing them. In the UK, successive use of two or more fixed-term contracts over four years or more results in permanent status.
Voluntary measures that affect individual employees
There are two main types of options that can be offered to employees on a voluntary basis: the first involves changes in work hours or duties (for example, unpaid leave or paid sabbaticals, reduced work hours or redeployment); the second involves changes in compensation and benefits (for example, salary sacrifice, deferred payment of salary, or reduction of contractual benefits).
Since these are voluntary changes, they require goodwill on the part of the employee and must be handled with finesse by the employer. The employer should not be seen as putting any “pressure” on employees to volunteer for changes or this could lead to claims of constructive dismissal. It’s also usually safer for employees to offer the changes to everyone so that they aren’t seen to be targeting certain groups.
There are drawbacks associated with offering voluntary measures to employees. Employees who take a gap year may not return to work, instead preferring to pursue their ‘life dream’. Some employees may prefer to be laid off than accept a sabbatical or reduced hours, as their insurance will cover them in a layoff situation.
Flexible working can improve efficiency, but its introduction requires additional processes and administration, as well as management skills.
Mandatory measures that collectively affect workers
As a last resort, employers may have no choice but to amend employees’ terms and conditions of employment in a collective and mandatory manner.
Since this approach requires varying the terms and conditions of employees’ employment contracts, an employer may obtain the consent of its employees for the change (or obtain the consent of the union if it is recognized for collective bargaining purposes) or, if consent is not obtained, fire employees and rehire them with new terms and conditions.
Organizations may choose to outsource a function or activity. Outsourcing can be a good short-term measure to reduce employee costs, since at the end of the contract those employees who are dedicated to the services that are transferred will transfer back to the company. However, when an outsourcing deal ends, the employer will most likely be faced with an influx of employees, whether they want them or not.
Changes to the bonus scheme can be helpful in reducing costs. However, the law on bonus schemes is complex and care must be taken to determine whether a scheme is contractual or discretionary. Schemes that seem discretionary can become contractual over time. It can be difficult for an organization to argue that a guaranteed bonus is not paid in full unless it is expressly stated that the bonus is conditional on reaching certain financial objectives of the company.
In conclusion
The current climate is encouraging employers to “think outside the box” in terms of ways to reduce their costs. Employers previously reluctant to accept flexible work requests are now encouraging their entire workforce to work part-time. “Layoffs,” once the preserve of heavy industry in the 1970s, are becoming the fad for 21st-century professional services firms using the more catchy term “sabbatical.” For those employees who manage to keep their jobs, there will be a great opportunity to engage in flexible work that is likely to continue once the recovery hits. An employer embracing flexible working in the downturn will have a hard time convincing a court in the recovery that client lawsuits mean a blanket refusal to consider flexible working can be justified.
