If you’re dealing with an unexpected downturn in business, you may be contemplating redundancies to cut costs. While this might be the inevitable outcome, it’s important not to jump the gun, or to even assume that your situation meets the legal definition of redundancy without considering alternatives.

Making staff redundant might not always be the best solution for your organisation. Not only can the process be costly and time-consuming, particularly when embarking on a collective consultation, and can often have unintended long-term costs, but rushing into redundancy also comes with legal risks.

Together, business leaders and HR teams are expected to explore ways to avoid redundancies, in consultation with their staff. Failing to take this step will affect the fairness of the dismissals, in most cases. These alternatives will also form part of your business case.

So, before you decide to lose valuable staff, here are seven considerations that you should think about first.

1. Freeze external recruitment

Pausing all external recruitment (apart for key roles that can’t be covered internally) is one of the more obvious levers to pull during times of financial difficulty. This might also mean no maternity leave cover or replacements for people leaving.

While a sensible option in the current climate, experts have pointed out the importance of ensuring recruitment doesn’t remain de-prioritised, as new talent enables businesses to remain competitive. A prolonged block on recruitment could prove costlier in the long run and harm business growth.

Additionally, HR professionals and business leaders must be mindful that recruitment freezes could put a strain on current employees and cause their performance and engagement levels to wane. As such, it’s important to consider cost-effective ways to minimise the impact on your existing team and maintain morale, such as recognising hard work, being more flexible, and having more regular one-to-one meetings to check on employees’ wellbeing and workload.

2. Put a stop to voluntary overtime

This may not be a popular move amongst your employees, but it is a simple way to cut costs.

Remember that you must continue with any compulsory overtime to avoid risking claims for breach of contract. If you have any doubts about whether the overtime is compulsory or voluntary, our Employment Lawyers can help provide clarity.

3. Offer voluntary redundancy

Giving your employees the option of voluntary redundancies is something to consider, but remember, you can say no to someone who makes an application for voluntary redundancy.

If people do volunteer for redundancy, it’s important to remember that this still counts as a dismissal, so you must still follow a fair procedure to terminate their employment. 

You should also be careful about offering voluntary redundancy to certain groups only, as this could constitute unlawful discrimination. For example, if you only offer voluntary redundancy to older workers, this could be considered discrimination on the basis of age.

4. Contemplate career breaks

Allowing a career break or sabbatical may be another good alternative to redundancy if your organisation is experiencing financial difficulty.

Engaging in things that could develop them personally as well as professionally, such as learning some new IT skills, or brushing up on a foreign language, could also be of benefit to your business when they return. It may also be an attractive option to someone who has wanted to take time out for travelling without having to give up their job entirely.

Of course, many people are also struggling financially, so it’s not a move that will be affordable to most, but it might be another option to consider.

You will need to agree with the employee how the career break or sabbatical will work. When ironing out the terms and conditions, be aware that whilst you won’t be paying them an ongoing salary each month, there are certain terms you cannot contract out of, such as stopping them accruing annual leave whilst they are off.

Additionally, take care about making promises. Guaranteeing a person their job back when they may be away for a year or two may put you in a difficult position because, realistically, you cannot predict how the market or your organisation will have evolved in that time. What happens if you have restructured and their job no longer exists?

5. Review employee benefits

Another option you could consider is reviewing your employee benefits package, as you may be able to make savings by removing those that are generating huge costs or being underutilised.

You must take care with this approach. If, for example, you want to take away a staff bonus, you will need to understand whether it is a contractual or discretionary.

If the bonus is contractual, these payments must be made if the employee meets the required criteria. For example, if you set clear performance targets and the employee meets them, you will need to pay out the bonus.

In order to remove these, express consent must be gained.

If the bonus is discretionary, it means the employer can choose when to pay the bonus, how to calculate it and the total amount that will be paid out. However, case law has made it clear that employers must not use their discretion in an irrational or perverse way.

Remember, even if a benefit isn’t stated within the contract and you have never sat down with the employee to specifically agree to it, it can become contractual through custom and practice. If you’re unsure, it’s always safest to seek specialist advice to avoid disputes and breach of contract claims.

6. Consider lay-offs

If you are experiencing a dip in business, one option may be to lay people off. This means that the employer provides employees with no work (and no pay) for a period while retaining them as employees.

Employees can only be laid off if there is an express provision in their contract of employment which permits you to do so.

If there isn’t, are there any collective agreements in place which allow lay-offs? Alternatively, you can obtain written agreement from the employee to be laid off. An employee may be more receptive to this if they understand that it is an alternative to redundancy and only a temporary measure.

Unless the contract states anything different regarding contractual remuneration for the lay-off period, an employee may be entitled to a statutory guarantee payment on up to five “workless days” in a three-month period. A “workless day” is a day during any part of which the employee would normally be required to work in accordance with their contract.

A statutory guarantee payment is paid at a maximum of £31 a day for five days in any three-month period – so a maximum of £155 overall. If an individual usually earns less than £31 a day, they will receive their normal daily rate instead.

If they have been laid off for four weeks in a row, or six weeks in a 13-week period, employees can give written notice that they are going to claim a redundancy payment. The claim can be rejected if there is a reasonable chance that normal working hours will be resumed within four weeks.

7. Introduce short-time working

Short-time working involves cutting an employee’s hours and reducing their wages accordingly, for example by sending them home early each day.

Again, you can only put an employee on short-time working if the employee’s contract of employment expressly permits this under the lay-off clause, there is a collective agreement in place, or they provide their written consent.

If your business finds itself in these circumstances, it is useful to keep talking to employees. They are likely to be more cooperative and understanding when they understand you are trying to find ways to avoid job losses.