Difficult times: frequently asked questions

Sue Nickson of Hammonds LLP concludes a series of articles on dealing with difficult times with some frequently asked questions. Questions on redundancy, consultation, outsourcing, changing terms and conditions and staff motivation are included.

Is redundancy the most appropriate way of cutting staff costs?

Not necessarily. Whether or not making employees redundant is the most appropriate way of cutting staff costs depends on the particular circumstances. If there is a reduced requirement for workers (either because there is less work, or an employer needs fewer people to do the work), redundancy is likely to be the answer. If the reduction in workload is seasonal or temporary, there will be a renewed need for employees when the workload increases. Therefore, making employees redundant may not be beneficial in the long term. However, where an employer needs the same number of people to do the work but still needs to reduce staff costs, changing terms and conditions, rather than making redundancies, may be the appropriate course of action. Alternatively, outsourcing may be an option where the work could be carried out more efficiently or effectively elsewhere, although TUPE is likely to apply in these circumstances.

When must employers consult collectively about redundancies?

Under s.188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A), the requirement to consult with "appropriate representatives" (ie trade union or employee representatives) is triggered where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less. Following Hardy v Tourism South East [2005] IRLR 242 EAT, the duty to consult is triggered even where the employer intends to offer alternative employment to all or some of the employees who are at risk and this has the effect of bringing the number of employees actually dismissed as redundant to below 20.

When must collective consultation start?

TULR(C)A requires employers to begin collective consultation "in good time" and in any event at least 90 days before the first of the dismissals takes effect where 100 or more redundancies are proposed, and at least 30 days before the first of the dismissals takes effect where between 20 and 99 redundancies are proposed. "Takes effect" means when notice is given, not when it expires (Junk v Kühnel [2005] IRLR 310 ECJ).

About what must employers consult?

Employers must consult appropriate representatives about ways of avoiding and reducing the number of dismissals, and mitigating the consequences of the dismissals. They must also consult with a view to reaching agreement with the representatives. (See the Informing and consulting prior to redundancies section of the XpertHR employment law manual for more information on the collective consultation provisions.)

Are there statutory criteria that employers must use when selecting employees for redundancy?

No. Employers can choose the selection criteria that they wish to use when going through a redundancy selection exercise, provided that the criteria are objective and non-discriminatory and are fairly and consistently applied. The choice of criteria will depend on individual employers' needs and existing arrangements. The most commonly used criteria include skills and knowledge, attendance records and disciplinary records. Following Rolls Royce v Unite [2008] EWHC 2420 HC, while taking length of service into account is likely to be discriminatory, it may be justifiable under the age discrimination legislation provided that it is one of a number of selection criteria.

Are employers under an obligation to seek voluntary redundancies?

No. However, it is good practice to seek volunteers for redundancy and doing so can help to establish the reasonableness of redundancy dismissals. Unfortunately, voluntary redundancies are usually more expensive because longer-serving employees, who are entitled to higher redundancy payments, often volunteer. Employers also risk losing valuable experience by losing longer-serving employees. It is often the more skilled employees who opt for voluntary redundancy in the knowledge that they will find another job easily. Employers should, therefore, reserve the right to reject particular applications for voluntary redundancy.

Should employers carry out individual consultation?

Yes. To avoid successful claims of unfair dismissal it is important that an employer consults with individual employees about their own redundancy, even where it is carrying out a collective consultation exercise. It is advisable for the employer to have at least two meetings with each potentially redundant employee, so that he or she has an opportunity to go away and consider what has been said at the first meeting, including the information provided about criteria and scores, and raise any points or queries before the final decision is made. The employer should hold the second meeting some time (ie several days) later. It must also be seen to consider any points or queries raised by the employee. There is no hard and fast rule concerning the period between meetings - the main concern is that the consultation process is seen to be genuine and not a sham.

Do employers have to comply with the statutory dismissal procedure when dismissing on the ground of redundancy?

Yes - at least until the statutory dispute resolution procedures are abolished in April 2009. As a general rule the standard statutory dismissal procedure applies to all redundancy dismissals except those where the collective consultation provisions in TULR(C)A apply.

Should employers consider alternative employment for potentially redundant employees?

Yes. Employers must take reasonable steps to try to find alternative work for employees who are under threat of redundancy. Failure to do so could render an otherwise fair redundancy dismissal unfair. Employers should provide employees with details of all vacant positions, including those within other group companies. Employers should also actively support employees who are applying for alternative positions.

What are the alternatives to redundancy where cuts in staff costs need to be made?

There are a number of potential alternatives to making redundancies for employers to consider when cuts in staff costs need to be made. Options include laying-off staff or putting them on short-time working, changing terms and conditions, and reducing bonuses. However, before these changes are made employers must first establish, or agree, a contractual right to do so. Other possible means of reducing staffing costs include recruiting temporary staff or agency staff, or outsourcing. However, the relative cost benefits of taking these steps should be assessed first.

In the absence of a contractual right, or express agreement by employees, can employers lay employees off or put them on short-time working?

No. To do so would amount to a fundamental breach of contract, resulting in possible constructive dismissal claims. An employer must negotiate an agreement with each affected employee, giving it the right to lay the employee off or put him or her on short-time working.

If an employer uses agency workers as a means of reducing its headcount, is there a risk that those workers will later be found to be employees of the employer?

The risk of agency workers being found to be the employees of the end user - with all the employment rights, including the right to claim unfair dismissal, that go with employment status - is reduced following James v London Borough of Greenwich [2008] IRLR 302 CA. Provided that the end user sets up arrangements that accurately reflect the real relationship between the parties, an employment tribunal should not automatically imply a contract of employment between the agency worker and the end user.

Can employers change employees' terms and conditions as a way of reducing costs?

As a general rule it is possible to change employees' contractual terms and conditions of employment only where they agree. If an employer imposes a change without agreement it runs the risk of its employees bringing claims for constructive dismissal or breach of contract. Where the change amounts to a reduction in pay an unlawful deduction from wages claim may be brought.

Alternatively, an employer may already be able to make changes to terms and conditions because the contracts confer on it an express power to do so. Any right to make changes already expressed in the contract must be exercised reasonably.

When is outsourcing an appropriate alternative to redundancy?

There may be cost benefits to outsourcing, particularly the outsourcing of non-core activities such as cleaning or catering. However, there is a powerful business case for not outsourcing core activities. This includes the potential loss of control, expertise and investment in training, and the risk of reduced loyalty from the outsourced employees.

Employers that are considering outsourcing certain activities also need to consider the implications of the TUPE Regulations, which will cover most outsourcing situations. The parties concerned should consider how TUPE will affect them, and the liabilities that will arise. It is in an employer's interest to ensure that any commercial agreements include the necessary warranties and indemnities to protect it in the event of subsequent claims.

How can employers engage redundancy survivors?

There are a number of measures that employers can take to engage and motivate the employees who remain after a redundancy exercise. Key to this is projecting a positive outlook for the future and ensuring that employees are made to feel valued and part of that future. Good communication throughout is crucial. Ensuring that managers and employees are given the training that they need to operate effectively, and looking at the benefits offered to see if they suit the remaining employees or whether alternative benefits would be more appropriate, are measures that are worth taking. See Difficult times: checklist for retaining and motivating redundancy survivors in this series for a more detailed look at measures for retaining and motivating employees who remain after redundancies have been made.

Next week's article will be a Christmas party checklist and will be published on 1 December.

Sue Nickson is Chief Operating Officer, Partner (Employment) and International Head of Human Capital at Hammonds LLP (sue.nickson@hammonds.com).

Further information on Hammonds LLP can be accessed at www.hammonds.com.