The cost of cutting jobs: legal Q&A

The impact of the ‘credit crunch’ on unemployment figures has filled the headlines in recent months. However, wholesale redundancies are not an inevitable consequence of tough economic times. Often, sufficient cost savings can be achieved by making variations to the terms and conditions of employment.

There are a number of means by which a variation can be achieved. If there is an agreement with the employees it can be a relatively simple matter. However, where there is no agreement and the change is simply imposed without authority or consent, the business may face a number of risks.

Q Can we reduce the hours of work for employees as our order books are low?

A Check to see if the terms of the contract will allow for hours to be reduced. The wording in the contract may be wide enough to allow for flexibility about working hours. An example would be where the contract did not stipulate a specific number of hours, but instead just required the employee to work such hours as would meet the requirements of the business. There are also some employment contracts that include express provisions allowing the employer to make changes to particular terms.

Q What are the options if the contract refers to specific weekly hours and there is no right to vary?

A If there is no express power to vary, the best option would be to try to get the agreement of the staff. However, if the employees are not willing to give their agreement to the variation you may decide to impose the changes or to dismiss staff and offer to re-engage them on the new terms and conditions.

Q What are the potential consequences of imposing the new terms or dismissing and re-engaging?

A When you unilaterally impose new terms and conditions on the employee, you are breaching the contract of employment. This is risky as the employee may continue to work under the new terms under protest and at the same time bring a claim for compensation in the High Court or County Court. If the reduction in hours is dramatic the employee may resign and make a claim of constructive dismissal.

The best that can be hoped for is that the employee will work the reduced hours and be taken by this conduct to have given implied agreement to the variation.

In relation to the dismissal and offer of re-engagement, the risk is clearly that the employee will reject the offer of re-engagement and be found to have been unfairly dismissed.

Q What factors would an employment tribunal take into account in deciding whether the dismissal was fair or not?

A If a claim for unfair dismissal is made, the employer will be expected to show a fair reason for dismissal and that it acted reasonably in treating that reason as sufficient to dismiss in the circumstances.

Each case will need to be decided on its own facts. However, where the reason for dismissal is related to market pressures, it will generally fall under the category of ‘dismissal for some other substantial reason’.

This is potentially a fair ground for dismissal, but the employment tribunal will have to be satisfied that the employer acted reasonably. This will depend on a number of factors, including whether reasonable consultation had taken place, if the advantages that the employer would benefit from would outweigh the disadvantages, if the majority of employees had accepted the changes and whether employee representatives or a trade union had recommended the changes.

Q How should I negotiate with employees on this matter?

A You may wish to explain the reasons behind the proposed changes and how the variation may be able to save jobs in the business. It may also be appropriate to agree to the variations being temporary or at least for the terms to be reviewed following a specified period of time.

To demonstrate that the consultation is genuine you should show that the comments or issues raised by the employees are considered and, where appropriate, acted upon. However, giving reasonable consideration to the suggestions put forward by the employees does not mean that you are under any obligation to accept them.

If the changes are going to have an impact on 20 or more employees, you should also consult with the appropriate representatives of the employees. Technically, as the proposed dismissals are for a reason not related to the individual employee but to market forces, the collective consultation obligations apply in the same way as if the business was making the employees redundant. This means that if there is a recognised trade union then the consultation should be with the union.

In the absence of any recognised union or other appropriate staff council, you should allow the employees to elect representatives. There is a fixed minimum period of 30 days collective consultation. However, this increases to 90 days where the proposal is to dismiss 100 or more employees. In the event that the collective consultation requirements are not followed, there will be a risk of a protective award being made in respect of the dismissed employees.

Q If I cut the hours of work by more than 50% will there be any further consequences?

A This would be known as short-time working. This occurs where the work is reduced to such an extent that the employee is entitled to less than half a week’s normal pay under the contract of employment.

Putting employees on short-time working may cause further legal problems as, in addition to any breach of contract claim or constructive dismissal claim, there is also a statutory scheme under which an employee can claim a redundancy payment. The right to a redundancy payment arises where the period of short-time working is either for four or more consecutive weeks or for a total of six weeks in a total period of 13 weeks. The employee simply has to give notice to the employer that he or she is requesting their redundancy payment.

Michael Ball, employment partner, Halliwells

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