To Cut Or Not To Cut?

Recession-Based Employee Techniques


Whilst the UK economy might not be in recession, technically – two consecutive quarters of negative growth – it certainly has not recovered from the recession of the last two years as well and as quickly as was hoped and is still teetering on the edge.

In any event, the day to day impact on many businesses, in many sectors, of macro-economic trends is usually not felt for some time, say a year or more, hence unemployment creeping up towards 3m when the economy should be on the way back. The recovery curve is too steep to avoid the impact of the continuing decline, particularly on those some way down the supply chain.

The Coalition Government has a raft of proposed changes to employment law, at different stages of development, many aimed at encouraging employment. However, business in the UK has still to contend with low growth, the damaging impact of the weak Euro zone, low investment and an unrealistic expectation that the private sector will fill the employment gap increased by large scale cost cutting in the public sector. Reforms will not arrive quickly enough to save another round of difficult decisions.

During the first year of recession, many UK businesses, in a wide range of sectors, had to try to rebalance income -v – cost with an eye to retaining their workforce, so as to emerge from recession still competitive. A number of “recession-based” tactics were employed as a means of reducing employment costs without reducing staff numbers. This included a more than usually co-operative relationship with employee representatives, including unions, but not in all sectors and not in all circumstances. The sometimes uneasy truce was tested usually when reducing costs involved changing terms of employment, particularly to update or just remove what were perceived by many employers as out dated collective bargaining arrangements (which was really the argument behind the Unite/BA saga).

Coupled with a reducing range of options for cost savings, many employers are now facing the inevitability of redundancies, taking the view that they have done all they can to avoid them and staff reductions are now the only viable option.

Or are they?

This might be a good time to review the options of “recession-based” employee relations tactics, whilst looking at how some options have changed since the recession began, as well as casting an eye over the key elements of a redundancy exercise, should one really need to happen.

There is no “one size fits all” approach to this situation. There are several flexible working arrangements which could be deployed, in principle, but whether any or all of them might work for each business depends on such things as:

• The size and structure of the business;
• The resources available to devote to the exercise;
• What is in the contracts of employment – which could have an impact on the employer’s ability to make changes;
• Relationships with the employees or their representatives, particularly in a unionised environment and particularly in sectors where unions take a sectoral or national approach to industrial relations;
• The likely timescale of financial need and the steps being considered;
• Statutory, contractual and collective rights affected by the proposed changes;
• The necessity to act.

From small to large scale actions, possibilities could include:

• Wage restraint – a freeze, cuts, no bonuses (where relevant), either with or without employee consent;
• Reduction in overtime;
• Lay off temps or consultants;
• Reduction of hours or the working week;
• Offer early retirement;
• Offer a “menu” of possible actions – including time off without pay, reduction in pay, temporary change to other benefits – with a ceiling on the impact of, say, 20% of pay and a review; leaving it to employees which elements they choose;
• Corporate restructures; either sell a loss-making part or, more subtly, outsource such a part on a fixed term to providers who are experienced in providing those services, in an attempt to preserve the business and employment, whilst even making a return.

Since the beginning of the recession, there have been some changes in the law which might influence choices.

The Agency Workers Regulations would not prevent laying off temps, first but for those who qualify for pay protection, after 12 weeks in the same assignment, there may be some restraint on changing their terms.

The Default Retirement Age has now been abolished. Subject to the decision of the Supreme Court case heard on 17-19 January 2012, an individual employer might be able to justify having its own retirement age but, in the absence of that, a discussion about retirement could lead to an age discrimination claim.

Meanwhile, the now seminal case of Bateman – v –Asda, in the Employment Appeal Tribunal, has opened a door for employers to change terms of employment, particularly by having an effective variation clause in employment contracts. This is important because many of the recession-based tactics might involve changing employment terms. [Our Employment Team was involved on the successful side in that case].

If all else fails, always remember that redundancy is a dismissal. We talk about “making someone redundant”. Redundancy is a matter of fact – someone either is or is not redundant. The dismissal should then be carried out fairly and reasonably in all the circumstances. The whole law on redundancy is beyond the scope of this article but the box includes the key elements necessary for a fair collective redundancy procedure.