Alternative options to redundancy for organisations

With furlough periods coming to an end (31 October), there is likely to be a spike in redundancies. While the government scheme was there to protect employees from being made redundant from the outset, it has been challenging to digest the enormity of the effect that COVID-19 has had on the economy and, in particular, employment. The scope of the effect will likely not be realised until the end of the year.

In planning ahead, organisations have a number of options to consider, not just redundancy. Those other options include restructuring (which may or may not result in a redundancy situation) and/or consulting on changes to employment terms (e.g. reduced hours and/or pay).

Where an organisation concludes that it may have to make some changes to the structure of its business following on from the pandemic and those changes may mean redundancy is a likely outcome, it will need to conduct any processes in a fair way. Failure to do so may well cause organisations additional troubles, including potential unfair dismissal claims.

Key for all organisations will be:

• Identifying if restructures give rise to redundancy
• Embarking on appropriate consultation exercises with all affected employees in a fair manner
• Considering if voluntary redundancy could be offered to employees before the formal redundancy process begins – some employees may choose to leave the organisation of their own accord
• Exploring the appropriateness of asking employees to agree a variation to their contract terms – e.g. in respect of reduction of salary and reduced hours
• Redeploying employees to other parts of the organisation – this may involve giving employees the appropriate training as required

Underpinning all of the above is making sure the consultation process is right. All affected employees must be consulted on an individual basis and, where an organisation is making redundancies of 20 or more employees, a collective consultation will also need to take place and the appropriate forms will need filing.

But even where the consultation process is squeaky clean, claims may still be brought against the organisation by a disgruntled employee. The most effective way an organisation can avoid a claim being brought against them is entering into a settlement agreement.

If an employee has more than two years’ service then the employee will be entitled to statutory redundancy pay. This is to be calculated at full pay (100%) and not by the furlough payment that the employee may have been receiving (80% capped at £2,500 per month). Where settlement agreements are used, an organisation will typically make an ex-gratia payment to the employee which is additional to any statutory redundancy payment. Approaching the settlement agreement conversation requires a similar degree of careful handling as the consultation process; otherwise it could end up working against the organisation.

And even if the organisation avoids the need for making redundancies when the furlough scheme ends, the way we are living our day-to-day lives will still be in its infancy and evolving. This change may not be only short term. Organisations will need to be flexible as well as think about its employees. For example, it should look at an employee’s situation on a case-by-case basis and be mindful of the implications and risks involved if it acts unreasonably. By adopting this approach it’s hoped that increasing numbers of organisations will ultimately survive the pandemic and continue to be employers for many generations to come.