Alternatives to Redundancy in a Post Furlough Landscape

The UK government’s furlough scheme ended in September 2021. This had been a lifeline to many UK businesses straddled with pandemic-related debt or who were experiencing a dip in business, but understandably were keen to retain their workforce for when things got moving again.

There is still a lot of uncertainty around the effect of the pandemic on the wider economy, and so businesses may find having to fully pay their employees very difficult. As the wage bill is generally company’s biggest outgoing, it is tempting to look at redundancy as an option. Equally, given the fact that notice pay wasn’t covered by the furlough scheme, the government was actively incentivising businesses to keep hold of their staff, and in effect put off any decisions around redundancy to one side.

There are, however, a variety of measures that businesses can adopt to tie themselves over until things really are back to normal, and work is at or above pre-pandemic levels. These are less drastic than redundancies, and will ensure that a trained and experienced workforce is ready to go when the time is right, whilst also crucially allowing for a necessary reduction in staff costs.

Reducing Headcount

Of course, any reduction in headcount must be carefully considered to ensure the continual servicing of key clients. Equally, if you do have to lose some employees, it’s important to ensure that these are not your key staff who have all the experience.

Recruitment Freeze and Natural Attrition

These two remedies are an easy way to reduce the wage bill without taking drastic measures. Natural attrition simply means not replacing those who leave of their own accord – whether through retirement or resignation. Again, there are of course risks associated with this practise; namely that you can create a blanket gap in a certain area of your business. Employers will therefore need to ensure they’re effectively displacing workloads as and when employees leave.

Withdrawing job offers and Delaying Starters

Withdrawing offers is again an easy way to reduce headcount. It’s much easier if they haven’t yet been accepted by the offerees.  This is because if they’ve been accepted then there is a binding contract in place. Despite this, there is still a reputational risk involved with withdrawing offers of employment to bear in mind, whether they’ve been accepted or not.

Assuming candidates have accepted the offer, but you still need to reduce headcount, then consider whether there are any conditions attached to the offer. These could be things such as providing appropriate references and certifications for academic qualifications: if these do not appear then you may be able to withdraw the offer.

It’s also worth bearing in mind s.195 Trade Union and Labour Relations (Consolidation) Act 1992, because it would count individuals whose offers were revoked as being made redundant, regardless of whether they’d started work. This could lead to employers accidentally triggering a collective redundancy, which has several consequences, including a group consultation.

Delaying starters is also something worth considering. Many firm would do this in conjunction with some form of compensation for the candidates.

Reducing Temporary and Casual Staff

Reducing temporary staff is a neat remedy if the staff in question are agency staff, and thus the contractual obligations towards them are slighter than if they were employees. Following the employment tribunal case of Pulse Healthcare v Carewatch Care Services Ltd , employers need to make sure they know exactly what class of employee they are dealing with. Here, the Employment Tribunal found that the claimants were employees, saying that documents provided to the claimants by Carewatch ‘did not reflect the true agreement between the parties’. The case demonstrated that even with a ‘zero hours contract’, there could still be mutual obligations.

If they’re casual staff, the easiest way to reduce the headcount is to simply stop using them. However, again, employers should be mindful of treating individuals as casual staff when they may technically be employees. This is following the landmark judgement handed down by the Supreme Court in February 2021, which confirmed that Uber drivers are workers and not independent contractors.

Secondments

Sending employees to work for clients as part of a secondment is another productive way of reducing headcount. The upsides of this are that you save the employees wage bill, you can forge better relationships with the client and you can actually upskill the employee. The cons are that you can technically remain liable for the wage bill if the client doesn’t pay for some reason, and you can risk losing the employee if they particularly enjoy their time there. It also could be difficult to recall an employee quickly if you needed them back for a certain project. The best way of going about this, therefore, is to is to create a three-way agreement between the host, employer and employee. In this way you can put in covenants to ensure the employee does not defect to the clients, as well as making the client pay.

Other measures to reduce headcount

There are various more standard measures to comply with, which are less technical ways of reducing headcount. The first is early retirement: employers must make sure this is voluntary, as it’s easy to be accused of age discrimination. It’s equally important to make sure they get independent financial advice.

Employers can also offer sabbaticals. This is usually a benefit usually offered to public sector employees or those at large company. During a sabbatical, most duties and pay obligations are suspended. Issues such as bonuses and pension contributions will need to be worked out. There is always also the option of unpaid leave if employees are willing to do this.

Finally, employers can lay off their employees for short periods of time. This means an employer orders an employee not to not work and doesn’t pay them, but the employees remain employed. Costs associated with this position are attractive as they are very low. Even if the contractual right is not there and so they can’t do it automatically, they can always ask employee to become laid off voluntarily. There are some employee protections built into the law, however, which could jeopardise this. An employee, for example, can serve a ‘notice’ if they are laid off for 4 consecutive weeks, or 6 weeks over a 13-week rolling period. Following this, they are then entitled to statutory redundancy payment and can then take their case to the employment tribunal. Equally, if a guaranteed return to work can’t be offered for 13 weeks, then they are also entitled to this.

Reduce pay and benefits

The other option for businesses when faced with a large wage bill, and trying to stay afloat post-furlough is to take measures to reduce pay and benefits. The important thing here is the communication and way that these messages or requests are delivered. Honest conversations about the real need to take these steps will always be better received than unjustified requests.

The first option is a salary sacrifice and pay cut. This can either take the form of a pay cut, or a more sophisticated option of replacing a percentage of the salary with tax deductible benefits such as the cycle to work scheme or company cars, which could help to ease the national insurance contribution. A pay freeze is another step employers can take, as although most contracts have some obligation to review the salary annually, very few have any obligation. Employees may be willing to try a pay cut if they see it as an alternative to redundancy and a strictly temporary measure.

Employers can also ‘fire and rehire’ their staff to put them on different salaries. This could be categorised as a potentially fair ‘some other significant reason’ dismissal. The employer would have to show a business reason for doing so under s. 98 of Employment Rights Act, and what is reasonable will always depend on the facts. The case of Bateman v Asda Stores demonstrates how hard it can be to vary terms and conditions around pay.

Finally, employers should consider reducing or reigning in the bonus scheme, adjusting the sick pay and expenses policy and if possible changing the pension scheme to reduce the contributions.

There are, therefore, a huge variety of creative measures employers can take to reduce both headcount and the wage bill as they stop being able to rely on furlough pay. Helpfully, many of these keep the bulk of the workforce employed and ready to go for when business picks up.

Many of these measures rely on not only a nuanced and careful application of the law, but also an honest and justified communicational approach from employers, to avoid kickback and potential legal issues from disgruntled employees.