With the recent rises in costs for many everyday essentials, including the likes of fuel, gas and electricity bills, and increasing interest rates, a number of businesses have been forced to undertake reviews of their financial position and consider where they can make some cuts to their overheads to ensure financial stability for uncertain times ahead.
Whilst there are a variety of cost-cutting measures that businesses can consider, the one that always receives a large focus is that of making reductions within the workforce. However, with numerous employees already struggling financially as a result of the “cost-of-living crisis”, the ongoing fear that, in addition, they could be at risk of losing their job, and consequently reduced disposable income can cause a high level of concern for many individuals.
Therefore, whilst in some instances redundancies may be the only viable option for a business it is also important to explore alternatives to redundancy in case any of these would be viable.
There are a number of alternatives that employers can consider prior to even commencing a redundancy process. For instance:
- A recruitment freeze: If the business is struggling financially with the current workforce level, then putting a pause on taking on any more employees for a period of time could assist to ensure additional funds are not spent;
- Reducing hours of work: A reduction in hours of work can involve a number of options, including bans on overtime or minimising working hours/working days. In order to do this, the business would need to consult with employees to see if they would be open to such changes, whether temporary or permanently. If so, then the business should look to confirm this arrangement via a contract variation letter, so both parties are clear on the new arrangement. Alternatively, they could look to rely on a right (ideally a contractual right) to implement short-time working; or
- Temporary stoppages of work: Employers can look to make lay-offs for a set duration until the financial position improves however unless the employer has a contractual right to implement lay-offs then again it will be necessary for the employer to consult with employees.
There is also the option to explore voluntary redundancies. There could be employees within the business who in fact decide that they would be happy to move on to pastures new and take on another adventure, or even take a break from work. Therefore, employers should consider inviting employees to apply for voluntary redundancy which would allow such employees the opportunity to do so with an additional payment of redundancy pay (statutory or potentially enhanced redundancy pay) in addition to their usual entitlement of notice and accrued but unused holiday upon leaving their role. If there is a good take up for this option, if could avoid the business needing to commence a formal redundancy process and making compulsory redundancies. Of course, when looking at this option, and the plausibility of this option, the business needs to carefully consider whether the role the employee occupies is one that can be absorbed or has reduced or is no longer sustainable.
In addition, it is vital to remember that even if an alternative cannot be found prior to a redundancy process being actioned, and employees are put at-risk of redundancy, businesses should still continue to consider alternatives throughout the entire process. There is therefore further opportunity during the process for other options to be explored.
Ultimately, if having carefully considered (and implemented where possible) alternatives, and this is still not sufficient, the business may need to commence a redundancy process. In this case, a fair process should be undertaken, inclusive of meaningful consultation. We have a detailed redundancy guide which can be located Redundancy Consultation - A Detailed Guide - (New Guide) (wrighthassall.co.uk) should you find yourself in this position.
It is vital to remember, however that even if an alternative cannot be located prior to a redundancy process being actioned, and employees are consequently put at-risk for redundancy, the search to avoid redundancies should continue. Ways to avoid redundancy should be at the forefront of employers’ minds throughout the entire process, including during any employees notice period if their role is unfortunately confirmed redundant. There is therefore further opportunity during the process for employees to remain within the business, via options such as:
- Suitable alternative employment: If the business has a role which is similar in nature and terms of employment to the role that the employee currently undertakes, and this role is remaining with the business, then this should be offered to the employee. Hopefully, if the duties are close to that which the employee currently undertakes in their role, and the terms of employment are roughly aligned, the employee would be keen to undertake this role. This provides the best of both worlds for both employer and employee, as the employee can remain with the business, and a vacant role has been fulfilled.
- Vacancies: Employers will not always have a suitable alternative role for an employee at-risk of redundancy to undertake as a way to avoid redundancy. However, that being said, employers also have a duty to consider vacancies throughout the business and provide employees with a record of these, enabling the employee to apply for such a role, should they wish to do so. If an employee does make an application, this would follow the usual recruitment process, as it is not a suitable alternative role that they can simply be offered and slotted in to. Whilst obviously not all vacancies will be suitable for an employee all the time, this gives employees freedom to consider potentially undertaking a slightly different role or applying for a role at a higher/lower level than their current role, should they be happy to do so. Again, if the employee is successful, they will no longer be at risk of redundancy.
In certain situations, where a business is severely struggling with finances, even the drastic measure of redundancies may sadly not be sufficient for the business to continue to operate and remain afloat. Prior to organisations looking at insolvency and administration, it is always worth considering whether there is a way for part or all of the business to be taken over by another employer via a merger or transfer, consequently often saving employee roles and enabling the work being undertaken to continue moving forwards. Caution should however be taken that where such an arrangement works, any obligations under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE Regulations”) are complied with.
It is important to note however, that as a business has already commenced the process of insolvency, then the TUPE process may be modified or not apply. The modifications to the usual way TUPE operates will differ depending on whether the business is in liquidation or administration. In respect of liquidation where a liquidator has been appointed to wind up the insolvent company, if a buyer is sourced to take over the business, the buyer will take on very little under TUPE – there will be no transfer of employees, or liability on the buyer should employees of the seller be dismissed. Conversely, where an administrator has been appointed, the primary purpose if to rescue the company as a going concern or, if not possible, to maximise the return for all creditors and, in this situation, the buyer would face exposure under TUPE from transferring employees and most liabilities, including that for unfair dismissal by the seller. That being said, certain liabilities are carved out so that the purchase is more appealing for a buyer, such as the liabilities relating to employment prior to the transfer taking effect – employees would have to look to seek these from the Insolvency Service rather than the buyer directly.
It is important to understand the type of insolvency that may apply in a TUPE transfer. This will essentially govern who pays monies to the employees and the protections employees have under TUPE. For example, if a business is going through ‘terminal insolvency’, employees will not be protected under TUPE. This is due to the business either, going into liquidation and closing down, or becomes bankrupt. In this instance, the business going into liquidation should have made its employees redundant, prior to any transfer. In the likely event that the business is unable to pay the employees, they are able to claim for payment from Redundancy Payment Service. For businesses going through ‘non terminal insolvency’, for example an insolvent organisation that is sold but stays in business, employees will transfer to the new business, by virtue of TUPE. This will include transferring on the same conditions such as pay and working hours. It is important to note however, that new employers can make a change to transferring employees’ terms and conditions, as long as there is an economic, technical or organisational (ETO) reasons requiring a change in the workforce. Given the circumstances, it would not be unusual for the incoming business to place employees on less favourable terms in order to keep the business afloat and protect employee jobs. This would need to be donevia consultation with staff.
Therefore, whilst both employers and employees alike may be currently feeling the effects of the increased cost of living, and fearing the coming months, it is important to remember that there are a number of mechanisms in place which look to support both employees and businesses in the remit of employment law, and these should always be considered carefully with a view to avoid reaching difficult situations for wherever possible.
Frequently Asked Questions (FAQs)
Will TUPE apply in all circumstances?
TUPE may not apply in all circumstances. The first point of call is to consider whether this is a ‘business transfer’. If the purchase is merely a transfer of assets only for example the sale of equipment alone, TUPE generally will not apply. TUPE also generally will not apply in a share only sale.
If TUPE applies, does the seller need to consult with its staff?
In the event TUPE applies, the seller should consult with its staff in respect of the proposed transfer. If the seller does not consult with staff, it risks Tribunal claims, namely 13 weeks’ gross pay per employee for failure to consult. The liability could also fall onto the buyer.
My business is going through non-terminal insolvency, and we have a potential buyer. Will TUPE apply?
TUPE is likely to apply in these circumstances and the employees will transfer to the buyer. It is not uncommon for the buyer to make changes to an employee’s terms and conditions upon transfer, providing it is an ETO.
What will happen if I make my employees redundant before a TUPE transfer?
If the reason for the redundancy was linked to the transfer and not an ETO, then this may deem the dismissals unfair. As above, liability may also fall onto the buyer as it would inherit all employees, including any ongoing claims they may have.
What happens if a business in liquidation, cannot pay its debts, including redundancy payments?
Employees will need to apply to the Redundancy Payment Service in order to recover some monies. It is likely that any payments received during this process, will be considerably lower than their contractual entitlements.
Is a business obliged to offer alternative employment during a redundancy process?
If a business can evidence that it has considered alternative employment or provided the employees with a list of vacancies, this should be sufficient. If there are no vacancies or alternative employment to be offered, this should be communicated to the employees.
The business served a notice of redundancy on its employees, who are now working their notice period. Circumstances have now changed and there is no longer a requirement to make redundancies, are the employees obliged to accept this position?
The business should explain its current position and the need to no longer make redundancies. However, given that notice has already been served, employees are not required to retract their notice, provided both parties consent to the same.
Can a business implement layoffs/short time working without having the respective clause in the contract?
In enforcing layoffs/short time working without the necessary clause may give rise to a breach of contract. A business could consult with its staff and seek to vary the terms of their contracts by consent.
If an administrator has been appointed, and a potential buyer is lined up, will TUPE apply?
TUPE is likely to apply in these circumstances. The purpose of an administrator is to rescue the Company as a going concern. Therefore, the buyer will inherit its liabilities. It is not all doom and gloom for the buyer as certain liabilities may be carved out, to allow for a more attractive transaction for the buyer, whilst saving employee jobs.
What are employee entitlements if they are made redundant?
Employees are generally entitled to:
- Notice pay
- Accrued but unused holiday
- A statutory redundancy payment.