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Trimming the fat - February 2010

08 February 2010 #Employment

As it is announced that we are coming out of recession, now may be a good time for employers to reorganise their workforce to ensure that the company is in the best shape for the future.

The need to slim down applies just as much to businesses as it does to our own personal quests for self-improvement. With headlines claiming that the recession is finally over (albeit on the basis of a minuscule 0.1% growth), it is clear that the leaner the business, the better its chances will be for survival in 2010 and beyond.  

Indeed, a recent survey of senior HR professionals, commissioned by career transition consultancy CMC, suggests that restructuring, with resulting redundancies, would be the most important step towards recovery for many organisations.  Sadly, this means that job cuts are still likely to dominate headlines over the coming months.  However, simply axing jobs without considering future strategies for growth could be detrimental to the business.  In the short term, the impact of redundancies on the reputation of the business and on morale should not be underestimated. The retention of staff with the right skills to drive recovery forward will be vital, along with keeping the long-term plans for the business in sight.

Whilst restructuring commonly involves making redundancies, this isn`t always the case.  Where restructuring involves changes to working methods or duties, there will only be a redundancy situation if the employer needs fewer employees as a consequence of the changes.  If not, any dismissal which arises as a result could still be potentially fair, but would not entitle the employee to a redundancy payment. This is a fine distinction and in practice, employers often make redundancy payments to keep staff on side and to minimise the risk of claims.  However, as redundancy payments will increase your costs in the short term, it is worth considering carefully whether such payments are necessary.  So, if you are planning on making changes to the workforce, with resultant job losses, you need to be clear what the situation you are dealing with involves legally.   

Changes to working methods or duties will most likely require a change to employees` terms and conditions.  In principle such changes cannot be imposed without employees` consent - to impose such changes would amount to a breach of contract.  Agreement to the changes should be sought and the need for change explained to staff, ideally within the context of the company`s financial position.  To get the details of the communication to staff right, you will need to have planned the exercise in advance, bearing in mind any collective consultation requirements that might apply (i.e. when more than 20 employees are to be made redundant or otherwise dismissed as a result of the reorganisation).

When employees understand that changes are being proposed as a way to avoid redundancies, they may agree to the change.  If employees do not accept changes to terms and conditions, the other alternative is to terminate existing contracts and offer new contracts with new terms.  Terminating contracts comes with risks, so care needs to be taken and advice sought if necessary.

Many sectors have already cut working hours during the recession with many others following the trend.  Reports have shown that employees are agreeing to reduced working hours and pay in the hope of avoiding redundancy.  Other cuts have included reducing fringe benefits such as business travel and hospitality, as well as slashing budgets for client entertaining.

One of the key areas that we often hear about being cutbacks being made is to pension contributions.  Many companies have already closed their final salary pension schemes, which provide members with a pension based on their final salary, as they can no longer afford to guarantee members that they will pay out what they promised.  Bear in mind that certain changes to pensions ignite a statutory requirement to consult employees about those changes.  A failure to comply with this could be costly, leading to a fine of up to £50,000. 

Whilst restructuring the workforce is primarily about cost-cutting, there are other commercial benefits.  For example, you may be left with a more efficient and motivated workforce with potential for future expansion. Indeed, in this recession, businesses have been keeping one eye on recovery with the accepted wisdom that retention of top talent will be one of the keys to future growth. It is therefore vital that any restructuring or redundancy process does not alienate remaining staff.   Leadership is important to support managers who can help drive performance and motivate key staff going forwards. 

Instead of immediately assuming that the only option for slashing costs is to make job cuts, it is worth exploring other options.  For example, many employees would be prepared to accept a grant from their employer to go off and study or take a sabbatical, rather than face redundancy. Adopting such a strategy enables an employer to make significant costs savings whilst hanging on to its top staff. Where job cuts are inevitable, it is still worthwhile developing strategies for keeping in touch with any top talent that your business is to lose.   Alumni networks have become increasingly popular, enabling companies to keep in touch with ex-employees so that, when the market improves, they may be encouraged to return.

Handling a restructure, or any other form of cost cutting exercise properly, can go some way to help protect your reputation as a good employer and to maintain staff morale.  Communication, adequate time for consultation and support for staff facing redundancies or other changes to their terms and conditions will be key.  If you follow these rules and don`t lose sight of the long-term aims of the business, the company should be in the best shape to cope with the changing economic climate and to beat off future competition.

Clarkslegal, specialist Employment lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Employment matter please contact Clarkslegal's employment team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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