Reductions in force: what employers must consider

With the recent news that the UK is already in recession and that there will be a further economic downturn in the coming year, employers will be looking at how best to weather the storm. The cyclical recessions of the last three decades have demonstrated that reducing headcount is often one of the first ports of call for businesses. 

Some examples are stark: we all remember the scenes in 2008, in which Lehman Brothers employees left offices with boxes of their belongings in hand, having been given no notice. Most employers, thankfully, have a greater opportunity to consider how to respond.

But what do employers need to take into account if a reduction in workforce is anticipated?

When to consult

In the UK, there is a duty to collectively consult (meaning to consult with elected employee representatives) where there is a proposal to dismiss 20 or more employees over a 90-day period at one establishment, called the threshold. 

Where the threshold is met, there is also a duty to notify the Department for Business, Energy and Industrial Strategy of the proposed redundancies. Some employers may have specific agreements in place which set out more onerous consultation requirements, but here we will focus on the general principles.

For consultation to be meaningful, it must start when the proposals are still at a formative stage. Case law has held that this happens at an earlier stage than when an employer actually decides to make redundancies. This notwithstanding, the duty will only kick in once the employer’s decision-making process is sufficiently well advanced to identify that the threshold would be met.

However, the threshold could still be met even if other alternative courses of action are still being considered, for example if a business is deciding between sale (meaning no redundancies proposed at that stage) or closure (meaning redundancies proposed).

If the employer already has an existing body of employee representatives elected specifically for the purpose of collective redundancy consultation, this can provide them with the ability to commence the consultation process without further delay. A minimum of 30 days’ consultation must take place before any dismissals take effect (rising to 45 days where 100 or more redundancies are proposed). 

Transparency is – to an extent – often the best policy when reductions in the workforce are being considered. Elected representatives can have their advantages, with well-informed employee representatives able to act as a conduit between the business and the workforce to ensure stability as far as possible.

A failure to collectively consult can lead to intentionally punitive tribunal claims for up to 90 days’ actual gross pay per employee.  

Protecting reputation

Redundancy is inherently unpopular, and an employer’s actions will come under intense scrutiny, particularly if they are a household name. Access to social media provides employees with a platform to air their grievances, which provides fodder for mainstream media outlets. Similarly, employment tribunal judgments are matters of public record and can provide very specific detail of an employer’s actions. 

In that context, while redundancy processes can be seen as red tape and onerous to businesses, the implications of getting it wrong can be costly. Employers would be best placed to seek advice at an early stage to ensure that they approach a proposed redundancy process in a pragmatic and considerate way. Well-publicised cases of mass redundancies delivered via Zoom prove a cautionary tale. 

There’s no pleasing everyone, and there’s no way to ensure disgruntled employees do not share their views publicly, but the employer will be in a much stronger position to counter any such arguments if it is able to show that it acted reasonably and considered all that it needed to.

Voluntary redundancy

Employers often consider opening up invitations for voluntary redundancy. While this can be an attractive prospect as it can mean that the most disengaged employees choose to volunteer, it also risks the loss of star players who have confidence in their ability to find alternative employment.

One of the hidden benefits of a redundancy scenario is that a business may be able to identify its top performers, and ensure that any redundancy selection is focused on the poorer performers. This advantage can be lost in a voluntary redundancy process. 

Voluntary redundancy can however be an enticing option where an employer wishes to stabilise the workforce. By inviting volunteers, a business may be able to avoid the need for compulsory redundancies altogether, meaning those that leave do not find themselves without employment unwillingly, and those that remain feel more empowered to steer the ship through stormy seas.

However, the financial sector is often one of the hardest hit by a recession, so fewer volunteers may be forthcoming if job prospects are uncertain elsewhere. 

Looking ahead 

The future is by no means certain, and we are already advising a number of businesses that anticipate having to make redundancies. A well-handled process allows employers to look ahead positively and demonstrate, both to their remaining workforce and future hires, that they can be proud to work there.

Rebecca Berry is a senior associate at law firm Stevens & Bolton.