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Avoid the decline of your business: 5 tips from an employment lawyer

Feb 22, 2013

Over the past 12 months the decline of the High Street has taken many casualties. Some household names such as HMV, Clintons and Jessops have been placed into administration. We are constantly told about the number of jobs at risk: both Comet and Blockbuster were recently placed into administration and they employ more than 4,000 individuals each. In this blog we look at ways of reducing staff costs before the business is in dire straits, so you can avoid calling in the administrators.

1. Consider alternatives to redundancy

Too many employees? Announcing redundancies can be bad publicity. Could you just as easily put a hold on all recruitment, restrict overtime, re-train some employees or offer voluntary redundancy? Could the use of contractors or agency staff be reduced? Even if redundancies are necessary you should act as a responsible employer by considering all the other options.
 

2. Ensure redundancies are carried out fairly

Staff costs can be a huge overhead. Most employers will consider making redundancies when times are hard, but it is important to follow proper procedures or else a costly Employment Tribunal claim could follow. In summary, a redundancy dismissal is likely to be unfair unless you:   a) Identify the appropriate group to be placed at risk of redundancy   b) Consult with those individuals at risk of redundancy   c) Apply fair scoring criteria to those in the group   d) Consider suitable alternative employment and offer all redundant employees the right to appeal against their dismissal   So to use a simple example, let’s say you employ five software developers and the loss of a major contract means you only have work for three. You would place all five at risk of redundancy, score each one using fair criteria, before selecting the two lowest scorers and consulting with them over their selection. The two who are ultimately selected for redundancy have the right to appeal and you must consider redeploying them elsewhere in the business. You can’t just pick your three “favourite” employees!

Too many employees?

3. Are more than 20 employees being made redundant?

This is an important question. Where 20 or more employees are being made redundant in a period of 90 days or less then you must consult with the trade union, or employee representatives if there is no union. You must also notify the Department for Business Innovation and Skills and the consultation must take at least 30 days. Where 100 or more employees are to be made redundant there is a minimum consultation period of 90 days – although this is being cut to 45 days with effect from 6th April 2013.
 

4. Are the redundant employees entitled to redundancy pay?

Employees with more than two years’ service are entitled to receive a statutory redundancy payment calculated based on their age, length of service and how much they’re paid. You can check their entitlement using this calculator. In addition, all redundant employees are entitled to notice (or a payment in lieu of notice) and a payment in respect of any accrued but untaken holiday. You can be more generous than the statutory minimum if you want.
 

5. Are compromise agreements appropriate?

Redundant employees could issue a claim against the company if they feel they have a reason to do so. The claim could be on any number of grounds such as unfair dismissal, unpaid wages or discrimination.   So some employers will consider making any severance package subject to the employee signing a compromise agreement. This is an agreement between the parties under which the employee agrees to waive his or her rights to claim against the business in return for the payment offered. The employee will have to take independent legal advice on the document before their signature becomes binding and the employer is normally expected to make a small contribution towards their legal fees.  

As you can see from the above, there is a lot to consider if you are thinking about cutting staff numbers. If you would like to discuss any of the issues above or indeed any aspect of HR law then please contact one of our specialist employment solicitors on contact@waterfront.law or 020 7324 0200.