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Alternatives to Redundancy

Updated on June 5, 2012

Every year employees hoped and expected a pay rise, and for some, eagerly anticipated the size of the bonus and how to spend it. Today’s recession in many parts of the Western world means such hopes maybe misplaced and the expectation unrealistic.

The recession means it is not uncommon for employees to receive a redundancy notice or a letter to confirm the start of a consultation period prior to the redundancy announcement rather than getting notification of a pay rise.

Redundancies are driven by the need to cut costs for a company to survive as a going concern, increase productivity, drive up profits or ward off predators looking for a takeover.

Although making employees redundant can appear an expedient solution to a severe problem, it can be an expensive option. There are many associated costs – the total cost of redundancy payments, time involved in the process, loss of skills to the company and restructuring remaining roles.

Demanding more thought, imagination or creativity than swinging the axe to cut jobs, is investigating options to avoid or limit redundancies.

Nissan, based at Sunderland - Northern England, set out to protect the working week for their employees. When the economic crisis first hit the company at the end of 2008 there was a surplus of stock. This meant they had to halt production. They adopted an innovative approach to avoid redundancies.

Lucy Banwell, Communications Manager at Nissan says, “Initially, when the crisis first hit us at the end of 2008, we took a number of non production days so we stopped production. But, rather than send people home without pay we introduced a variety of vocational training days to help employees with their job.

We introduced a Temporary Economic Crisis Flexibility agreement. This meant that if an employee took a day off, rather than take holiday from their holiday allowance they would ‘bank the hours up’. When the crisis improved later on in 2009, whenever they worked overtime this would be deducted from the time off banked previously. For example, if they took a day’s holiday they would put 8 hours in the ‘bank’. And, in the following year when the situation improved, because of the Government’s scrappage scheme, if the employee worked five hours overtime rather than getting paid for this the pay would come out of the time banked earlier”.

Banwell noted that their competitors opted to send their employees home on half pay but Nissan sought to protect the working week.

Tim Briggs, an Online Business Consultant also agrees getting employees to take a pay cut can avoid or limit redundancies. Briggs suggests, “Reducing working hours, or the number of days worked per week. Asking people to take a salary cut across the board and therefore being able to keep them on rather than having to make some people redundant. Getting rid of bonuses and again using the saved bonus money to ensure that people don't have to be got rid of”.

This may be easier said than done. What can start off with the best intentions - limit or avoid redundancies, could end up with unintended consequences.

A company may propose radical options to secure its survival, proposing that employees take a pay cut rather than get a pay rise. Where the company meets little resistance to its proposal for making pay cuts, there isn’t a problem. Where there is resistance problems can begin.

Ideally, the company should embark on a PR exercise to sell its proposal and make it palatable for employees to take a pay cut so the company can survive”. For example, the UK's British Airways airline company sweetened the bitter pill their pilots had to swallow of accepting a pay cut by offering them equity in the company. This gave the pilots a stake in the company and the prospect of sharing in the company’s recovery.

An employee's pay is a condition of the employment contract. A contract of employment is a legally binding agreement and once it is made, both parties are bound by its terms and neither can alter those terms without the agreement of the other. To pay less than is agreed in the contract requires the genuine consent of an employee. If both parties do not agree the change and the employer unilaterally reduces an employee’s pay, a claim for breach of contract and/or unlawful deduction of wages may follow”.

There are alternatives to redundancy but both parties need to watch out that what appears to be the light at the end of the tunnel doesn't turn out to be a train bringing along a quagmire of litigation.


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