Surviving The Credit Crunch

The current economic climate has pushed the issue of redundancy and staff cuts to the top of the business agenda, not to mention the news headlines.

NorthgateArinso Employer Services, offers businesses advice on how to communicate with employees during these difficult times and highlights some of the issues around changes to employee contracts.

Understanding the legal implications of redundancy and changes to working arrangements is key for SMEs right now if they are to stay the right side of the law as the latest Labour Market Outlook survey, from the Chartered Institute of Development (CIPD) and KPMG, shows 25% are looking to make employees redundant over the next quarter. While job cuts and restructuring are inevitable for some businesses the survey also suggests employers are considering alternatives to redundancies.

There are increasing reports of organisations embarking on shorter working weeks, job-sharing, reducing pay or closing down production for a period to reduce the need for redundancies (lay-offs) and to survive the challenging economic climate. Whether businesses are making redundancies or changing employees’ work arrangements this creates a headache for employers and getting it wrong is simply not an option.

As difficult as it is right now, especially for small businesses, it’s important to see past the next 12 months and think about the long term consequences of the actions employers are taking now. Whatever the situation it is important to consult with employees and there are various legal frameworks dictating when and how employers should consult. As an example, the law says employers are under a duty to consult with employees prior to redundancies being made, in order to (amongst other things) seek their suggestions as to how redundancies might be avoided, such as reducing hours or job-sharing, and to answer any questions they might have.

Changes to employee contracts

Changing employees’ hours of work, pay, responsibilities or other working arrangements normally requires changes to the employment contract and/or the written statement of particulars. Every employee should have an employment contract which sets out key terms such as pay, hours, holiday entitlement, and termination or notice. This is made as soon as a job offer is accepted, although in fact, terms agreed as part of the interview process can also be implied contractual terms. Whilst the contract itself doesn’t have to be in writing employers are legally obliged to provide a written statement of particulars (employment terms) within two months of someone starting work.

Thereafter .any change to contracts of employment must be agreed with your employees to avoid potential claims for breach of contract and/or constructive unfair dismissal. If an individual does not agree with the changes being suggested employers would be unwise to just make the changes anyway unless they are prepared for the consequences. Unilaterally changing terms and conditions of employment can have serious consequences and is fraught with risks of tribunal claims if not handled very carefully – not only are there legal issues to contend with but it will also cause problems in terms of engagement and motivation.

Where there is a real business need to make changes to terms and conditions regardless of the dispute employers can terminate the contract, by giving the relevant notice period, and offering a new contract of employment which includes the revised terms and conditions (classed as dismissing and re-engagement on new terms and conditions). However, advice should be sought from HR or legal professionals before action is taken in these situations.

Making difficult decisions during the economic crisis – 6 top tips

• Be honest and open
  The impact of the downturn is reported in the press every day – employees know that businesses face difficulties. But only when employers are honest with staff about their circumstances will they staff understand and accept any difficult decisions that need to be made.
• Listen to staff
  Employees can often save money. Ask them for ideas – they might be able to cut supplier costs, improve processes and help the business improve efficiency. Also, when individuals are confident that their views are taken on board, they are much more likely to contribute willingly.
• When push comes to shove consult
  Employers have a legal responsibility to consult with staff. While cutting people related costs might be essential in order to survive ask staff what they would be willing to do to help the business cut costs and avoid making redundancies. Research shows many employees favour options such as a reduced working week with proportionate cut in salary rather than redundancies.
• Seek legal advice
  Recent legislation and developments in employment law over the years, mean that policies and procedures for handling redundancy and changes to contracts should be the number one priority for any switched on business.
  
  Most small businesses do not have the resources to employ a full time HR professional and therefore may wish to seek expert advice to make sure policies and practices are not falling foul of employment law.
• Offer support
  Employers need to consider their brand or reputation. When the economy picks up, it is likely that they will need to recruit and retain skilled individuals. If their reputation has been damaged in the market place through bad employment practices, they will find this task doubly hard.
• Keep in contact
  Think about the future – employers faced major recruitment difficulties and skills gaps before the economic downturn so start planning for the upturn. Keep in contact with valued staff who you have had to make redundant and the talented staff who may be knocking on your door now. Employers will need to recruit again when the economy picks up so it is worth having your talent bank ready.