By David Jepps, Solicitor in Keystone's Employment, Pensions and Incentives Team
When reorganising employees, you need to be aware of the three R's. David Jepps explains the law relating to redundancy, relocation and renegotiation of contracts.
In challenging economic times employers often need to make drastic changes to their workforce to remain efficient. When reorganising employees, employers need to be aware of the three R's: redundancy, relocation and renegotiation of contracts.
Money saved by changes involving the three R's can be quickly dwarfed by the cost and financial exposure of employment disputes. Such risks can be readily minimised by being alert to your obligations and taking prompt specialist legal advice.
Employees have legal protection from two main sources: their contracts of employment and statutory law.
An employment contract is an agreement between two parties and, despite what a lot of contracts say, can not just be changed unilaterally by one party.
The main statutory right enjoyed by an employee is the right not to be unfairly dismissed. That right currently applies to all employees with one year's employment, although recently the government has suggested that this may be increased to two year's service. In basic terms, if an employee is sacked and they claim unfair dismissal then you must prove that you had a statutory ‘fair' reason for dismissal and you acted reasonably in dismissing.
If you get it wrong, you could be sued for breach of contract and unfair dismissal. Unfair dismissal compensation can potentially exceed £80,000. Employers should protect themselves against that exposure by being aware of the key factors concerning redundancy, relocation and renegotiation of contracts.
Redundancy is where the need for employees to do work of a particular kind has ceased or diminished, for example where a job is being cut and not replaced. It is still a redundancy if the job is shared out amongst other employees. Employers can also choose to cut jobs even when the business is not under financial pressure.
In all redundancy cases careful procedures should be followed involving:
- Consultation with individuals;
- Consideration of alternatives to dismissal; and
- Justifying who goes and who stays - the "selection for redundancy".
In cases involving 20 or more redundancies within 90 days there are also complex obligations to consult with any recognised union or elected employee representatives if there is no union. If those requirements aren't observed an employment tribunal can award 90 days' pay to each employee concerned.
Making sure proper procedures are followed avoids the risk of huge compensation payouts.
However even when redundancies are executed properly, employees are still due statutory redundancy payments of up to £12,000 and sometimes other payments relating to notice and holiday entitlement. Many employers look at other ways of saving costs such as relocation and renegotiating contract terms.
Relocation will trigger the obligation to follow redundancy procedures (and pay redundancy payments) unless:
- Either the employee agrees to relocate; or
- There is a clause in the employment contract obliging the employee to relocate.
If you try to force an employee to relocate without their agreementt or the right to insist, this could constitute a breach of contract and an unfair dismissal.
Unless the employer has agreed to do so, there is no obligation to pay relocation expenses but you should balance relocation payments against the risk of losing key staff and the cost of replacing them.
Even if there is a relocation clause it is important to give employees reasonable notice of relocation. They can bring legal actions based on the way an employer treats them and, irrespective of legal points, it is pragmatic to consider your employees' morale.
Renegotiation of contracts is another danger area. For example, even in a recession pay cannot just be cut. There needs to be prior written agreement. If pay cuts or other changes are carefully presented as alternatives to redundancy many employees will agree to such changes to keep their jobs.
There are ways and means of forcing contractual changes but these are very much a last resort, high risk and can trigger the same redundancy consultation requirements with unions or employee representatives referred to above.
Your business can best protect itself by taking specialist legal advice before commencing any processes involving redundancy, relocation and renegotiation of contracts.
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