Coronavirus: difficult choices ahead for businesses
There is no doubt that the coronavirus epidemic is going to bring continued and significant strain for businesses, forcing them to make difficult decisions – and not least with regards to their staff. In their press release earlier this week, Virgin Atlantic explained that they have implemented several measures, with union support, to try to avoid job losses – including asking staff to take eight weeks unpaid leave over the next three months, with the cost spread over six months’ salary.
With this in mind, we consider below the other potential options open to employers in these uncertain times either to reduce job losses or to help businesses survive. We recommend that you take specific advice before attempting to implement any of the following:
1. Consider “lay-off” or “short-time” working for staff
Broadly speaking, “lay-off” is where an employer provides an employee with no work and no pay and “short-time working” is where an employer provides an employee with less work and less pay.
Both of these options are available to employers as possible alternatives to redundancy. However, the rules in this area are complicated.
Employers need to have (and to operate in accordance with) an express contractual right to either lay-off or place employees on short-time working. Without the express contractual right, imposing lay-off carries significant risks, but may be presented to employees as a more palatable alternative to redundancy.
If an employer unilaterally decided to impose either measure, there is a risk that employees could either resign and claim constructive unfair dismissal and/or claim for unlawful deduction of wages in respect of their lost income during the period away from work.
2. Consider pay cuts
Changes to any terms and conditions of employment, including pay, will not be possible without the employee’s consent (although it may, of course, be possible to achieve some level of group consent if employees are concerned about alternative cost-cutting measures such as redundancy – see further at 5 below).
If an employee does not consent, businesses could unilaterally impose the change, or consider dismissing and re-engaging under new terms. However, these approaches variously leave employers exposed to the risk of both unfair (or constructive) and/or wrongful dismissal claims as well as claims for unlawful deductions from wages. Remember also that, where an employer proposes to dismiss (and re-engage) 20 or more employees, the statutory collective consultation requirements will be triggered (which impose very specific obligations on employers).
3. Reduce generous sick pay benefits
Where an employee has a contractual sick pay entitlement, an amendment will not be possible without the employee’s consent (see further at 2 above).
However, where there is a discretionary sick pay entitlement, it is potentially easier for employers to make changes. An employer could consider, for example, temporarily reducing the length of time for which full company sick pay is offered to employees who are off sick or reducing the amount of company sick pay they receive. However, when taking this decision employers will need to have regard to government guidance which, at the time of writing, states that “employers should use their discretion and respect the medical need to self-isolate in making decisions about sick pay”.
4. Require employees to take statutory annual leave
It is possible for employers to require employees to take annual leave, providing certain notice requirements are met. Broadly speaking, an employer needs to give double the amount of notice for the amount of holiday they require to be taken. So if an employer requires an employee to take one week of their annual leave entitlement, they must give two weeks’ notice.
Although costs will not be reduced in the short term as holiday pay will still be due, it may help with managing employees in the longer-term.
5. Consider redundancies
Clearly, these are unprecedented times and, given the level of anxiety caused by the current epidemic, redundancies will be a sensitive and difficult decision. Employers may wish to approach employees first to see if anyone is willing to agree to voluntary redundancy or any of the other options set out above for a temporary period, explaining that, if this is not possible, you may have to consider the possibility of compulsory redundancies.
If you do decide to make compulsory redundancies, you will need to follow a fair redundancy process which may involve considering the use of other methods (as detailed above) to avoid the need for redundancies.
6. Consider other available options
There are a number of further options available for employers to consider, depending on the particular circumstances. In each case, you should ensure clear communication with affected staff (and note that some of these options will involve changing terms and conditions of employment, for which see further detail at 2 above):
– Defer annual discretionary pay increases;
– Offer a one-time voluntary severance package;
– Offer an (unpaid) sabbatical of six to 12 months;
– Reduce employer pension contributions temporarily;
– Agree temporary pay cuts with senior management and leadership teams;
– Introduce a company-wide recruitment freeze;
– Introduce a restriction on all non-essential staff training.
Should you decide to implement any of the above, it is unlikely to be the last difficult decision you, or any business, will have to make in light of the coronavirus outbreak.
The situation is fast-evolving, and every situation is different. Our experts are fully up to date with the latest developments and ready to provide commercially driven advice should your business require it.Back to Legal Updates →