Law firm, Charles Russell, advises retailers on alternatives to redundancies

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Nicola McMahon, associate solicitor at law firm Charles Russell LLP, considers alternatives to retail redundancies in straightened economic times

The effects of the current economic downturn have been and continue to be felt across the retail sector, with varying opinions on the effect of this summer’s sporting events on levels of trade.  Next and John Lewis, two of Britain’s fastest-growing retailers, have warned of a recent slowdown on the high street amid fragile, albeit stable, consumer confidence. Next’s chief executive, Lord Wolfson, has publicly questioned whether the disappointing late summer was a one-off due to the Olympics or a sign of wider problems.  

One of the impacts of the slowdown is many retail businesses must seek to reduce overhead costs in order to remain both competitive and profitable. For most retailers, staffing costs are the greatest overhead and, therefore, discussions of ways to reduce overheads often leads to discussions regarding redundancies. 

When contemplating making redundancies employers must ensure there is a genuine redundancy situation. This can be the closure of a business, a workplace closure or a reduction or cessation of the employee’s particular work. Employers are also obliged to adopt a fair procedure when carrying out redundancies which should include warning and consulting with affected employees (and their unions or representatives, if relevant); selecting employees on the basis of objective criteria; taking reasonable steps to minimise or avoid redundancies by considering possible alternative employment; making the appropriate redundancy payments and offering a right of appeal. Redundant employees with at least two years’ service are entitled to a statutory redundancy payment of up to £12,900.00, dependent on their age, weekly wage and length of service and may have additional contractual entitlements to higher sums.  

Failure to follow the correct procedure can lead to Employment Tribunal claims for unfair dismissal, redundancy pay, breach of contract and possibly also discriminatory treatment.  Compensation of up to £72,300.00 can be awarded for successful unfair dismissal claims, with an additional award of three months’ pay if there have been certain failures in the consultation process and, if any element of discrimination is proved, there is no set limit on the compensation which a Tribunal can award. In view of the many pitfalls, employers are encouraged to seek legal advice before commencing a redundancy process.

In the recent past employers have looked at alternatives to making redundancies, but which can still result in decreased overheads. Avoiding redundancies has clear benefits of enabling employers to retain their skilled and experienced staff, maintaining staff morale and expected levels of customer service and, not only avoids the immediate implementation costs and risks, but also means, when improvements in sales arrive, fresh recruitment expenses are avoided.  

The typical make-up of the workforce in the retail space is varied and this presents unique challenges when it comes to implementing efficiencies. A commonly-used mechanism to avoid redundancies is placing a restriction on external recruitment. Employers must then use their current employees, with retraining if required, to fill any vacancies that arise through natural wastage or where they are restructuring business operations. Marks & Spencer’s example earlier this year was to reduce its night shift staffing levels, but instead of making any redundancies, it redeployed all affected staff elsewhere in the company.    

Many retailers reduce their use of agency staff and contractors as a first step towards decreasing staffing costs, because this step is not accompanied with the formality and costs of a redundancy programme. Conversely, employers can also satisfy short-term staffing needs with agency staff or contractors, as opposed to the fixed overhead of employing additional permanent staff.  

Other methods could include the imposition of a pay freeze or, more drastically, a reduction in pay or removal of benefits. However, a reduction in discretionary bonus levels is likely to be easier to implement than a reduction in salary and either approach will need careful management.  

For many retailers, decreasing or completely removing the availability of overtime can represent a significant saving, particularly where overtime attracts higher rates of pay. An interesting approach can be to ask for ideas from the workforce, as this might result in volunteers for job sharing, reductions in hours, unpaid sabbaticals, early retirement or other proposals which can translate into cost savings.    

Employers concerned about the prospect of having to make redundancies as a means of overcoming financial difficulties should, therefore, consider their position and whether there are viable alternatives which can deliver the required financial savings. In many cases, the changes will require employee consultation and express consent of the affected employees to changes in their terms and conditions of employment. Therefore, as with redundancy exercises, it is advisable to seek legal advice prior to implementing any proposals. However, effective human resource planning, management and sensible execution can be used by retailers to conduct a realistic assessment of the necessary size and most efficient use of their workforce in the current climate and may avoid the need to make numerous redundancies.