The last resort

Redundancy programmes are bad for morale, bad for the delivery of public services and, in the short-term, bad for the public purse. Chris Knuckey looks at how councils can cut their employment costs while keeping redundancies to a minimum.

So the UK has “stormed” out of the recession with 0.1% growth recorded in the last quarter of 2009, but, as we are repeatedly being told by politicians and the media, the hard times are only just beginning.  Local authorities have been under pressure to make savings for some time and the pressure to do more with less will only grow as whoever forms the next government tries to make tens of billions of pounds worth of savings to cut the budget deficit.

But what does this mean in practice for local authorities?  The two budgets most under pressure will be capital expenditure and staff costs.  In difficult economic times, the temptation to cut headcount as a quick fix to spiralling expenditure and falling revenues can be hard to resist. However, such short-term measures can affect the long-term ability of an authority to deliver its services in the most efficient manner. Once lost, a talented, experienced employee is hard to replace when the economic climate improves. Staff morale can be affected and the authority can suffer damage to its reputation.

This note considers some ways in which staff costs can be reduced without resorting to the dreaded “R” word (that is, redundancy if you haven’t guessed yet!).  It goes without saying that the unions in the public sector have a vital role to play in any discussions about changes in the workforce and that any proposed action affecting the workforce should only be taken after appropriate consultation with union officials.

Restrict recruitment

A hiring freeze is an easy, cost-effective mechanism to reduce organisational costs and expenses. Combined with natural attrition, this is often the first step employers take in an economic downturn.

Reduce non-permanent staff

Reducing the number of agency, temporary and casual staff employed by an authority has traditionally been a swift and effective cost-saving strategy. Providing that such staff are not employees or workers of the authority, it can be legally simpler (and cheaper) to terminate their engagements than dismissing permanent employees or workers. However, the employment status of such individuals must be considered carefully before any action is taken as if they can establish employment status they will be entitled to be included in redundancy consultation programmes and to redundancy payments in the normal way. Note however that from October 2011 agency workers will be entitled to the same basic working and employment conditions as those enjoyed by equivalent permanent workers following a 12 week qualifying period. This will include statutory redundancy payments but not contractual redundancy payments.

Secondment

Another headcount reduction option is to second an employee, either internally or externally to another department or authority that needs additional resources or expertise, for example, because it has had to make redundancies or has a recruitment freeze but now has a need for an employee with a specific skill set. Such secondment opportunities may arise as a result of a joint working or shared service arrangement. Secondment arrangements can help retain valued employees and their skills during a difficult financial period.  

Redeployment and retraining

The job an employee does is, for the most part, an essential term of their employment contract, which can only be varied with the employee's consent or under express contractual agreement. Where an employer considers making an employee redundant, it has a legal obligation to offer the employee any available suitable alternative employment. Authorities should therefore consider putting in place redeployment or retraining arrangements, which may help to fill vacancies in departments that are traditionally under-resourced or providing essential services.

Sabbaticals and unpaid leave

Many public sector organisations will already have sabbatical policies in place. Those that don’t may wish to introduce one or even simply offer a one-off opportunity to take a period of unpaid leave. In making any sabbatical arrangements, employers should ensure that they retain sufficient and suitable staff in the office to carry out required services. Employees' consent will be required unless their employment contract (or collective agreement) contains a clause allowing the employer to place employees on unpaid leave. Where an employer has an unpaid leave policy which contains certain restrictions or preconditions, for example, as to length of service or the number of unpaid leaves an employee may take per year, an employer could decide to waive or ignore these, to encourage take-up of leave.

Holidays

As an alternative to unpaid leave, an employer could require employees to take their contractual or statutory annual holiday allowance at quiet times, provided it gives employees adequate advance notice under regulation 15 of the Working Time Regulations 1998. Although employees are entitled to their normal remuneration during the leave period, by forward planning holiday allowance, the employer may "write off" quiet times and ensure employees' availability during busier times.

Reducing hours

Employees' working hours are usually viewed as a condition of the employment contract,  which can only be changed with an employee's agreement. In the past, employees may have objected to any reduction in working hours sought by the employer, and the consequential reduction of pay and benefits, but the tide has changed in recent months and the private sector in particular has seen many employees agreeing to adopt, for example, a four-day week, to secure the job stability of the workforce as a whole.  Hours may be reduced as a temporary measure or by way of a permanent change to terms and conditions of employment but only after suitable consultation with the affected employees and any relevant union. Both parties will need to agree how long such arrangements will last.

Part-time or flexible working

Parents with children up to the age of 16 (18 if disabled) and carers have a right to request flexible work arrangements once every 12 months.  When responding to such requests or implementing part-time and/or flexible work measures, part-time workers must not be discriminated against or be treated less favourably than full-time workers. In the absence of any agreement to the contrary such arrangements will be deemed to be permanent.
In the present economic circumstances, employers might want to offer or agree to either temporary or permanent part-time and flexible work arrangements to employees outside of the statutory regime. Employers should however have a mechanism in place for deciding between requests in order that minimum staffing requirements are maintained, especially where essential services must be provided.

Reducing pay or benefits

An employee's pay is a condition of the employment contract. An employer who pays less than it is required to might face an employee's resignation and a claim for breach of contract and/or unlawful deduction of wages and, since 6 April 2009, compensation for any financial losses arising.

Paying less than is stipulated in the employment contract requires the genuine consent of an employee. In a particularly difficult economic climate however employees' attitudes may be such that cuts are agreed to in order to save jobs. It is also possible to structure pay cut arrangements so that, over time, salary levels will recover or total packages will remain unchanged.

Any pay cut is likely to affect employees' motivation and commitment to the organisation. Employers who explain clearly why they seek to adopt this avenue and the overall positive impact they are trying to achieve for the organisation's employees are more likely to secure employees' consent.

Tighten up employee benefits and policies

Employers could consider ceasing to provide discretionary, non-contractual, benefits such as Christmas functions, refreshments at internal meetings, team awaydays and the like. However, where benefits are contractual, either because they are expressly set out in the employment contract or collective agreement or because they are implied into it, withdrawal of the benefits will usually require the employee's consent.

An employer can amend non-contractual policies to meet changing needs. However, even a policy that is expressed to be non-contractual (for example, enhanced redundancy or sick pay) can become contractual through regular application. Where a policy is contractual in nature, employees' consent will need to be obtained to any amendment.

It has become common for employers to tighten up on expense and travel policies, for example, by limiting the maximum spending approved, the approved class of travel and/or introducing advance approval requirements. The combination of tough economic trading conditions and the European Court of Justice's decision in Stringer and others v HM Revenue and Customs [2009] IRLR  led to cuts in a number of employers' enhanced sick pay policies (some have reduced levels of pay while others reduced the period of time over which enhanced pay is available).

Overtime bans

Where there is no contractual entitlement to overtime work, it is easy for employers to stop offering it. Where an express or implied contractual right to be offered overtime work is in place (for example, under a collective agreement), the employer must obtain employees' and union consent to stop offering overtime.

Practical considerations

Redundancies are costly and should be avoided where possible. There are also detrimental long-term effects, most notably the loss of experienced and valuable staff who might not be easily replaced once the markets pick up.

During a difficult economic climate, it is often best to be as open and honest with staff as reasonably possible. If you offer part-time work as a way to avoid job losses, use hard and fast figures to demonstrate the likely job saving. If you propose pay freezes and pay cuts, show the real savings these will allow and, if possible, lead by example from the top.

The current credit crunch will end, one day. When implementing alternatives to redundancies, employers ought to retain enough flexibility to reverse arrangements on short notice, to cater for improved trading conditions.

As stated above any local authority proposing to take any of these actions should ensure that the relevant unions are involved and also be aware that each option will have its own legal considerations and practical ramifications Therefore, the authority’s legal advisers should also be involved in any discussions prior to implementing these potential cost saving measures.

Chris Knuckey is editor of PLC Public Sector