A Review of Cost Cutting Trends and Practices of 2009

Transcription

1 A Review of Cost Cutting Trends and Practices of October 2009 Vinita Arora and Kate Hodgkiss

2 Introduction The recession thus far: Relatively slow increase in unemployment Result of more creative cost cutting than the 1980s and 1990s Assisting recovery Today's session: 1. Redundancy and how to avoid it 2. Cost cutting trends 3. Lessons to be learnt Cost Cutting Trends and Practices 14 October

3 Redundancy -The true cost The Chartered Institute of Personnel and Development has estimated that the direct financial cost to employers of redundancy per employee usually ranges from between 10,000 and 15,000 Employee's with two or more years' service entitled to statutory redundancy payment Notice pay Contractual redundancy scheme? Consultation and dismissal process takes up significant management time Cost Cutting Trends and Practices 14 October

4 Redundancy -The true cost Exposure to claims for unfair dismissal Collective consultation - takes longer, takes more management time, potential for protective awards Cost of rehiring in future Reputation Employee morale - reduced productivity/absence May struggle to recruit when there's an upturn in the market May not ease short-term cash flow problems Cost Cutting Trends and Practices 14 October

5 Redundancy Important to consider the alternatives get the process right Cost Cutting Trends and Practices 14 October

6 Redundancy -Basics Genuine redundancy situation Reasonable warning Fair consultation Fair pool and criteria Alternative employment Individual consultation v collective consultation Cost Cutting Trends and Practices 14 October

7 Redundancy - Collective consultation Length of consultation? redundancies - must be 'in good time' not less than 30 days before first dismissal takes effect redundancies - must begin 'in good time' and not less than 90 days before first dismissal takes effect Proposing to dismiss Appropriate representatives One establishment? Establishment does not just refer to geographical location. A wider test will be applied which considers operational factors as well as location Cost Cutting Trends and Practices 14 October

8 Redundancy - Collective consultation Remedies for failure to consult Unfair dismissal Protective awards Up to 90 days pay in respect of each employee Start at maximum for protective award and then look for mitigation: Susie Radin Ltd v GMB Even if there is no obligation to collectively consult there is always an obligation to consult on an individual basis Cost Cutting Trends and Practices 14 October

9 Redundancy - Genuine redundancy situation? The dismissal must be wholly or mainly attributable to the employer: ceasing or intending to cease to carry on the business for the purposes of which the employee was employed by it (business closure) ceasing to intending to cease to carry on that business in the place where the employee was so employed (workplace closure) or having a reduced requirement for employees to carry out work of a particular kind or to do so at the place where the employee was employed to work (reduced requirement for employees) SOSR? Cost Cutting Trends and Practices 14 October

10 Redundancy - The selection pool Defining the selection pool Reasonableness Are there other employees doing similar work? Are employees jobs interchangeable? Is inclusion consistent with previous policy? Is pool agreed with union? Cost Cutting Trends and Practices 14 October

11 Redundancy - Selection criteria Reasonably objective Not in breach of an agreed procedure with, for example, a trade union, or of well established custom and practice Fairly applied Common selection criteria: Attendance records (but note DDA) Key skills and experience Performance records Disciplinary records Length of service? (Rolls Royce v Unite) Cost Cutting Trends and Practices 14 October

12 Redundancy - Selection criteria Avoid: double counting subjective/vague discriminatory over complicating Cost Cutting Trends and Practices 14 October

13 Redundancy - Suitable alternative employment Requirement to offer employee suitable alterative employment Can be with associated employer If the employee accepts, or unreasonably refuses the alternative employment it may be possible to withhold their statutory redundancy payment Reasonable search Do not assume employees will not be interested in more junior roles/ other locations Employees on maternity leave Cost Cutting Trends and Practices 14 October

14 Alternatives to Redundancy Lay offs/short time working A layoff is where an employer provides no work and the employee receives no pay (other than statutory guarantee payments) Short time working is where the employer reduces the amount of work, requiring employees only to work on certain days and/or shorter working days Useful where reduction in work is expected to be temporary Must have contractual right to impose these arrangements Statutory guarantee payments Entitlement to redundancy payment Cost Cutting Trends and Practices 14 October

15 Alternatives to Redundancy Implement a freeze on overtime or a change to shift patterns Where arrangements are contractual, will require employee consent to the change Imposition of holiday leave What does the contract say? Must comply with notice requirements in Working Time Regulations Such notice must be at least twice the length of the period of leave that the worker is being required to take (Reg 15(4)(a)) Cost Cutting Trends and Practices 14 October

16 Alternatives to Redundancy Use of annualised hours contracts Employees agree to work set number of hours over the year Gives employer flexibility Reduction of pay/hours Will require employee consent Key is how you "sell" it to employees Withdrawal of discretionary bonuses/benefits Be careful that custom and practice has not implied a right to bonus payment into the contract Employers cannot exercise discretion unreasonably or in a discriminatory manner Cost Cutting Trends and Practices 14 October

17 Alternatives to Redundancy Employee sabbaticals/ secondments Must decide what the individual's employment status is during absence and what the obligations on the employer are to slot the employee back into the business on their return Retirement No need to make a statutory redundancy payment Compulsory retirement of employees over 65 (or age as specified in contract) Cost Cutting Trends and Practices 14 October

18 Alternatives to Redundancy Changes to terms and conditions The safest way to change terms and conditions is by consent after a period of consultation If changes cannot be agreed employer can decide to either: Unilaterally impose change on employees Dismiss and re-engage on new terms Both options carry risk! Cost Cutting Trends and Practices 14 October

19 Alternatives to Redundancy Other cost reduction measures? Natural wastage and recruitment freeze Retraining/redeployment Reduction in agency staff Stopping or reducing overtime Reduction in pension contribution Review of supply contracts/maintenance contracts for costs savings Workplace shutdown Cost Cutting Trends and Practices 14 October

20 Examples CMS Cameron McKenna Entire corporate team on rolling sabbatical Reaction to quiet M&A market in 2009 All lawyers to take 6 week break, 4 weeks at 30% pay and 2 weeks unpaid Programme staggered to ensure that at some associates working at all times Similar programmes across city law firms Cost Cutting Trends and Practices 14 October

21 Examples KPMG "contingency plan" Asked 11,000 staff to take unpaid leave or face redundancy programme Options: volunteer for sabbatical of 4-12 weeks on 30% pay; or take 4 day week, fifth day unpaid. Made clear that not all requests for flexible/reduced working would be met. Cost Cutting Trends and Practices 14 October

22 Examples British Airways Pilots voted to accept a 2.6% pay cut as part of a package in return for shares in three years time BUT anger when staff asked to work without pay for a month Blocks of unpaid leave or unpaid work salary deductions spread over three to six months 7,000 staff agreed to take part in cost saving measures including 800 working unpaid Proposal to cut long haul cabin crew out of Heathrow Proposal to require most senior member of crew (customer services director) to start to serve passengers Cost Cutting Trends and Practices 14 October

23 Examples Difficult relationship with unions intensified following recent announcement that the unions' agreement will not be sought for latest changes Cost Cutting Trends and Practices 14 October

24 Examples Clifford Chance Cash call of approximately 100,000 on 400 equity partners Contributions dependant on seniority Large scale redundancies Future trainees offered cash to defer Cost Cutting Trends and Practices 14 October

25 Examples Royal Mail Broken down consultation negotiations between management and Communication Workers Union Key issues: new working practice and redundancies 15 weeks to date of flash strikes causing disruption in the service and likely vote for national industrial action Background National strike in 2007 Reduction in tens of thousands of jobs by voluntary redundancy and wastage Cost Cutting Trends and Practices 14 October

26 Examples BT Staff paid 25% pay to take year's sabbatical Option of 1,000 one-off payment to go part-time - including term-time working 'Loaning' employees to other companies Graduate training program closed Cost Cutting Trends and Practices 14 October

27 Examples Fujitsu Announced plans to cut 1,200 jobs (10% of UK work force) Had already introduced a company wide pay freeze and slashed contractors to save costs The losses will be spread across London and regional offices Follows loss of NHS IT contract Strong involvement of Unite the Union Cost Cutting Trends and Practices 14 October

28 Lessons to be Learnt Unfortunately alternatives to redundancy may still not be sufficient Be aware of the long-term impact of any changes If an employee's salary is reduced by 20% following the implementation of a 4 day week, any statutory redundancy payment will be based on their final salary Long-term impact on earnings related benefits like pensions Maintaining morale is Backlash where management do not appear to be suffering whilst staff are Impact of loss of colleagues and friends Cost Cutting Trends and Practices 14 October

29 A Review of Cost Cutting Trends and Practices of October 2009 Vinita Arora and Kate Hodgkiss