A bleak British winter: Planning ahead for workforce restructurings

While job cuts are clearly at the forefront, restructuring does have a much wider application, encompassing all forms of change management that impacts staff. This might include retraining the workforce, moving from high cost to low-cost jurisdictions, introducing artificial intelligence or other forms of technology, merging business units, digitalising products and service lines, acquiring and divesting businesses, outsourcing non-core functions, changing terms and conditions and refining hybrid and remote working arrangements. In an era of both geopolitical and economic uncertainty, it is clear that flexibility is key; employers must be in a position to respond quickly to changing market conditions to stay competitive with their peers. 

If your business is considering implementing proposals that will entail changes to the workforce, we have set out below our top tips for staying ahead of the curve and managing the key legal risks that may arise.  

1. Fail to prepare, prepare to fail

In any change management exercise, planning ahead is critical. Where the business is considering proposals that will result in a reduction in force, it is important to audit existing contracts of employment and policies ahead of time to inform the approach, timelines and associated costs of any such exercise. You should consider gathering the following key information at an early stage:

• Notice periods: how much notice must be given by the employer? Is there a contractual right to pay employees in lieu of notice where early termination is required?
• Redundancy pay: who is entitled to statutory redundancy pay based on their length of service? Are employees entitled to enhanced redundancy pay based on any written policy?  Has there otherwise been a historic custom and practice of enhancing redundancy pay? If so, how is this calculated?
• Termination payments: are any senior employees entitled to contractual termination payments? Are these payable when the employer terminates by reason of redundancy?
• Outplacement: do you have an existing provider? What is the package on offer and could this be offered to all departing employees?
• Establishments: what is each employee’s “establishment” for the purpose of collective consultation (as outlined below)? Note that this may not always be obvious or apparent where employees are working on a hybrid or fully remote basis. You may need to undertake a more nuanced and detailed analysis in such cases including looking at their historic contract terms, any organisational links to other offices, their existing work patterns and how they have been treated by the rest of the organisation in the past.   
• Previous dismissals: when considering whether or not collective consultation obligations are triggered by the proposals (see further below) it will be important to look at the number of dismissals for redundancy at each establishment in the previous 90 days. Often proposals that affect only a small number of employees can still trigger an obligation to collectively consult on account of a smaller reorganisation that is already underway at the same establishment.  

2. Employee information and consultation

There are two main sets of information and consultation obligations that you should bear in mind when considering change management proposals that will affect the workforce, as set out below. 

Collective consultation 

Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA") requires an employer to collectively consult with appropriate representatives of affected employees where it is proposing to dismiss as redundant 20 or more employees at a single establishment within a period of 90 days or less. Such consultation must begin "in good time" and no later than 30 days (where between 20 and 99 redundancies are proposed) or 45 days (where more than 100 redundancies are proposed) before the first dismissal takes effect. 

There is extensive case law as to what constitutes a “proposal” within the meaning of section 188 of TULRCA. It is clear that the duty to collectively consult can arise in the early stages of the decision-making process and possibly even before numbers of potential redundancies and affected business areas are finalised. Notwithstanding the current state of economic uncertainty, during which redundancy plans are likely to be subject to change, it is prudent to start collective consultation as early as possible.

It is important to be mindful that the definition of "redundancy" for the purposes of section 188 is quite broad. A redundancy in this context encompasses any reason for dismissal which is not related to the individual concerned. Based on the current case law, it would arguably include situations where an employer intends to change terms and conditions to employees' detriment by way of dismissal and re-engagement. In addition, it may also include situations where an employer seeks consent to a detrimental change to terms and conditions for reasons not related to the employee, where insufficient take-up of the proposal may lead to 20 or more redundancies. In practice, this means that even proposals that are not expressly designed to reduce headcount may still trigger collective consultation, including (by way of example) closure of physical office spaces or reorganisation of functions that entail changes to job responsibilities.

TUPE consultation 

Regulation 13 of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) sets out the duty to inform and consult with appropriate representatives of affected employees in relation to a relevant transfer. A relevant transfer is likely to arise where the proposals entail a service provision change (e.g. in the context of outsourcings) or a business transfer, whether intra-group or as a result of an acquisition or divestment.

There is no minimum period of consultation that must be followed but prescribed information must be shared with the representatives “long enough” before the transfer to allow the outgoing employer to meaningfully consult with them. The length of consultation in practice is likely to be determined by the extent of any changes or proposals for change contemplated by the incoming employer following the transfer. These "measures" will have to be discussed with the representatives of the affected employees and the greater the number of staff that are affected by then, the longer the overall timetable will likely need to be. 

Remember that certain proposals may trigger both collective consultation and TUPE consultation with affected staff and any overlap will require careful planning and need to be considered ahead of time. 

3. Appropriate representatives

Where the above consultation obligations are likely to be engaged and you do not have an existing trade union, you should consider early on whether there is any standing body of employee representatives that may be appropriate. This will involve reviewing how the representatives were elected or appointed and on what basis. Note that for both collective consultation and TUPE consultation, the standing body must have suitable authority to undertake such a role. There is little guidance as to how an employer can demonstrate the requisite authority but it will certainly be important to analyse whether the body is representative of all of the affected employees and the matters which they ordinarily consult and advise on. 

Where an employer does not have existing trade union representation or a standing body of employee representatives, it will be necessary for the affected employees to elect employee representatives. Section 188A(1) of TULRCA set outs the requirements of such an election for collective consultation purposes and regulation 14 of TUPE sets out similar requirements for TUPE consultation purposes. Where employees are working on a remote or hybrid basis, it will be important to consider ahead of time how these requirements can be satisfied. This might include the use of online voting platforms and/or arranging for additional IT facilities for certain employees. The election may take longer than usual and sufficient time should be allowed for employees to nominate either themselves or other affected employees. 

Once employee representatives are elected, the consultation process will require careful planning. Where the process is likely to take place remotely, via video conferencing and/or email, it may be preferable to have more representatives than usual, so that they can effectively communicate with the affected employees they represent. Usually there will be a Q&A process through which the employer will respond to any queries or representations made by the employee representatives during the consultation meetings. If the workforce is remote, it may be advisable to set this up online and ensure that the representatives know where and how to submit questions and review replies. 

4. Being in the spotlight

Employers are undoubtedly in the spotlight more than ever before when it comes to how they treat their staff. Even straightforward business proposals can attract adverse media attention depending on the manner in which they are implemented. The public reaction to the approach of P&O Ferries (article here) when effecting a mass redundancy exercise is a cautionary tale in this regard. A few top tips to avoid a bad news story or a viral twitter rant are set out below:

• It is critical that a clear (internal and external) communication strategy is devised from the outset. You should always assume that any internal communications will become public and ensure that they are reviewed with the same level of scrutiny as external communications. Honest messages about the challenges the business is facing tend to land much better than corporate bluster.
• Management should keep communication lines with its workforce open notwithstanding the tension that a change management or restructuring process can create in the workplace. This could be the difference between an internal resolution and an angry social media post that can be seen by customers, prospective candidates and existing employees alike.
• The timing of any communications is very important where information and consultation obligations apply. Detailed company-wide announcements relating to the proposals should not be issued until the consultation process has started and it is important that it is made clear that no decisions will be taken until the consultation process is complete.
• It sounds obvious but you would be surprised - avoid dismissing employees over the holidays. Sending someone home from the office on Christmas Eve or Christmas Day is a bad news story waiting to happen.
• Unless there are specific concerns about access to confidential information and competitive activity, be cautious about terminating access to IT systems or mandating return of company equipment too early. Ideally this should not be done until the date of termination or at least until the consultation process has come to an end.
• Think carefully about the potential economic hardship that employees may be faced with in the current climate and consider whether to offer them any additional compensation or benefits on termination of their employment. A thoughtful (and not necessarily expensive) termination package that focusses on assisting employees in their search for alternative work may go a long way to easing the employee relations and PR aspects of any reduction in force.

In summary, in the current economic climate, workforce restructurings are likely to be at the forefront of any company’s costs-saving measures. Strategic planning and foresight are key to minimising legal risk and protecting the corporate brand when implementing changes that impact the workforce on a large scale. With an increased media focus on corporate values and ethics, this is especially important as it is easy for a rushed and insensitive procedure to inadvertently hit the headlines or even give rise to litigation.