Redundancy or Pay Cut?

27 02 2009

Not an enviable choice to be faced with, but one that an increasing number of people seem to be having to make, or have foisted upon them, in industry.  It is a practice that doesn’t seem to have caught on here in the City where swingeing headcount cuts still rule supreme when an employer wants to cut costs.  I’ve written many times in this blog before about the redundancy process and selection criteria and the claims that can arise when employers get it wrong.  However, what must an employer do if they decide that a pay reduction is preferable to a cull? 

 

It’s not an easy option because any variation in an employee’s pay, if imposed unilaterally by the employer, is a breach of contract and the employee would be entitled to sue for breach of contract and/or unlawful deduction from wages.   Consequently the employer will need to obtain the consent of affected staff before proceeding and, particularly in unionized workplaces, this is unlikely to be given readily. 

 

Some employers take the step of terminating all employment contracts and then re-employing the same staff on reduced terms.  This is highly risky because it can give rise to claims for redundancy, unfair dismissal and breach of contract if not handled properly.  An employer would need to consult with affected staff and persuade them that the only alternative to pay cuts was job losses, in order to obtain consent. How long the consultation period would have to be would depend upon how many  employees were involved and a prudent employer would want to observe the provisions of the Trades Union and Labour Relations (Consolidation) Act 1992, which provides for fixed periods of 30 or 90 days’ consultation where more than 20 or 100 staff are involved. 

 

For smaller employers the process of obtaining consent is going to be viewed as just as onerous as undertaking a redundancy exercise and that might make the whole process unviable.  Having said this, the new Employment Act 2008, which comes into force in April, repeals the current statutory dismissal procedure that applies on redundancies as to all other dismissals, and that may persuade more employers to go down the route of pay cuts.  I’ll be covering  more issues arising from the new legislation in future posts.

If you need advice on any issues arising here please feel free to call me on 0207 464 8433 or email me at michaelscutt@dalelangley.co.uk.

What would you do if faced with this choice?  Please answer the poll below.

 

 

 

A slightly different version of this post will appear in the “Docklands” and “Peninsula”newspapers week commencing 2nd March.





There may be trouble ahead …

26 02 2009

And whilst there may well be music and moonlight and love and romance somewhere,  HR bods and employment lawyers probably won’t  be looking forward to facing the music (or dancing for that matter) when it comes to dealing with the Employment Act 2008.  It comes into force (or should that be farce?) on the 6th April and repeals the hugely criticised Employment Act 2002.   In fact, there definitely will be trouble ahead.

Before I get into the nuts and bolts of the new legislation though, how did we get into this situation for those who haven’t been keeping up, or haven’t had the misfortune to get entangled in the current web of appeals, grievances, rights of appeal, extendable deadlines and percentage uplifts/reductions  for non-compliance?  Simply because the government became concerned in the closing years of the last century and the early ones of this that the number of cases being filed at Employment Tribunals (E.T) was increasing rapidly, threatening to swamp the system (see footnote below on this).   So they decided, not unreasonably, that it would be better if employers and employees could settle their differences without needing to bother the E.Ts.  Additionally, many smaller employers did not have grievance or disciplinary procedures in place, so the introduction of statutory disciplinary and grievance procedures helped to establish necessary internal procedures for dealing with disputes was a good plan. It was stipulated that in any disciplinary situation there would be a three stage process – a letter from the employer setting out the alleged disciplinary fault, a meeting to discuss and then a right of appeal.  A grievance by an employee would follow the same basic process but at the employee’s instigation.  So far so good.

Unfortunately, the system introduced with this laudable aim, by the Employment Act 2002, and the Employment (Dispute Resolution) Regulations 2004 made the whole situation much more complicated than it needed to be.  There have been two central difficulties.  Firstly, the rules allowed for an extension of time for issuing ET proceedings, in certain cases, up to six months from the usual three. This seemed simple until you were faced with a claimant with multiple claims.  Secondly, if an employer did not follow the disciplinary process religiously then they risked a finding of automatically unfair dismissal if the claim ever got to an ET which could result in the ET increasing the award it made to the employee by between 10 – 50%, depending on the heinousness of the procedural failure.  The end result of all this was that lawyers on both sides got involved much sooner, disputes became more entrenched and the number of cases filed at ETs kept on rising.

The government commissioned the Gibbons review, which led to the Employment Simplification Bill, which itself became simplified to the Employment Act 2008. It  relies heavily on a new ACAS Code of Practice, which will be legally binding, albeit it is still in draft form.  In turn the Code of Practice is supplemented by a Guide (called “Discipline and grievances at work: The ACAS Guide”) which is purely a guide and not law.  The main changes this structure brings about are as follows:  Firstly the extendable limitation periods for issuing claims will go.  From the 6th April 2009 in the vast majority of cases, there will only be three months from the dismissal or the event giving rise to the claim in which to issue proceedings at the ET. Extensions will only be possible if “just and equitable” (for discrimination claism) or “not reasonably practical” (for unfair dismissal claims), both of which are stiff tests.  Also, the automatic increase in ET awards for failure to follow the correct procedure will also be replaced by a discretionary system.  The ET will be able to award up to a 25% increase if it considers it just and equitable to do so if the Code of Practice applies and either the employer or employee has unreasonably failed to comply with the terms of the code. 

This will lead to confusion as ETs around the country decide on what act or omission was a failure to comply and, whether the offending party had a reasonable excuse.  This is further complicated by the ET being allowed to take into account the size of the employer when considering what it would be reasonable for them to do.  In other words a failure to comply with a provision of the Code  may be unreasonable for, say, a company with of the size and resources of BP, but not for a small firm of builders without any HR or legal resources.  On the face of it this is common sense, but it does mean that advising clients in the future will become harder and advice necessarily more uncertain.

My favourite amendment though concerns the new Grievance procedures. Under the rules currently in force, a grievance must be submitted in writing and failure to follow the grievance process can lead to increased/reduced awards as with the disciplinary process.  It is also necessary for 28 days to have passed between the grievance being lodged with the employer and filing proceedings at the ET (failing which the claimant cannot proceed).  The new Act sweeps all this away and doesn’t even provide that a grievance must now be in writing.   Madness! The new Code defines a grievance as any “concerns, problems, or complaints that employees raise with their employers”. The effect of this is that the system will be open to abuse from all sides: employees will be able to claim that the conversation with their line manager by the coffee machine at 4.55 one Friday afternoon x weeks ago was, in fact, a grievance.  Unscrupulous employees can then “reverse engineer” history to suit themselves.  Similarly employers will be able to claim never to have been made aware of the grievance.  In one sense this doesn’t have the impact that it would if the statutory uplift for non-compliance was still in force, but it will lead to a good deal of confusion and dispute and will do nothing to promote harmony in the workplace. 

There are many other aspects to the new rules which I shall write about in the forthcoming weeks as issues arise and get resolved, or as major confusion arises.  Watch this space. 

 

 

 

 

 Footnote

In 1999-2000 according to the ET’s own figures, 104,000 cases were filed.  There was a slight dip (bizzarely) in 2002/03 to 98,617 and then an increase to 115,039 in 2005/2006 after the new system was brought in.  In 2006/07, the last year for which figures are available there were 132,577.  Even the ETs own figures don’t show a relentless year on year rise – in 2004/05 the numbers declined to 86,181.





What happens if my employer goes bust? Part 2

19 02 2009

It all depends on what is meant by “going bust” (sorry, typical lawyer’s answer).  There are several ways a company can go bust, i.e become insolvent, and much will depend on whether the company can be rescued or if it is beyond help.  Insolvency practitioners talk about “terminal” and “non-terminal” insolvencies.  Insolvency law is a complex area and what follows is only a “noddy’s guide”.

Terminal insolvencies include where a liquidator or receiver is appointed to wind up the company.  That is a liquidator’s sole job and if he is appointed by the Court or shareholders his appointment will automatically terminate all employment contracts.  Employees will then have to apply to the Redundancy Payments Office for redundancy pay,  unpaid wages etc and take their places in the queue of creditors.   I’ve written in this blog before about the RPO and the less than generous sums paid – see the entry on 18th September last year.

A Receiver appointed by debenture holders is an agent of the company and his appointment doesn’t automatically bring all employees’ employment to an end.  This is the same position as with Adminstrators (appointed by the Court) when a company goes into Administration (as with Lehman Bros for instance).  This is the most common form of insolvency procedure and is designed to try and rescue the company if at all possible – it’s a “non-terminal” insolvency procedure in other words.  The Administrator has 14 days to “adopt” employment contracts.  Those employees who are dismissed may therefore have claims for redundancy pay or unfair dismissal.    

A Receiver is slightly different in that he is appointed either by the Court or debenture holders and his job is to sell assets sufficient to cover the monies lent by the debenture holders (who will have had a fixed or a floating charge over company assets).  If appointed by the Court then employment contracts will be terminated, but not if he is appointed by debenture holders.

So, in other words, unless the insolvency procedure automatically terminates all employment contracts, the position is going to be uncertain.  An employee is going to have to wait to see what steps the Administrator or Adminstrative Receiver is going to take.  They may be taken on or they might be dismissed.  If kept on and the company is rescued, perhaps by another company buying up the remnants of the business, issues may then arise over the transfer  and then there will then issues over whether the TUPE rules apply. 

This is another can of worms and needs to be considered carefully.  A recent case, called Oakland v Wellswood (Yorkshire) Ltd held that the TUPE 2006 regulations do NOT apply where an Administrator of  company which is in administration disposes of the business as a going concern, which is the same position as where a business is disposed of by a liquidator.   Whether TUPE applies or not can be crucial because if it does then an employee’s continuous employment continues thus preserving the right (if accrued) to bring a claim for unfair dismissal.  As ever take legal advice on your situation if in doubt.

 

I can be contacted on 0207 464 8433 or leave a comment on these pages.





Bonus – what bonus?

10 02 2009

I normally expect to get a lot of enquiries about low or non-payment of bonuses around this time of year.  However, it is not normal for the subject of bankers’ bonuses to be front page news or for all three party leaders to jump on the bandwagon and criticise the level of bonus payments.  Of course, we’re not living in normal times at the moment and bankers are going to be fair game for the media and politicians.

What is noticeable about the current debate is the lack of clarity.  Are we talking about all bonuses (such as the fairly small sum that a cashier on a frontdesk in Barclays would expect to receive – cf: John Varley CEO of Barclays on BBC News last night) or the stonking seven or eight figure sums going to the Masters of the Universe?    What about the high five or low six figure sums going to those in between?   Also, are we talking about discretionary or guaranteed bonuses?  Or commisssion payments?  As usual the media seems to let us down.

Here is my take on the situation.  If you’re working for an Investment Bank and sitting at your PC wondering if you’ll get a bonus (or smarting over having been told you won’t), these are the issues. 

1.    If the bonus you were expecting was wholly discretionary and you’ve got a low or nil bonus it is going to be difficult (but not necessarily impossible) to successfully challenge the award made to you.  The precise terms of the bonus scheme will need to be looked at.  Do you have to be in work at the date it is paid (have you been made redundant conveniently early so that you’re not around when the payment is made)?  Is there a payment in lieu of notice clause in your contract?

2.  Is it a commission payment?  In other words, have you a contractual entitlement to be paid, say 10% of the value of the work you bill?  If the employer doesn’t pay this they will need to have a pretty good reason because, provided you have met the conditions, you should be entitled.  In reality this sort of scheme isn’t seen very often in the City and is not the target of the jibes made by all and sundry in the media. 

3.  Have you got a guaranteed bonus?  These are seen most commonly when an employee joins a Bank, perhaps to compensate them for losing stock entitlements at their last job.  Usually the schemes will require the employee to be in employment as at the payment date and not to be under notice or in the midst of disciplinary proceedings.   The sums guaranteed can be substantial and it is these types of payment that will be giving the banks the biggest headaches.  The employee will be entitled to receive the payment and I  foresee much litigation occurring if payment isn’t made, especially if the employee has performed well.  In cases where someone expecting a guaranteed bonus hasn’t performed well, or has lost their employer large sums of money, they may well find themselves facing a counter-claim for breach of contract for not performing. 

My firm has a lot of experience in acting for banking executives in relation to all these issues.  If you are in doubt about your situation do take legal advice quickly.  You can reach me on 0207 464 8433 or at michaelscutt@dalelangley.co.uk





SRP to be reviewed

6 02 2009

Just as I was sitting down wondering what to write about this week The Independent, with superb timing,  published a  headline entitled “Redundant Workers to get bigger pay offs” .  The report says that the Government has ordered a review of the payments made to workers on redundancy, known as statutory redundancy pay (SRP).  This is currently fixed at £350 per week for workers aged between 22 and 41 and is deemed to be a full week’s pay.  Workers over 41 when made redundant receive 1.5 times that figure.  That weekly figure is then multiplied by the number of complete years’ service (up to a maximum of 20) that the employee has with that company.  The employer pays the SRP to the employee, plus whatever notice monies they are due, unless the company has become insolvent in which case the state pays.

The figures are not generous and few employees will be adequately compensated by them, which makes the Government’s review welcome.  According to the report in The Independent 46% of the workforce earns more than £350 per week.  It increases by the rate of inflation every February (and only went up to £350 from £330 per week this week) and has not been reviewed for years. Apparently, when the scheme was launched in 1965 the weekly figure represented an astonishing 203% of the then average weekly earnings.  Now the figure is 56% of weekly earnings, because the figure is linked to inflation and not earnings (which is what the TUC wants to see happen).      For many people in the City they are not likely to be affected by this because their employers will usually (but are not obliged to) offer enhanced terms, such as two full weeks’ pay (increasingly common) or one month’s full pay per year of service.

Whilst reviewing this issue the government should also consider increasing the tax free sum that can be paid to redundant employees.  At the moment it is capped at £30,000 and has been at that level since 1988.  The TUC is calling for an increase to £50,000. 

That would be a very useful step but because the government will probably perceive it as being a measure that would benefit the better off I cannot see it happening soon and it will also reduce the tax-take even further.  The increase in SRP is more likely to happen because employers, not the state, pay. Smaller employers, already under severe pressure, will be squeezed further.

For the full article go to www.independent.co.uk

This article will appear in the “Docklands” and “Peninsula” newspapers week commencing 9th February 2009.





Redundancy Tracker

2 02 2009

For those of a morbid frame of mind, or merely of a train-spotter psyche, an interesting article on the Personnel Today website has just been published.  Called Redundancy Tracker it lists all the announced major job losses since 12th September up to 30th January and it certainly makes for depressing reading. 

According to the list there have been over 92,000 redundancies in that period – and that is only from high-profile and large employers.  Low-lights include 27,000 at Woolworths, 10,000 at BT (where a job used to be for life) 2,444 at various local authorities (presumably the ones that also invested their Council Tax payers’ money in Iceland?) 1,000 on the London Underground and 2,200 at Virgin Media.

Here in the City there have been 270 heads lost at Linklaters, 1,900 at Bank of America following the takeover of Merrill Lynch, another 1,900 from Santander and 750 at Lehman Bros.  XL prop up the list with 1,700 job losses. 

Bernard Matthews suffered 130 redundancies, which might be good news for turkeys, if no one else. 

 

You can find the list at www.personneltoday.com/articles and if you have news of any other redundancies they want to hear from you with the details.

The tracker reminded me of the nightly jobs losses news on Channel 4 News at the time of the Thatcher recession in the early 80s.  As I recall (dimly) the losses then, of course, were in manufacturing industries in the North, where it was truly grim.  This time around, of course, things don’t look so pretty down here in the South and the fact that we have seen our manufacturing base eroded over the years as financial services came to the fore is supposed to explain why the UK’s recovery will take longer than any other developed country when things do start to pick up.

The heavy snowfall this morning (which was very pretty from my bedroom window) and the news of wildcat strikes across the north in protest at foreign workers taking British jobs also put me in mind of the winter of discontent in 1978/79.  I remember being delighted at not being able to go to school because the school had no oil.  As I recall that was a very hard winter too with plenty of snow.  I was rather disappointed to find that my railway line was operational today as I was looking forward to throwing snowballs at the kids. Instead I am in the office (the only one) and will no doubt be renamed “Scutt of the Antarctic”.