When times are tight, as an owner-manager you have no option but to cut costs or risk losing your business. Saving on utilities, business expenses and marketing can help. But if a large portion of your revenue is taken up in wage costs, you could be forced to trim your workforce as well.

Redundancy levels have been fairly low since the UK emerged from the dark days of the recession in the early 1990s. Nevertheless when your business hits hard times and you’re left with too many workers for not enough work, redundancy is the logical move. However, it is also a sensitive issue, affecting not only the employee and their family, but also the morale of the workforce as a whole. And, like every aspect of employment, it is a legal minefield, which, unless navigated carefully, can throw up some nasty surprises along the way.

If you prepare carefully and take each step at a time, however, your business can come out stronger and better equipped to face the future.

First steps

As soon as you start to suspect that redundancies may be necessary, start taking steps to prevent them. If you can avoid losing people, it will be better for company morale. Even if the steps you take only succeed in postponing redundancies, your employees will be less hostile if they know you have tried everything possible to safeguard their jobs.

So start looking at alternative solutions to redundancies, such as:

  • Stopping or restricting overtime

  • Introducing shorter working hours

  • Terminating temporary contracts

  • Offering early retirement to employees nearing retirement age

  • Retraining and re-deploying employees into other areas of the business

Even at this stage, it may be worth explaining the situation to your employees. They may even find a solution for you - two employees may be happy to job share or there may be someone who volunteers to leave, for example.

Even if you can only reduce the number of people that have to be made redundant, it will make things easier. However, if you have exhausted every alternative and come to the conclusion that redundancies are unavoidable, you will need to set the procedure in motion.

Some companies have a redundancy policy that they can follow. At the very least, you will need to make preparations because this is a procedure you cannot afford to get wrong. Redundancy is a fair reason for dismissal as long as it is done fairly and with due consultation. Employees who feel aggrieved by the decision can make a claim with an employment tribunal and, if successful, be awarded substantial damages.