• Richard Beschizza

Does Restructuring Have to Mean Redundancy?

The past 18 months have been tough on businesses; for some of them, it’s now enough to open their doors again and hope that they can return to something like the status quo in 2019. However, for others, economic imperatives mean that they must look at other methods to survive, methods that they might not otherwise have contemplated.

One of those is restructuring. For many with long memories, this word is often associated with redundancies. However, this link is not always inevitable.

Reorganisation vs redundancy

If you are thinking about whether a reorganisation is the right way forward for you as your business emerges from the pandemic, you should also think about whether this will overlap with redundancies.

There are five fair reasons for dismissal:

  • Misconduct

  • Lack of capability

  • Redundancy

  • When the employee can’t do their job legally

  • 'Some other substantial reason' – a term used for a wide variety of other situations

Reorganisation will usually fall into the final category, “some other substantial reason” or SOSR as it is commonly referred to. The law defines and restricts redundancy to conditions when there is a closure of a business or worksite, or when there is a reduced need for employees to carry out work of a particular kind, but SOSR has no such statutory restrictions.

Of course, reorganisation can result in a redundancy situation, where the requirement for employees has reduced significantly and there just isn’t the money to keep all of them on.

However, reorganisations are typically associated with the following situations:

  • Work needs to be redistributed.

  • There is a need to change terms and conditions of employment.

  • There is a need to improve efficiencies in working practices or processes.

  • The employer needs to bring in new people for new skills and expertise.

  • Cost savings to the organisation.

In the current economic climate, employers are most likely to face the last situation but as things improve, other factors may affect decisions taken.

Why does it matter?

Employees with over two years’ service who are made redundant are entitled to statutory redundancy pay. For employees who’ve been with you a long time, that could amount to a significant amount, depending on how many are affected, and if you’re looking to save money, it’s something to be avoided. The employment contract might also specify enhanced redundancy payment terms; you may have forgotten about them, but they could cost you further still.

The bigger picture

You need to take this into account before embarking on a reorganisation. Where the situation allows (i.e. where the legal tests for redundancy wouldn’t be met), you may want to refer to any changes in work arrangements as being a reorganisation rather than a redundancy. This promotes a healthier culture.

Also, dismissal because of reorganisation avoids the need for a statutory redundancy payment, although there could be some benefit for you in making a provision for payment of statutory redundancy payments. This would be beneficial if there are any complications in dismissing employees; the amount could be used as compensation in any future settlement negotiations with employees.

How to prepare for a reorganisation

Although the current economic climate means that many businesses may not feel they have the luxury of time, preparation and planning are vital when reorganising. An Employment Tribunal doesn’t normally consider whether a reorganisation was avoidable or whether it has been caused by poor business judgement, providing there is a valid justification for the reorganisation. The reasons for the organisation are not usually scrutinised in depth.

However, you should avoid using reorganisation as an excuse for dismissals, for performance or misconduct. A well-thought-out rationale for the need for the reorganisation and justification for the dismissal, where applicable, should be carried out at the planning stage, to avoid any accusations from discontented employees of a possible unfair dismissal.

How to reorganise

Situations for company reorganisations vary, but the most relevant steps to consider are:

  • Set out the business reasons for the reorganisation and/or change in terms and conditions. Include justification for dismissal, if needed.

  • Consider the terms of employment or any other contractual arrangements with the employees which could be affected by the reorganisation.

  • Look at whether individual or collective consultation is needed. Collective consultation is required where you’re proposing to make 20 or more employees redundant at one establishment within a period of 90 days or fewer (this includes terminating contracts and offering new terms as part of a reorganisation). You have to consult with elected representatives or the trade union, and notify the Secretary of State on an HR1 form.

  • Hold a meeting with the employees to explain the business reasons for the reorganisation. Where possible, obtain employees’ consent for any changes needed.

  • Where no consent is obtained during consultation, give employees an opportunity to comment and deal with any points raised.

  • At the end of the consultation process, dismiss and re-engage on revised terms.

As with many aspects of employment law, it’s best to know what you’re doing before you take any major decisions; expert legal advice is one of the first things you should be obtaining.