Coronavirus – how can employers plan ahead?

It’s not often you can say “Literally, none of us have experienced anything like this before” without being justifiably accused of hyperbole. But this time you can. The last global pandemic on this scale - the “Spanish flu” of 1918-19 - hit a world shattered by war, but which didn’t have tightly integrated globalised supply chains and free and easy global travel. Today’s world is very different, where the flapping of a butterfly’s wings in Wuhan in November can cause an earthquake in the West in March.

Employers in virtually all industries are contemplating drastic decisions they wouldn’t have dreamed of just a few short weeks ago. And things may get worse - much worse - before they start to get better. There are obvious essential short-term measures, such as recruitment freezes, telling people to work from home where they can, and maximising flexibility for those with caring responsibilities. But what other tools might the UK employment law toolkit offer us to get through the next few months, and how might employers innovate with an eye to the bigger picture?  

Contingent workforce

Many organisations make use of various forms of contingent labour: zero-hours staff, agency workers, self-employed consultants and contractors. The advantage of such arrangements is that they can generally be flexed up and down rapidly, with only short (if any) notice periods to be observed, no severance payments, and limited employment protection.

While these are an obvious first port of call when cost-cutting needs to be achieved, how do you provide some protection for such individuals and ensure they will be there for you when you need them again? Making sure you maintain connections, offering work when you can, and thinking about discretionary measures such as sick pay or a one-off goodwill payment could be pragmatic and helpful steps to take.

Lay-offs and short-time working

There is no automatic right for employers to lay off staff (suspend them from work for a period without paying them) or put them on short-time working (reduced hours and reduced pay). These are arrangements employers can only compel if they have a contractual right to do so. This is rare in practice, although it is slightly more common in some unionised industries where they may be authorised in certain circumstances by a collective bargaining agreement. On occasion, it may also be possible to argue such a right is implied through custom and practice.  

Otherwise, lay-off and short-time working can only proceed with the consent of individual employees – that is, a voluntary approach (see below). Where employees are laid off or put on short time working, they have the right to resign and claim a statutory redundancy payment if the lay-off/short-time continues for four weeks or more, or for more than six weeks in any 13-week period. The rules in this area are complex so employers should tread carefully.

Deferring salary increases and bonuses, and taking pension holidays

The Covid-19 crisis coincides with the end of the financial year for many businesses, and decisions on salary increases and bonuses. It is rare for employees in the UK to have a contractual right to pay increases, and most (though not all) bonus schemes are discretionary; for those that have business performance conditions attached, it may be possible to reduce them to zero or near zero. Deferring decisions until the storm has passed is an obvious means of reducing cost pressure – perhaps accompanied by assuring staff they will be “made whole” if you ride it out, to maintain goodwill.  Where occupational pension schemes are in place, subject to relevant scheme rules and contractual terms it may be possible to negotiate pension holidays.

Seek volunteers for unpaid leave / lay-off, sabbaticals or reduced working week

One of the most effective ways of achieving cost-cuts may be to ask staff to volunteer to be laid off for a period for no pay (unpaid leave) or agree to work reduced hours for reduced pay: nine-day fortnights are a popular variation on part-time working, for example. This was a method used to good effect by organisations in a wide range of industries in the financial crisis of 2007-8. Where it is apparent that the only alternative is deeper cuts at a later stage, many employees may be prepared to assist. 

Given the nature of the current crisis, few are likely to see it as an opportunity to take the trip of a lifetime, but there may be other ways in which you could increase the incentive. One innovative approach, for example, may be to offer to maintain employee pay at a certain level, conditional on individuals using the time freed-up to volunteer to perform essential services in the community - assisting vulnerable people, providing childcare for the children of healthcare workers, and so on.

Redundancies and changing terms and conditions 

The last resort may be to force through pay-cuts and other cost-saving measures by changing employees’ terms and/or implementing redundancies. (Many employers would offer voluntary redundancies first before going down the compulsory route.) 

General pay cuts will need employee consent which may be difficult to achieve, although if there is leadership from the top and particularly in smaller organisations this may be forthcoming, especially if employees are offered something in return such as future bonuses, benefits or even equity.

Where compulsion is necessary, if 20 or more redundancies or forced changes to terms and conditions are proposed at one establishment within a period of 90 days or less, the employer is obliged to consult collectively beforehand for a minimum 30-day period with appropriate representatives of affected employees - trade unions, an existing employee body with an appropriate mandate, or a freshly elected employee body. The nature of the crisis makes the process of organising elections and holding consultation meetings more challenging, but there is no reason in principle why technology cannot be deployed to good effect, including virtual meetings through Skype, Zoom, Google Hangouts and so on.

The 30-day period can be dispensed with where “special circumstances” apply. While the test of what constitutes a special circumstance is a tough one to meet, the current situation is such that this may in some cases be possible. 

Employees who leave the organisation at the end of such a process will be entitled to notice, statutory redundancy pay and whatever enhanced redundancy pay the employer may provide. If offering the latter, it might be possible to include an obligation to repay if the employee is given an opportunity to be re-employed in the same role within a certain time period afterwards.

No employer wants to do any of these things, and most will doubtless resist for as long as possible. Businesses will want to go out of their way to protect their workforce, keep up morale and maintain goodwill. The UK is, however, said to be ten to 14 weeks away from a peak of cases and the crisis likely to be with us for up to a year. While organisations will hope for the best, it would be prudent also to plan for the worst.

For further information, please see our coronavirus FAQs for employers, which we are continuously updating.