The financial markets are in turmoil, banks are collapsing, famous names in an industry built on money are scrabbling around for the stuff and above it all looms the spectre of recession. And recession, real or imagined, means job losses.

Some can be spectacular, as an organisation disintegrates and employees start to network furiously with headhunters. Most are more mundane, as a company restructures or reorganises part or all of its business and some rather than all staff are dismissed. The logic behind the latter is generally straightforward – cut costs, improve efficiency and then weather the difficult period so that you can power ahead when conditions improve – but if redundancies are not handled correctly, they can result in employers making some very costly mistakes.

The most obvious risk is legal. The need to downsize may mean that an organisation has a legitimate need to make people redundant, but employers must be able to show that they used clear, objective and fair criteria to decide who will stay and who will go. This is the case whether an organisation is sacking ten people or ten thousand. “[Employers] find themselves in a situation where they have to concentrate on headcount, so they start looking for people who are underperforming and who they know have been underperforming for a while,” Paul Griffin, an employment partner with Norton Rose, the law firm, said.

Problems arise when employers cannot demonstrate that underperformance objectively; frequently, poor performers will have been given bonuses, even big ones, and there will not be any written record to document sub-par productivity. This leaves the door open for the sacked employee to claim that he or she has been discriminated against and thus pursue uncapped damages at an employment tribunal.

Employers who plan to make 20 or more people redundant also have a legal obligation to consult with representatives of the relevant union, if one is recognised, or other elected representatives of the affected staff. Failing to do this properly could land organisations with a bill of three months’ pay to each employee – even if there are tens of thousands of them.

Yet even when the legal niceties are observed, redundancy can be damaging in the longer term. “There is always the risk that you will lose your best people during the process,” David Leigh, the commercial officer of SHL, the business psychologists, said. Uncertainty and rumours ahead of a round of layoffs can lead to staff who have a good chance of finding work elsewhere leaving preemptively; “survivor guilt” can result in reduced productivity and high turnover among those who remain.

For example, American research published this year found that companies that made 1 per cent of their workforce redundant experienced an average 31 per cent increase in the number of staff choosing to leave afterwards.

Equally, poorly handled redundancies can damage both the consumer and the employer brand. Employees are often customers as well as workers; if they feel that they have been mistreated, they are likely to take their business elsewhere and to tell their friends and family to do the same. Maintaining a strong reputation to attract good staff in the future – or, indeed, now – is also important.

“Seventy per cent of companies that are laying people off are still employing people at the same time,” Gary Browning, chief executive of Penna, an HR consultancy, said. “Lloyds will be recruiting people in droves at the moment in certain roles.”

Getting it right requires good, timely communication, ideally through direct managers in one-on-one meetings rather than in group meetings with senior executives. “Our research indicates that it is the attitude of line managers that really determines the extent to which you can improve your workforce motivation,” Veronica Hope Hailey, director of the change management consortium at City University’s Cass Business School, said.

The Right Way

— Employers are required to consult staff if they plan to make redundant 20 or more people over 90 days or less. The consultation should include ways to avoid or reduce dismissals and mitigating their effects. This applies even when those to be made redundant are volunteers

— As far as possible, employers must use fair, objective and consistent criteria when selecting staff for redundancy; for example, attendance record, experience and capability. They must avoid criteria that are directly or indirectly discriminatory

— The Advisory, Conciliation and Arbitration Service (Acas) advises that employers making redundancies follow a standard dismissal process: 1.Inform the employee in writing, giving the reason for the redundancy and inviting them to a meeting to discuss the matter. 2. At the meeting, inform the employee of the decision and of their right to appeal. 3. If necessary, hold an appeal meeting and inform the employee of the final decision

Source: www.acas.org.uk

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