5 things to consider when downsizing your business

Last post: Nov 15, 2022

In response to the financial crisis, some businesses are considering “downsizing” or reducing the size of their workforce in order to save on costs. Downsizing to save on resources is a common response in times of trouble, it can be a difficult decision to make and there are things to keep in mind when doing so.

1. Allow time to consult with staff if you're considering dismissals:

Depending on the number of employees, you may need to elect employee representatives in order to carry out collective consultation in accordance with the Trade Union and Labour Relations Consolidation Act 1992.  Collective consultation applies when there are plans for at least 20 redundancies within a 90 day period at a 'single establishment'. A single establishment can be your entire organisation, or a distinct entity within that organisation.   You would also have to notify the Secretary of State of the redundancies, using an HR1 form.  Failure to collectively consult can result in an award of up to 90 days' full pay for each affected employee, so it can be a costly thing to get wrong. Even if you're considering less than 20 redundancies, you will still need to allow good time to consult and to  follow any statutory or contractual procedures to avoid unfair dismissal claims. 

 2. Properly consider any alternatives to redundancy:

In terms of any potential unfair dismissal claims that may arise as a result of redundancies, an Employment Tribunal would expect an organization to have properly considered alternatives to redundancy, for example, job share, reduced hours or a salary freeze.


3. Plan thoroughly for any restructure of teams or reduction in staff:

 You will need to plan carefully in order to make sure staff stay focused on the need for downsizing, in order for them to come to terms with it.  The process must be well planned, so that any redundancies can be done as a single event, rather than a number of sequential events, so that the organization can draw a line in the sand under the downsizing and move on.    Make sure that you are careful and clear about the roles that are going to be made redundant, again, it can be costly to re-hire for the same sort of roles when the tide turns and business starts to improve.


4. Consider how to keep up morale for those who remain in work or those who are working out their notice:

 An organization must handle every process fairly and keep communications with staff open.  You should explain why redundancies are unavoidable and that all the other options have been explored; listen to and consider any comments or suggestions from staff and be consistent with all staff across the business.  Some organizations also consider paying special bonuses to keep staff motivated if they are working out a longer period of notice or because the organization needs certain deliverables to be completed, before termination of employment.


5. Take legal advice as to the process and in order to make sure that you are applying any redundancy selection criteria fairly:

 If you have staff that are pregnant or about to go on family related leave, or if you find that you are targeting staff from a certain protected minority, you must be aware of how to deal with them fairly or you could be facing a discrimination claim, as well as a potential unfair dismissal claim.

It is never easy to make the decision to dismiss staff, but taking advice and getting professional support can help things proceed more proficiently and protectively, for both the organization and its staff.


Please contact Lindsey at Moorcrofts LLP employment team lindsey.abbott@moorcrofts.com and on 07719957188.