Six common mistakes to avoid when downscaling your business

When times are tough, it’s sometimes essential to scale back to keep the business profitable. And while business leaders rarely want to consider redundancies, they are often key to downscaling.

Redundancy is a very easy process to get wrong, and there are potentially huge legal and financial costs if you don’t follow the correct processes and fulfil your legal obligations as an employer. Furthermore, the process itself can affect staff morale, especially if former staff feel they – or others – have been unfairly or badly treated. This in turn can damage productivity and cause a further churn of staff. There is also reputational risk to consider.

Given the risks at stake, it’s worth knowing the potential pitfalls to avoid when it comes to making redundancies:

1. Not allowing for proper consultation

   Consultation is an important part of a redundancy process, and it has to be meaningful to be lawful. This means presenting a proposal, listening to what people have to say and responding to any ideas and suggestions put forward. Presenting a structure and saying, ‘this is what will happen’ is not a meaningful consultation and can lead to financial penalties if it’s presented as a fait accompli.

2. Not allowing enough time

   The length of time you spend on the consultation will depend on the number of people involved. If there are more than 20 people at risk of redundancy, there are legal requirements for the length of the consultation period and this changes if more than 100 people are affected. But even if you are only dealing with a few people we recommend a minimum of 5-7 days. Give a clear start and finish time from the outset so that you can move on when the process has finished.

3. Not applying a fair selection process

   Whether you’re selecting people for redundancy, or considering people for new roles in a restructure, you must be fair and transparent. For example, if you have six existing employees going for four new roles there has to be a clear and objective selection process with relevant criteria – looking at past performance, etc. You can either select for new roles or select for redundancy, depending on the situation and the roles. However, I’d always recommend doing this with advice.

4. Forgetting the paperwork

   Letters and contractual documentation are written records of the processes followed and the decisions made, so it’s vital to keep a record of them, so you have clear evidence of how people’s contracts have changed, and dates of when that happened. Keep records of all letters issued relating to the redundancy process and new contracts issued, especially if terms and conditions have changed. Keep it all up-to-date in your HR system, or if you’re still keeping paper records, keep documentation in secure fireproof cabinets accessible only to those responsible for HR.

5. Not keeping people informed

   Give clear reasons why the downscaling is necessary to the business and its survival. Be clear from the outset what the redundancy process will mean for all employees and how it will affect them. This will prevent the spread of misinformation and reassure those who are not directly involved so they can focus on keeping the business going.

6. Forgetting those left behind

   It’s easy to focus on those directly affected and forget about the rest of your staff. But the process can be incredibly unsettling for them too, so make sure they are reassured and supported. After all, they’ll be the ones keeping the business going after the process has finished. Keep checking in with them and remind them of any support available, such as employee assistance programmes.

If you manage to avoid these common pitfalls, are scrupulously fair and offer support, your employees will think better of you and your reputation as an employer is unlikely to suffer. However, we recognise that it’s difficult to get everything right, so I highly recommend getting advice. Prevention is far better than cure, and usually far more cost effective in the end.

Avoid the pitfalls associated with downscaling. Call People Puzzles on 0203 633 6830 and speak to one of our highly experienced HR experts to find out more.

People Director, Gill Watcham