Restructuring vs Redundancies: How to make the right choice for your business

Redundancies have never been far from the headlines since the pandemic. Many businesses have been forced to make redundancies due to the tough economic climate and they are not alone, with large employers such as universities and local councils also looking to fix their finances through redundancies.

However, redundancies are not the only option for organisations that need to cut costs and improve their financial health. Restructuring can also provide an effective option that could reduce or entirely avoid the need to let people go.

In this article, we cover the difference between restructuring and redundancies, whether redundancies are an inevitable part of restructuring, when the two options may be appropriate and the possible risks, as well as how you can decide which is right for your business.

Need help with restructuring or redundancies? Please contact Richard Gvero who will be happy to advise.

Key points for business leaders to know

• Restructuring involves reorganising your business’s operational or financial structure
• This may or may not involve making redundancies
• There can be various reasons for restructuring, including reducing costs, boosting profits and refocusing a business
• There are risks to restructuring that must be properly managed, including failing to meet your goals, damaging employee engagement and productivity, and reducing customer confidence
• Redundancies are commonly needed where there is now less work for certain types of employees or certain types of roles are no longer required
• There can be significant legal risks when making redundancies, so you should get expert support to ensure you follow a fair, legally compliant process
• Deciding whether to restructure and/or make redundancies can be challenging but having the right expert support can increase your chances of doing so in a way that meets your goals and minimises any potential risks

What is the difference between restructuring and redundancies?

When people hear the term ‘restructure’, they may think this is synonymous with making redundancies, but this is not necessarily the case.

Restructuring a business means reorganising its operational or financial structure, for example, merging departments or closing down underperforming parts of the business. While this could lead to redundancies, it may not as there may be alternative vacancies available. If it is more of a financial restructure, then there may not be any changes to organisational structures, meaning there would likely be no need for redundancies.

Therefore, while restructuring may involve redundancies, this should not be assumed.

When might restructuring your business be a good idea?

There can be many different reasons to restructure a business. One common scenario is that a business is at risk of insolvency and needs to cut underperforming parts of the business to boost profitability. Alternatively, market changes could mean there is a need to pivot the business to focus on new opportunities or to simply refocus on the most successful parts of the business.

Other scenarios might include where companies have merged and need to create a new, combined structure, where a business has become top heavy with managers and a leaner management structure is desired, and where there are compliance issues that can best be addressed through a new structure.

In some of these scenarios, redundancies may be necessary but, again, this is not always inevitable.

What are the risks of a restructure?

While restructuring can be very effective at improving the health of a business, the process is not without risks.

Perhaps most importantly, a poorly planned and/or executed restructure might fail to meet its objectives and could leave the business in a worse position than it was before. To manage this risk, it is recommended to work with restructuring experts who can collaborate closely with you to understand your objectives, then plan and manage an effective process.

There is also a danger that restructuring can damage employee engagement and morale if not handled correctly. This could lead to a decrease in productivity and even result in employees who you would wish to retain exiting the business. This risk can be mitigated by proactively engaging with employees, keeping them informed about what is happening and why, and making sure any questions or concerns they have are answered promptly.

An additional point to consider is how you communicate the restructure publicly, including to your clients or customers. Again, you will need to make what is happening and why clear, ensuring this is done in a way that reflects positively on the business. Focusing on how the restructure will allow the business to improve its offering can help to avoid any negative assumptions that could harm your business.

When might a business need to make redundancies as a result of a restructure?

A business can generally only make redundancies if it can demonstrate that specific roles are no longer required. This will either be because a part or the whole of a business is closing down, the types or numbers of employees required are changing, or the business is relocating and it would be unrealistic for existing employees to commute to the new location.

In terms of restructuring, redundancies will most commonly be needed where you want to cut the number of employees in a certain role or you are getting rid of certain types of roles. However, in these types of situations, it may be possible to avoid redundancies through other options, such as moving employees to different roles or reducing their hours.

Are there any risks when making redundancies?

The biggest risk when making redundancies is the legal risk of not following a fair redundancy process. Failure to follow a fair process could result in legal claims by those employees made redundant.

Employers are required to follow a legally sound consultation process, including disusing the proposed rationale for redundancy, exploring alternatives and using fair criteria to select employees for redundancy.

If an employee believes you have not followed a fair process, they could bring an employment claim for unfair dismissal, wrongful dismissal or discrimination, depending on the circumstances.

To reduce the risk of such issues, it is essential to have expert legal advice when making redundancies. You can also use settlement agreements to confirm that employees being made redundant will not make a claim against you.

How do you decide which is the right choice for your business?

Knowing whether a restructure, redundancies or both will be the right choice for your business can be challenging. You will need to objectively review the current state of your business and compare this to where you need to be in order to achieve your goals. The reality is, this kind of objectivity can be hard to achieve from within, which is one of the reasons seeking expert help from outside your business can be so beneficial.

Working with professional restructuring and redundancy experts can provide this objectivity, combined with the experience to know what is likely to be effective, what challenges you may face and how best to navigate any issues that arise. Having access to the right professional support can significantly increase your chances of success, while also ensuring that all operational, legal and financial risks can be properly managed.

In all cases, the earlier you can get expert advice, the better your chances will be of achieving your objectives. This is especially true if you are concerned about the financial health of your business because the longer you wait to address any issues, the more they are likely to compound and the worse position your business is likely to be in. This can then make it much harder to turn things around and achieve the results you desire.

How Longmores can help with restructuring and redundancies

At Longmores, we have extensive expertise in both Company and Commercial and Employment Law matters. As such, we are perfectly positioned to advise business leaders on the different options for reducing costs, boosting profitability and ensuring business continuity, including restructuring and redundancies.

Drawing on our legal expertise and keen understanding of business, we can help to protect and improve the long-term health and viability of your enterprise, while effectively managing any potential legal risks.

For expert support with restructuring and redundancies, please contact Richard Gvero who will be happy to advise.

Please note, the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.