Fall in value of black gold has a human price

By Liam Kerr, senior associate at law firm CMS

The significant economic challenge facing the North Sea oil and gas sector, brought to a head by the fall in the oil price, is taking its toll in human terms.

As is often the case in a tightening market place, a number of companies are making redundancies to cut costs and rationalise their businesses.

Whilst this may be the only option available in the short-term, the long-term effects may be detrimental, particularly when market opportunities pick up again and a new wave of recruitment is required.

Following a redundancy exercise, employers may come up against various challenges including low morale and a ‘survivor mentality’ amongst remaining staff, with consequent reduced productivity, reputational issues, impact on a company’s credit terms and lost skills and expertise.

Alternative measures may achieve the necessary cuts in expenditure, while preserving a company’s longer term viability and marketability.

Liam Kerr

Negotiating pay cuts is drastic and should only be seriously considered where redundancies are otherwise inevitable. Such reductions require employee consent and should be accompanied by a detailed timetable and incentives.

Motivation and commitment are likely to be impacted so employers who can explain clearly their reasons for adopting this course and the positive results expected are more likely to secure consent.

As few employees will have a contractual right to overtime, imposing a temporary freeze might be more straightforward. There are potential employee relations issues especially where people rely on regular overtime as part of their normal pay.

It is vital that companies consult with their workers about their reasons then plan for the future by retaining the right to reverse the position and reinstate former working conditions.

Changing shift patterns might be attractive but can be difficult to implement. Even if there is a contractual right to vary shift patterns, that right must be exercised reasonably, to reduce the risks of breach of contract and/or constructive dismissal claims.
Prior consultation with staff is vital. Companies must be mindful of any impact these changes might have, for example, to staff with childcare responsibilities or those with religious beliefs.

Sabbaticals, career breaks or unpaid leave present further alternatives. For those who can afford an agreed period of unpaid leave, this may be an attractive lifestyle option which also delivers an immediate cost saving for the business and ensures an individual’s experience is retained for the future.
Consultation and employee consent will always be necessary as is consideration to the individual’s employment status whilst on leave.

Cost savings might be achieved by withdrawing discretionary benefits. The potential impact on morale (and ultimately productivity), must be balanced against the anticipated benefit. Companies must be careful to check that the benefit is truly discretionary and has not become contractual, perhaps by reason of custom and practice.

Voluntary redundancy, which is often accompanied by a higher level of compensation, may seem an attractive way to mitigate the impact of required job cuts but it can result in a company losing the people it would most like to retain.  It is therefore important for employers to make it plain that they have the right to refuse any request.  Companies could also consider offering voluntary redundancy to a particular section of the workforce only as part of a strategic plan.

Other options we have seen implemented locally are the offer of early retirement enhancements, pension scheme contribution changes, recruitment freezes and placing staff on secondment within wider company groups.

The current issues facing industry cannot be understated and it’s clear that, for some companies, cutting the workforce may be the only viable option. However, with so many possible alternatives that might prove to be more commercially sustainable, thinking creatively might be better for the business overall.

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