5 Reasons Why Your Workforce May Be Redundant
There are various stages in business and each requires different approaches to workforce management. For instance, at the startup and mid growth phase, businesses are typically looking to grow their workforce. Therefore, management is preoccupied with finding and retaining the right talent to sustain growth.
On the other hand, in the maturity or decline phases businesses are mainly looking to survive for the long-term. This is because they have attained maturity in either sales, products or services. Thus, the only way they can remain relevant is by adopting to change or innovating new products. In this stage, a business will either want to reorganise its workforce to meet new market demands or to scale back to attain cost savings and efficiencies. Ultimately, these kind of decisions can lead to employee redundancies.
In as much as a company’s growth phase can influence redundant workforce decisions, it is not the only reason redundancies occur. In fact, a redundancy situation can occur no matter the business’ stage of growth. This Article examines some of the situations in which a redundancy can arise.
What is Redundancy?
Simply put, redundancy is involuntary loss of employment. It is an employment termination option that is initiated by an employer as opposed to an employee. It does not call into question an employee’s conduct or misconduct. Instead, it gives an employer an opportunity to adjust the workforce requirements based on the operating needs of his business.
Under Kenyan law, before an employer can declare his workforce redundant, he must give a justification or reason for the exercise. Provided an employer provides genuine redundancy reasons, the courts will not generally interfere with the employer’s decision to declare redundancy.
Below are some of the common reasons that employers rely upon in declaring redundancies.
Five Reasons For Redundancy
1. Adoption of New Technology
Businesses often adopt new technologies, in a bid to increase competitive advantages. The technology can be used in various ways such as :-
- automation of manual processes
- securing company information
- trend analysis and forecasts
- quality control and testing
- increase efficiencies and productivity
In many of the examples above, the introduction of technology can lead to complete elimination of human intervention. Alternatively, it can drastically reduce the amount of intervention required in the process. As a result, organisations find that they no longer require to have employees performing tasks that the technology takes up and hence, redundancy may arise.
2. Financial Constraints
A general economic downturn can have an impact on the financial performance of an organisation. For example, in 2017, Kenya experienced an economic downturn emanating from prolonged electioneering. Reportedly, over 25 of the 59 N.S.E. listed firms laid off 4,250 workers in this period.
Apart from an economic downturn, high operational costs and cyclical financial downturns can also lead to redundant workforce. When declaring redundancies in 2012, Kenya Airways cited cyclical financial downturns as the reason for redundancies.
It is also worthy to note that non-governmental organisations may also experience financial slumps that necessitate redundancy. This may occur where donor funding for particular projects is unavailable or where existing operational expenses are too high to maintain.
3. Operational Efficiency Requirements
At times, an organisation may need to restructure its operations to respond effectively to market demands. It may, for example, decide to eliminate certain product lines to pave way for new ones. The organisational strategy may also change from product-centric to customer-centric.
Alternatively, operational efficiencies can be realised by scaling down the company structure to eliminate duplicity of roles and increase productivity.
Each of the above scenarios requires careful evaluation of the operating structure vis-a-vis the existing skill sets. As a result, some jobs may be dispensed with and new ones may arise and in the process, redundancies may arise.
4. Mergers and Acquisitions
Here, two companies may decide to combine (merge) operations so as to attain economies of scale and operating efficiencies. Alternatively, one company may decide to buy (acquire) another for various reasons including eliminating competition, obtaining new technologies, products or services.
When coming together, the two companies need to define a unified operating structure. Oftentimes, this exercise earmarks areas in which there is a duplicity of resources or total lack of need for particular skills. As a result, a certain proportion of the workforce may be deemed redundant.
Depending on the size of the organisations, merger/acquisition processes are often regulated by governmental authorities such as The Competition Authority. Such authorities often impose conditions on the merging entities relating to number of redundancies that may be declared in any given period. For instance, in the recent merger of CBA Bank and NIC Bank, the Competition Authority of Kenya imposed a condition that no redundancies should be declared within 12 months of the merger.
5. Closure of Office or Plant
Redundancy may also arise if an organisation decides to shut down its offices or certain plants. In most cases, the closure of an office or plant leads to redundancy of an entire workforce.
Although employers have a right to declare redundancies for reasons they deem fit, courts may interfere with their decisions where it is evident that the reasons are not genuine.
If you are thinking of declaring redundancies, consult your lawyer so he may help you understand how to navigate through the legal requirements. This is important because apart from the reasons, there is much more to consider when declaring redundancies.