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  • Miki Ackermann

Exploring cost-saving measures and the intersection with employment contracts

Updated: 3 days ago

woman and man reviewing a contract.

As a consequence of high inflation, small to mid-sized businesses are struggling to match financial projections, and some are considering permanent layoffs. There are alternatives to layoffs, such as reducing work hours, voluntary or mandatory time off, temporary salary reductions, bonus and salary increase freezes, cutting non-essential spending, hiring freezes, negotiating with suppliers, and temporary layoffs or furloughs. All require careful consideration and planning.

If you are considering any of these approaches, be aware such changes can trigger feelings of anxiety and perceptions of job insecurity amongst your remaining staff. This is why it is important to have sound communication and change management plans to protect your business, culture, and remaining staff.

A good way to approach changes in your workplace is to communicate openly with your staff about what is happening. It can protect morale if you make this a process your employees feel they are a part of and if they understand the rationale for the change. Don’t overlook giving employees the option to participate voluntarily in cost reduction opportunities. In addition, letting staff know what you personally are doing to reduce costs will help the team come alongside you as you navigate these changes.

When cost reducing measures need to go deeper, know that a well-drafted employment contract can help you navigate the permanent or temporary layoff process easier.

A well worded, up to date employment contract can protect your business and your staff. It can provide clarity on the rights and responsibilities of you, as the employer, and your staff, and reduce the risk of legal claims on you in the event of a temporary or permanent severing of the working relationship.

Items to include in the employment contract:

1.      Job title along with the names of the parties, a job description that outlines job responsibilities, competencies, and expectations.

2.      Compensation, include any bonuses and benefits, as well as how and when payment will occur.

3.      Start date, hours of work, probation period, and the duration of the contract (if applicable).

4.      Any conditions of offer (e.g., reference checks, background checks, driver’s license, etc.)

5.      Privacy and confidentiality clauses, as well as restrictive covenants if the employee is in a category that is legally permitted to sign a restrictive covenant.

6.      A temporary layoff clause.

7.      A termination clause.

8.      The date that you expect the contract to be signed and returned to you, allowing time for your candidate to consider the agreement and obtain advice prior to responding to the offer.

An employment contract lays out all essential aspects of the working relationship, including the inevitability of ending the relationship. Given your company is unique, you will want to draft individualized contracts based on the business you are in, where you conduct business, where your employee will work from, and their relationship with your company.

Whatever strategies you pursue to enact cost savings, remember to communicate effectively and regularly with your team. And, in terms of contracts, we recommend you keep your employment contracts up to date as legislation changes quickly and case law is always in flux.

If you need help navigating cost-saving options and/or updating your employment contracts, reach out to us.

This article was drafted by Culture & Talent Works and edited in collaboration with George Waggott Law.

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