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NotesBusiness ManagementTopic 2.1Dismissal and redundancy
Back to Business Management Topics
2.1.512 min read

Dismissal and redundancy

IB Business Management · Unit 2

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Contents

  1. 1Dismissal or redundancy?
  2. 2Why a business cuts jobs
  3. 3The staff who stay
  4. 4Exam-style question
Two bakers leave Goldcrust: Two bakers leave Goldcrust in the same month.
Dan, at the Northgate shop: Dan has been late for the 5 a.m. shift eleven times since spring. He has had two written warnings and a meeting where he could explain. He is late again, and Goldcrust ends his contract.

Hanna, at the Riverside shop

Hanna has baked there for twelve years without a complaint. Goldcrust closes the ovens in 60 town shops and bakes their bread in one central factory (1.3.3). Riverside no longer needs a baker, so her job goes.

Both have lost their jobs, but for opposite reasons. One question tells them apart: was it the person, or the post?

Dan: the person (dismissal)

  • Why it ends. Something about the employee: lateness, poor work that does not improve, theft, breaking the rules of the contract.
  • The job. Still there. Goldcrust will hire a new baker for Northgate.
  • The process. Warnings and a chance to explain come first. Ending a contract without a fair reason and a fair process is unfair dismissal, and the employee can take the employer to court.

Hanna: the post (redundancy)

  • Why it ends. The business no longer needs the job done, or not by as many people.
  • The job. Gone. Nobody replaces Hanna at Riverside.
  • Not her fault. Her record played no part. Many countries require a payment when a job is removed (redundancy pay), usually larger for longer service.
The two terms: Dismissal: the employer ends an employee's contract because of the employee's conduct or performance.

Redundancy: an employee loses their job because the job is no longer needed and the business removes the post. The reason is the business's situation, not the person.

Everyday speech calls both of them 'being fired'. In business they are different events with different costs. A dismissal done badly can end in court. A redundancy costs redundancy pay, and it changes how everyone who stays feels about their own job.

A good record does not prevent redundancy: Hanna was one of Goldcrust's best bakers, and her job still went. Redundancy is about the post, so the quality of the person doing it does not come into the reason.

So a hard-working employee who loses her job to a new machine has been made redundant, never dismissed.

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Goldcrust did not close 60 shop ovens because 200 bakers did anything wrong. The bakers' jobs disappeared because the work moved.

One central factory, with large ovens, bakes the same bread with far fewer people, so each loaf costs less to make.

Why jobs disappear

1

Machines take over the work

New technology does what people did (automation). Goldcrust's factory ovens bake for 60 shops with a fraction of the bakers the shops needed.

2

Customers buy less

When sales fall and stay low (falling demand), fewer people are needed to serve the customers who are left. Keeping every job means paying for work that is not there.

3

The business reorganises

Departments merge, a layer of managers is removed, or work moves to one site, as Goldcrust's did (restructuring). Some jobs have no place in the new shape.

4

Another firm does the work

If Goldcrust paid a cleaning company to clean its shops (outsourcing), the jobs of its own cleaners would go.

Behind every one of these is the same aim. The business can do its work, or the smaller amount of work it now has, with fewer people, so its costs fall. A business that is losing money may cut jobs simply to survive, because wages are often its biggest cost.

What Goldcrust gains

  • A lower wage bill every year after the cuts
  • A lower cost per loaf, so it can hold its prices against rivals
  • A business the right size for the work it has now

What Goldcrust pays

  • Redundancy pay for 200 bakers, all at once
  • Years of skill and experience that leave with people like Hanna
  • Worried staff in the shops that remain
  • A newspaper headline that hurts its name

How the cuts are made

  • Cut fewer jobs first. Move people to work elsewhere in the business (redeployment), retrain them, cut hours, or stop hiring and not replace people who leave anyway (natural wastage).
  • Ask for volunteers. Offer extra pay to people who choose to go (voluntary redundancy): some bakers near retirement may be glad of it.
  • Then choose, fairly. If too few volunteer, the business decides who goes (compulsory redundancy), using rules set out in advance, such as skills and records, applied to everyone alike.
The reason sits in the business: Every reason for redundancy describes what has changed in the business: its machines, its sales, its shape, who does its work. None of them describes the worker.

If the reason is about the worker, it is a dismissal.

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The Monday after: On the Monday after the announcement, the counter staff at Riverside open the shop as usual. Hanna's oven is cold; the bread now arrives by lorry at six.

Nobody has told them whether the counters are next. They heard about the closures from the local newspaper. Two of them have started looking for other jobs.

In the other 340 shops, the bakers ask the same question: if Riverside's baker could go after twelve good years, why not me?

A redundancy hits the people who leave, but it also changes the working life of everyone who stays. For them it is a change they did not choose, and people push back against a change they did not choose (resistance to change). Here is why the Riverside staff resist it.

Why the staff who stay resist the change

1

Fear for their own job

If cuts came once, they can come again (job insecurity). Worried staff take fewer risks, and the best often leave first, because they find new jobs most easily.

2

More work for the same pay

The people who stay pick up the work of those who left. At Riverside the counter staff now unload the lorry and answer complaints about the factory bread.

3

Lost trust

Staff who learned about the cuts from a newspaper, not their manager, stop believing what managers tell them.

4

Skills that stop counting

A baker who shapes dough by hand fears that a factory wants machine operators, not bakers, and that the skill he spent years learning is now worth less.

Left alone, these fears become lower morale, less effort, more days off sick and more people leaving. The job cuts were meant to lower costs; a worried, shrinking team can eat up the saving. This is where the human resource department earns its place.

What HR can doHow it helps the staff who stayIts limit
Tell people early and honestly (communication)Why the cuts are happening, who is affected, whether more are planned. Rumours stop when facts arrive.Honesty about further cuts may make good staff leave sooner.
Ask staff first (consultation, involvement in decisions)Volunteers and ideas are asked for before anyone is chosen. People accept a change more readily when they helped shape it.It takes time, and staff may argue for choices the business cannot afford.
Retrain and move people (training, redeployment)Training for the central factory, or a job in another shop, shows staff that the business looks for a place for its people.Training costs money, and not everyone can move to a factory 100 km away.
Reward fairly (financial and non-financial rewards)A fair package for those who go, a bonus for staying through the change, praise and a clear future for those who stay.It costs money just when the business is cutting costs, and a bonus alone does not rebuild trust.
Choose in the open (fair selection)Published rules for who goes, applied to everyone alike, so nobody suspects favouritism.Fair rules can still remove people managers wanted to keep.
Treat the leavers well, for the stayers' sake: The staff who stay watch how the leavers are treated. Fair pay, help finding a new job and an honest explanation tell them the business will treat them fairly too.

That is why a redundancy handled well costs more now and less later.
How this comes up: In a case where a business is cutting jobs or changing how work is done, you are asked to discuss the strategies its human resource department could use to reduce the impact of the change on employees.

The question at a glance

  • Marks. Ten. It is one of the long questions, marked on the whole answer.
  • What the case gives you. The change, and how staff are reacting.
  • What the business can offer. New shops, new skills, money.

The ten-mark pattern

  • Say what is changing and why staff are worried. Name the fear the case shows: losing their job, more work, not being told.
  • First strategy, argued both ways. How it reduces the impact at this business, then its cost or limit.
  • Second strategy, argued both ways. A different kind: if the first was communication, make the second retraining or rewards.
  • Decide. Which strategy matters most here, or which combination, and on what condition.
  • Say what the case does not tell you. How many jobs go, what the staff want, what the business can afford.
Two traps: A list is not a discussion. Six strategies named in a line each stay low. Two strategies, each with a benefit and a limit tied to the case, go much further.

Arguing about the cuts instead. The question is not whether the business should cut jobs. It is how HR can soften the change for the people it affects.
IB-style questionDiscuss[10 marks]

Discuss strategies that Goldcrust's human resource department could use to reduce the impact of the bakery closures on the employees who stay.

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the term dismissal. [2 marks]

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