With unemployment predicted to rise above three million, many employers are starting to plan on how to cut their wage bills. While BT and Citibank have announced that thousands of their jobs will go, City law firms report that surprisingly few employers have yet decided on large-scale redundancies. “While some clients have started redundancy programmes,” says Roland Doughty, of Slaughter and May, “the majority who are considering large-scale redundancies seem to be contemplating that they are more likely to implement them next year if conditions do not improve.”

Talking to lawyers earlier this week it was clear that they have been urging clients to be judicious in where they make cuts and, normally, on the smallest possible scale. Seeking volunteers for redundancy — as BT is doing — is often being counselled against by lawyers because it may result in the wrong people leaving the business. Instead, the priority is to become leaner and lighter by easing out underperformers while doing everything possible to retain the best people.

For example, Howard Kennedy’s seminars Surviving the Credit Crunch have proved extremely popular among clients because they focus on alternative ways to cut costs other than making large numbers of people redundant. Howard Lewis-Nunn, of the firm, explains: “Recent family-friendly legislation introduced by the Government can be turned to advantage by, for example, encouraging people to reduce their hours but keeping them in the business to avoid all the expense of hiring them again when the upturn comes.”

Underlying this strategy is a change in culture since the last big recession of the early 1990s. “Shorter hours, secondments and sabbaticals are all being looked at creatively to avoid redundancy if at all possible, especially in the professional services sectors,” David Smedley, of Walker Morris, says.

That does not mean that employers are being encouraged by their lawyers to adopt a sentimental approach and hold on to staff as the business haemorrhages money. “My advice to clients who face financial difficulties is that now is the time to weed out the poor performers,” Rachel Dineley, of Beachcrofts, says. “In doing this it is vital that the performance review must be thorough and robust to show that you are being fair. In the good times employers often failed to confront underperformers about their shortcomings but that can’t be the right approach now.”

Yet despite the best of intentions it is likely that once we move into the new year employers will have run out of options on fringe cost-cutting and be faced by the need for large-scale redundancy exercises requiring carefully orchestrated formal procedures and extensive consultation with employees. “This is going to get worse before it gets better,” Smedley says.

“I advise employers to introduce thorough, transparent, full processes,” Dineley says. “You have to ensure that you have very good communications with your staff so that they understand exactly what is being done and why. If they learn about things on the grapevine then it undermines trust.”

Victoria Greig, of Collyer Bristow, has been involved in full-scale redundancy campaigns in the property sector where there has been overrecruitment in recent years. This is not unionised territory so employees are represented by elected colleagues who may not have the experience or negotiation skills that these demanding circumstances require. “A number of businesses going through redundancy programmes are now paying for employee representatives to have independent legal advice,” Greig says. “It makes it a smoother process because the employee reps have greater confidence in the advice they give their colleagues.”

Following the formal procedures can be a very slow process — especially in a swiftly changing market. The right to be consulted applies when an employer proposes to make 20 or more employees redundant over 90 days or less. That consultation will range from 30 to 90 days depending on the numbers involved and the selection process needs manifestly to be fair to avoid any suggestion of discrimination. Failure to follow the formalities could lead to a “protective award” penalty amounting to 90 days’ wages for each individual affected — a very expensive price to pay for attempting to cut corners. “Consultation is vital even if the outcome is a foregone conclusion,” Lewis-Nunn says.

In the light of this, some employers will consider simply throwing extra money at the problem to buy off departing staff and speed up the process. However, with money now very tight that may no longer be a realistic option.

If and when the upturn arrives Greig expects that employers who have undertaken redundancy exercises will not rush back into hiring permanent employees. Instead, they may opt to recruit consultants and agency workers because, as BT has found, they are easier to let go later. Of course, whether the Revenue & Customs will regard them as truly self-employed consultants for tax purposes will be interesting to see. But that is a future chapter in the story of this recession.

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