For many of us, the new year is a time to start afresh and take on new challenges. The same can be said for many employers in the financial services sector, who will often use this time of year to restructure and reduce their workforces.
Unfortunately, it is no coincidence that this impetus to reorganise and make cuts often happens just before bonus payments for the previous financial year are due to be paid.
As a result, bonus season can be a particularly tumultuous and fraught period, with many employees finding themselves without a role or an anticipated bonus only weeks into 2025.
The size and scale of the job losses that we are seeing, particularly in the financial services sector, is undoubtedly the product of a number of factors, including the difficult economic climate along with the perceived need for digital transformation.
In addition, there are signs that the dynamics of the employment market as between employers and employees are changing and employers are preparing for Labour’s proposed legislation, which is set to give employees additional protections from day one of their employment.
We have seen a clear pattern emerging of reductions to workforces being made in the first quarter of each new year and 2025 is proving to be no different.
Once again, we are finding that the timing of the reduction processes is often closely linked to rules around bonuses and other incentives.
Steps you can take
To move from job security and a bonus to confronting potential redundancy can be immensely stressful. However, there are a number of steps that you can take if you face that unfortunate and increasingly common scenario.
As a first step, review the terms of your employment contract. While your contract is unlikely to make specific reference to any redundancy terms, it should contain useful information about your financial entitlements in relation to your notice period, your bonus award and deferred incentives in the event that your employment is terminated.
In addition, check the terms set out in any freestanding award documents, bonus policies or incentive plans. Often, ‘good leaver’ terms in such plans allow for more favourable treatment in situations such as redundancy, allowing you to receive at least part of the award if not the whole.
The majority of bonuses will be discretionary, rather than fixed or formula-based. Crucially, it is now the norm for bonuses not to be paid if an employee is either under notice or no longer employed at the usual payment date: hence the rush to make redundancies early in the year.
It is therefore worth exploring whether you can challenge any of the decision-making regarding your proposed removal.
With that in mind, check carefully what steps are being taken by the employer during the redundancy process. Employers are required to carry out a fair process involving proper consultation with all those affected.
That includes giving thought to a fair basis for selecting who is impacted and taking reasonable steps to avoid redundancy-related dismissals.
Unfair dismissal claims
If your employer has failed to comply with any of those requirements, then you may have grounds to challenge the redundancy and to claim unfair dismissal, provided that you have sufficient length of service (around two years).
The law also imposes more demanding procedural requirements where larger, collective groups of employees face redundancy, so it is worth interrogating how many employees are impacted.
As well as scrutinising the process, ask what rationale is being put forward for the redundancy. If there does not appear to be a genuine business need for the redundancy, or if the explanation cited by the employer differs from the reality of the situation, the dismissal may not be fair and lawful.
Furthermore, you may want to scrutinise whether the selection process appears motivated by unlawful factors such as discrimination or whistleblowing. If so, these factors could result in more significant claims and compensation. It can be well worth speaking to a solicitor to understand whether that is the case.
Engaging in the redundancy process
Many employers in the financial sector acknowledge both the risks and economic hardship caused by these exercises and it is common for an enhanced redundancy payment to be paid, in excess of statutory redundancy pay. The quid pro quo is typically signing a settlement agreement, waiving potential legal claims and imposing confidentiality terms.
It is worth understanding at an early stage of consultation whether any enhanced terms are on offer.
Whilst unsettling, I recommend engaging in the process at the earliest stage.
First, being placed at risk of redundancy does not automatically mean you will be dismissed. The employer should have identified a pool of people at risk and applied fair criteria to them before deciding who is to be made redundant.
Secondly, the employer may be prepared to allow volunteers for redundancy in order to reduce those affected by the process.
Thirdly, there may be goodwill, which would allow you to exit on favourable terms without having to go through the more formal process.
For those fortunate enough to emerge from bonus season unscathed, there are still sensible precautions to take. Importantly, ensure that your performance and contribution are fairly documented in your annual and even mid-year appraisals.
Managers can, on occasion, be tempted to downgrade even strong performers, to make them more susceptible to being selected for redundancy at the beginning of the following year.
Be prepared to carefully document concerns which arise through the year and to challenge any unjustified criticism or grading in your appraisals.
Equally, as Financial Conduct Authority and Prudential Regulation Authority rules regarding variable compensation begin to fall away, with the bonus cap being removed and proposals being made to reduce the periods for deferral of senior bankers’ bonuses, the reward landscape will continue to evolve.
Swifter payments will be a boon for those bankers, who should press for those changes to be implemented as soon as possible.
On the other hand, the regulators’ new appetite for variable pay as opposed to salary means that bonus season – with all of its risks and rewards – is likely to remain a feature for years to come.
Jo Keddie is a partner and head of employment and partnerships, and Daniel Parker is a senior associate at Forsters
