How Employers Can Safely Cut Wages or Reduce Hours Without Expensive Claims

how-to-cut-wages

Let’s admit it.

One of the first areas that employers look to in seeking to cut the costs in the business is employees’ wages and salaries.

Cutting staff wages unilaterally though can be fraught with danger.

One of the fundamental terms of the contract of employment will be that dealing with pay/salary.

Cutting wages therefore is a variation or change of a fundamental term of the contract and is a dangerous area for the employer.

As you know, one party to a contract simply cannot change that contract without the consent of the other party.

Legal professionals have different views however with some arguing that you can vary the contract by relying on the common clause in most contracts which reserves the right to the employer to the variation of the contract of employment.

However it is an implied term of any contract of employment that any variation would have to be reasonable. And it is arguable that cutting pay in reliance of the variation clause is not reasonable. Nevertheless whatever chance the employer has with a variation clause, he/she has none without it.

Lawyers who argue that you can cut unilaterally are of the view that provided you give reasonable notice of the reduction and the reasons for the cut it is acceptable.

Defending this decision would need to be supported should it be challenged under the Payment of Wages Act or in a constructive dismissal claim would require the employer being able to show that he/she is incurring losses.

However the safer view seems to be that it is not possible to cut salaries/wages without the consent of the employee. On the other hand if the contract reserves the right to the employer to withdraw or reduce a specific benefit (for example company car or bonus scheme) to the employee he/she would be in a much stronger position.

The Safer Method of Reducing Wages

The safest way to reduce wages and salaries is with the employee’s consent. This will involve consultation, explanation, and agreement and is most likely to be successful with respect to benefits other than basic pay.

The explanation will need to deal with the difficulties faced by your business or organisation and the difficult economic climate with as much information as you can reasonably provide being given to the employee.

Once the change is made the employer must provide notice of the change under the Terms of Employment (Information) acts 1994-2001 within one month but it would be better to provide this notice in advance.

From an employee’s perspective it is noteworthy that should he/she be made redundant subsequently he/she will be paid statutory redundancy on the basis of the lower amount (at the date of termination of employment), not what he/she historically earned.

If the employee does not agree to the reduction in hours or wage rates there are a number of options open to him/her:

  • A complaint to the Rights Commissioner service under the Industrial Relations Acts 1969-2001
  • A complaint to the Rights Commissioner service on the grounds of an unlawful deduction of wages under the Payment of Wages Act 1991
  • A claim for unfair dismissal where the employer makes the employee redundant on the grounds that this is not a genuine redundancy and/or there was unfair selection for redundancy or the employer did not use fair procedures
  • A claim for constructive dismissal on the grounds that the employee had no option but to resign given the breach of the terms of the contract
  • A claim in the Civil Courts for breach of contract and/or wrongful dismissal.

How to reduce costly employment related claims by employees.

Sick Leave and Illness Leave in Irish Employment Law-How to Avoid Needless Disputes with Your Employees

sick-leave-ireland

Another bloody sick cert…

Yes, it’s frustrating.

You are an employer and you have had it up to the two eyeballs with these sick certs.

You know he’s been seen drinking all over the parish at the weekend. And now he’s giving you this sick cert stating that he is suffering with back trouble.

Sick or illness leave can be a thorny subject in Irish workplaces and the source of much frustration for employers.

Disputes and bad feeling can easily arise through a simple lack of clarity and planning when drawing up the contract of employment or the company policy on sick leave.

There is no general entitlement under Irish law to be paid whilst out of work due to sickness/illness.

However it is something that can be provided for between the employer and employee when agreeing a contract of employment.

Doing so prevents rows, bad feeling and disputes arising between employer and employee.

The Terms of Employment (Information) Act 1994 specifically refers to the provision for incapacity for work due to sickness as being one of the things about which the employer must provide information to the employee within two months of starting employment.

The employee, if he/she has sufficient social insurance contributions, may qualify for illness benefit from the Department of Social Protection.

If there is provision in the contract for sick pay to be paid by the employer it is common for provision to be made for the illness benefit received by the employee to be paid over to the employer.

The contract of employment will probably also put a limit on the amount of paid sick leave that you are entitled to over a specific period of time, for example a 12 month period.

The employment contract should also provide clear rules and procedures as to the provision of medical certificates and notification to the employer. The medical certificate should also state when the employee is likely to be able to return to work. If this is not possible then weekly medical certificates will likely be required.

Whilst it is difficult to terminate the employment of an employee on sick leave, it is not impossible but considerations surrounding unfair dismissal should be borne in mind and legal advice sought.

Injury or Accident at Work

If the employee suffers an injury or occupational disease or is involved in an accident he/she may apply for injury benefit which is a weekly payment from the Department of Social Protection. However if he/she is being paid sick pay by the employer there will probably be a provision in the contract for the injury benefit payments to be paid to the employer.

The employee can also, of course, bring a personal injuries claim against the employer.

Public Holidays and Annual Leave

If the employee is on annual leave and suffers an illness for which he/she can provide a medical certificate he/she is entitled to annual leave at a later date in lieu of the sick days.

If the employee is certified sick then the employer cannot insist that he take annual leave to cover this period.

It is a similar situation in relation to public holidays: if the employee can certify that he was sick during a public holiday he is entitled to time off for the public holiday he missed.

Public Service and Specific Industries

Many public servants and particular categories of workers, for example teachers, enjoy better entitlements in relation to sick leave and may well enjoy paid sick leave. In fact public servants have enjoyed six months paid sick leave followed by a further six months on half pay.

Many public servants also enjoy uncertified sick pay entitlements but these perks are due to change from January, 2014 thanks to a recent Labour Court recommendation. Teachers’ uncertified sick leave entitlements have also come under pressure following the Labour Court recommendation and have changed since September, 2012.

If you are an employers and you are concerned about your existing employment contracts you might be interested in having them reviewed/drafted.

You might also be interested in how to manage sickness related absence from the workplace.

You can learn more about our services in this area here.

The Employment Contract in Irish Employment Law-The Facts You Should Know

Employment contract
Employment contract

It’s true, you know.

The foundation stone of the employer/employee relationship is the employment contract.

So, it’s critical from day one, and becomes even more important if there is a dispute.

It is vital that it is drafted correctly, especially from the employer’s viewpoint.

Before we go any further, though, you need to know one thing: it is a legal requirement to give an employee a written statement of certain terms and conditions of employment within 2 months of the employee starting the job.

If you are an employer, therefore, you have a legal obligation to give a written contract to your employees. (Learn what must be included in a contract of employment)

This extensive article looks at the contract of employment in Irish law and some of the critical issues which arise in the employment relationship.

It will also look at

  • terms of employment,
  • the express terms you should include
  • who is a “deemed employee” and why it matters
  • changing a contract of employment,
  • termination of the contract,
  • minimum notice periods,
  • the difference between a contract of service and contract for services,
  • issues prior to employing someone
  • and more.

The employment contract is the source of much misunderstanding and strife between employers and employees.

Even though legislation has come to play a huge role in the employment relationship the legal relationship between employer and employee is rooted in the law of contact. There is no requirement in law that the employment contract be in writing.

However, there is an obligation on the employer under the Terms of Employment (Information) act, 1994 to give employees a written statement of certain terms of employment (see below).

This legislation does not apply to employees with less than one months’s service or to employees who are expected to work less than 8 hours per week.

Who is an Employee in Irish Law?  Is an Employment Contract Necessary?

It is vitally important for both employers and employees to understand who is considered to be an employee in Irish law versus the worker being an independent contractor.

Clearly an independent contractor will not enjoy the benefits of Irish employment legislation.

Contract of service or contract for services?

The vital difference is that an employee works under a contract of service while an independent contractor supplies his/her labour and/or services under a contract for services.

The status of the worker, in a dispute situation, will be determined by legal interpretation and some basic rules. Important decided cases in this area include

  • Ready Mixed Concrete v Minister of Pensions and National Insurance[1968] and
  • Henry Denny & Sons (Ireland) limited (t/a Kerry Foods) v Minster for Social Welfare[1998]
  • Minister for Labour v PMPA Insurance Co. Ltd.

It is worth noting that regardless of the label put on the relationship by the parties the Courts will look at the facts of the situation and decide what type of contract exists. In making it’s decision the Court will be influenced by:

  1. Whether there is written evidence of terms
  2. Whether there is control over the worker as to how, what, when, why, and how the worker works
  3. Whether the employee provides his own labour/skill to the “employer” and cannot assign his duties to another.

The key areas therefore which a Court or tribunal will consider will be the aspect of personal service, the degree of control over the worker, and any written terms of the contract.

A Deemed Employee

A deemed employee situation will arise where a person is working for an employer through another agency or body.

That person will be a deemed employee of the person for whom they are doing the work. This situation will commonly arise where employment agencies place people in a work environment.

The employment agency must be one as defined by the Employment Agency Act, 1971 but this act defines an employment agency very widely. It is important to note though that the notion of a deemed employee only applies in relation to the application of specific statutes which provide for protection for a deemed employee.

However it can be a dangerous situation where a business does not know of their potential liability to a deemed employee until a problem occurs and the deemed employer can be held responsible for a dismissal over which he had no control or knowledge.

You might also be interested in the law surrounding temporary agency workers.

 Partnerships

Partners are not employed by or with each other but may, as a partnership, have employees.

Shareholders/Directors

Ownership of a shareholding in a company does not prevent the owner from being an employee of the company. But a controlling shareholder may have difficulty establishing that he was an employee.

Prior to Contract

Before entering into a contract of employment there are three areas that an employer needs to consider carefully.
These areas can be broadly categorized as follows:

  1. Advertising the position
  2. Interviewing for the job
  3. Conditions precedent.

Job Advertising

Advertising the job can be fraught with danger for the employer as it is easy to fall foul of employment equality legislation.

In addition the wording of the advertisement can be held to form part of the subsequent contract of employment.

Interviewing for the job

Employers need to be careful not to ask questions which fall foul of the Employment Equality Acts, 1998-2004 and avoid asking questions that could be considered discriminatory on the grounds of age, marital status, sex, and the other grounds referred to in employment equality legislation.

Keeping note of the interview is a smart practice as what is said at interview (by both parties) can be held to form part of the subsequent contract.

Conditions precedent

The employer should make a job offer conditional on certain conditions being fulfilled, depending on the position.

These conditions may cover Garda vetting, clean driving licence, health to do the job, suitable references, registration with professional bodies, and others-this will depend very much on the nature of the work and position.

The areas of references and medical examinations can cause problems and the key principle always for the employers is that you have the employee’s consent to take up references and medical reports/evidence.

The Data Protection Commissioner has held that you need written consent to take up references. However there is no general requirement in law that an employer furnish a reference.

Medical evidence?

There is no reason why a prospective employee should not be asked to undergo a medical prior to a job offer being made even though it is common for employers to only require a medical examination after the offer has been made and accepted.

Union membership? 

A pre-contractual closed shop is lawful under the Common law and European law.

Terms of Employment

The contract of employment in Ireland is made up of both express terms and implied terms with the Terms of Employment (Information) Act, 1994 stipulating that certain basic information must be given to the employee in writing.

This includes the names and addresses of both employer and employee, the place of work, the title of the job, pay, any terms relating to sick pay, periods of notice and many other basic details.

Implied Terms

In every contract of employment, written or otherwise, there are 4 categories of implied terms which fall under the headings of
a) terms implied by custom/practice (depending on the industry)

b) terms implied by statute (right to redundancy, right not to be unfairly dismissed, right to notice, right not to be discriminated against as per Employment Equality Acts, right to breaks, annual leave, holidays as per Organisation of Working Time Act, 1997, protective leave including maternity leave, payment of wages as per Payment of Wages Act 1991, atypical workers such as part timers and fixed term workers protected by the Protection of Employment Acts, health and safety provisions as per Health and Safety at Work Act 2005)

c) terms implied by law (employers duty of care and employees duty of trust and confidence)

d) collective agreements in unionized employment.

Express Terms of Employment

The express terms of employment are those terms clearly agreed between the employer and employee and can be oral or in writing.

The principal express terms that should be included in any document setting out the terms and conditions of a contract are set out in this article.

employment-contract

Terms of Employment (Information) Acts

The Terms of Employment (Information) Acts 1994-2001 provide that employees must be given a statement, signed by the employer, of certain of their terms and conditions of employment within 2 months of their employment.

What must be included in this statement?

  • The names of the employer and employee
  • The address of the employer
  • The place of work (This can be a thorny issue if you need the employee to move to another location or provide geographical mobility in the course of employment and it has not been provided for in the contract of employment)
  • Hours of work (this needs to be clear about shifts, overtime, work breaks, lay offs, short time, and so forth)
  • The job title or nature of the work for which they are employed (Drafting this too widely can give problems when it comes to redundancy; drafting too narrowly can lead to practical, on the ground difficulties)
  • The date of commencement of employment (when does employment start is an important question as most statutory entitlements will be dependent on the length of service)
  • The duration of the contract and expiry date if the contract is a fixed term/temporary contract
  • The rate of pay or method of calculation (the salary package and the breakdown between basic salary, commission, bonuses, allowances, and so forth should be set out)
  • How often/the intervals at which pay will be paid
  • Terms and conditions re paid leave (what is the position re holidays and is there extra days over and above those set down by statute in the Organization of Working Time Act,1997)
  • Terms and conditions re illness/sickness or injury and pensions (what is the situation re sick pay; there is no general right to be paid while out sick but the contract can provide for it expressly or custom and practice of the industry/job can imply it but this may need to be proven if questioned)
  • The period of notice obliged to be given by both parties
  • If any collective agreement affects the contract
  • Times of breaks/rest periods both daily and weekly
  • The company’s pay reference period.

If the employer fails to provide this statement to the employee a claim can be made to the Rights Commissioner service who may order compensation of up to 4 weeks remuneration and require the employer to give the statement of terms to the employee.

In addition to the above statutory minimum terms and conditions it is prudent and advisable for the employer to include other terms in the contract dealing with

  • Short time/lay offs
  • Illness pay
  • Retirement age
  • Time off work
  • A probationary period (cannot exceed one year)
  • Bullying and harassment procedures
  • Grievance and disciplinary procedures (a specified disciplinary procedure should be in place and a copy of this together with the grievance procedure should be given to the employee along with the contract/letter of offer)
  • Company car
  • Share options
  • Retirement age (should be specified by the employer)
  • Any restrictions re competition and setting up against the employer in the future using trade secrets/contacts. Note that common law implies a duty of loyalty in the employment contract; common law also protects confidential information and trade secrets in the absence of an express or written term in the contract covering this area. However there is no common law barrier to soliciting for business done by the employer once the employee leaves the employment.
  • Email and internet use

In addition to the above, the employer must give new employees, within 28 days of starting employment, a written summary of the procedures to be used should it be necessary to dismiss them.

As an employer you need to be clear what terms and conditions are obligatory in the employment contract as a result of the Terms of Employment (Information) Acts and the additional terms and conditions which might be advisable and prudent for the employer.

Legal advice is recommended as the consequences of a badly drafted contract with an employee will be far more costly than the cost of having a properly drafted contract of employment by a legal professional.

Termination of the Employment Contract and Minimum Notice Periods

Providing for termination of the employment contract is an important term of the contract of employment, one which the employer needs to take care over, particularly the notice period.

There are a number of important considerations to think about such as

  1. The notice period
  2. The reason(s) for termination.

Notice period

An agreed notice period is strongly recommended in all contracts of employment.

If none is specified then the employer is obliged to give “reasonable” notice. Reasonable notice will vary from contract to contract.

Minimum Notice Periods for termination

The statutory minimum notice periods on termination of employment are as set out in the Minimum Notice and Terms of Employment Acts 1973 to 2001 which are based on years of service of the employee.

Service                                        Notice
13 weeks – 2 years                    1 week
2 – 5 years                                   2 weeks
5 – 10 years                                 4 weeks
10 -15 years                                6 weeks
over 15 years                              8 weeks.

Employees are entitled to the above notice periods or pay in lieu except in cases of dismissal for misconduct where the employer is entitled to terminate the employment immediately without notice.

The employer on the other hand is entitled to at least 1 week’s notice from the employee, but this will depend on the contract.

Note: Both the employer and employee have the right to terminate the contract of employment without notice due to the misconduct of the other party.

Any claims in respect of breaches of the Minimum Notice and Terms of Employment Acts go to the Employments Appeal Tribunal which can award compensation to the employee for not receiving proper notice. (Note that if the employee was sick or on strike during the notice period no compensation is payable)

Reason for termination of the employment contract

Both employer and employee have a broadly similar right under common law to terminate the contract of employment. If notice is not provided for in the contract then “reasonable” notice should be given.

“Reasonable notice”, in the absence of a stipulated period of notice, will be decided by

  • Custom and practice
  • Length of service
  • Age and experience of the employee
  • Job role
  • The particular facts of the case.

It is recommended to the employer that a notice period always be stipulated in the contract.

Giving notice of termination of employment contract

Some important points concerning notice:

  1. Notice can be given at any time including during leave or illness leave but not during maternity leave;
  2. It must be clear and unambiguous
  3. It can be in writing or orally (unless it is specified in the contract that it be in writing)
  4. The Minimum Notice and Terms of Employment Act, 1973 sets out minimum notice periods depending on the length of service
  5. The minimum period of notice in all cases is one week
  6. If an employee is dismissed for misconduct he loses his entitlement to notice under the Minimum Notice and Terms of Employment Act, 1973.

Damages following dismissal

In general punitive damages allowed following a dismissal will be restricted to remuneration to which the employee was entitled and not for any distress caused by the manner in which the dismissal has occurred.

Changing a Contract of Employment

Changing or varying the terms and conditions of a contract of employment can only be done with the agreement of the parties. It cannot be unilateral.

An employer is leaving him/herself open to a successful claim if he imposes changes to a contractual entitlement unilaterally. It is worth noting that agreement can be express, implied, or by acquiescence.

However an important distinction should be made between a work practice and a contractual provision or term of the contract.

Variation by the parties

Sometimes variation by one of the parties becomes necessary to give the contract commercial efficacy. If a term is so obvious that common sense would dictate that it must be included in the contract the Courts will imply it into the contract.

hanging-contract-of-employment

Variation by Trade Unions or a 3rd Party

What about variation of the terms of employment through the trade union negotiating on behalf of the employee? Generally employees will accept changes negotiated on their behalf by their trade union.

However a trade union cannot bind those members who have made it clear that they will not be bound by the changes-see Goulding Chemicals Ltd v Bolger [1977], Irish Supreme Court.

Take a more detailed look at the legality of trade union negotiated variations of contracts.

Custom and Practice

Some contracts of employment will have terms of employment implied into them by custom and practice of the employment or industry.

For this to happen the custom must be

“so notorious, well known and acquiesced in that the absence of agreement in writing it is to be taken as one of the terms of the contract between the parties” O’Reilly v Irish Press [1937]

Contractual Right to Vary

Many employment contracts will contain a term reserving the right to the employer to vary or alter the terms and/or conditions of the contract.

However this does not give the employer the right to make unreasonable changes and courts and tribunals will always look to see if the change was necessary and reasonable.

It is important to note that if an employee does not object to a change and works away under the changed terms he/she may be held to have implicitly agreed to the changed terms and conditions.

On the other hand an employee could argue that he/she was simply being co-operative and this did not imply approval of the change. The best way for an employer to counter this is to bring any proposed change to the attention of the employee; if he/she does not he cannot slip changes in “under the radar” and claim acquiescence by the employee.

It is worth noting also that where an employer is entitled in law to make changes to contracts of employment employees are still entitled to engage in trade disputes to attempt to bring about change. This is the case even in companies where unions are not recognised as the Labour Court can be asked by the union to investigate the dispute.

 Co-Operation and not variation

A distinction must be drawn between an employee co-operating in a change and acquiescing to a contractual variation. Courts will not allow employers to slip in changes unknown to an employee.

Trade Disputes

Even where the employer is legally entitled to take certain action employees may engage in a trade dispute and seek to persuade to bring about the changes they require.

Even in a “non union” employment the Labour Court can investigate a trade dispute where it is not the practice of the employer to negotiate with a trade union.

Collection agreements and contracts of employment? Read about the legality of collective agreements and the tests applied.

Amending the Terms of Employment in Ireland-historically

Terms and conditions of employment-are employers entitled to unilaterally vary such terms and conditions?

In short, the answer is no.

Where an employment contract does not expressly enable the employer to vary the terms of employment, employers may either:

1. Obtain the employee’s express agreement to the change (recommended);
2. Terminate the employee’s employment on due notice and offer re-engagement on new terms (not recommended); or
3. Attempt to impose the change unilaterally (not recommended).

Options 2 and 3 above are not recommended and leave the employer at significant risk to a successful claim for unfair/constructive dismissal/non payment of wages claims.

Unilateral variation of an employee’s terms and conditions of employment to the employee’s detriment may give rise to:

1. A claim of constructive dismissal under the Unfair Dismissal Acts 1977-2007 or at common law;
2. A claim for damages for breach of contract;
3. A claim in respect of an unlawful deduction under the Payment of Wages Act 1991;
4. A “trade dispute” under the Industrial Relations Acts 1946-2004,
5. Industrial relations issues, and
6. Injunctive proceedings to prevent the unilateral variation.

What is contractual, and not merely a work practice, may not be varied unilaterally.

Such variation must be agreed between the parties regardless of whether the term is express or implied.

In practice, whether or not an employee benefit constitutes a term or condition of employment may be somewhat academic if changing it is likely to give rise to industrial relations issues and human resources problems.

In Neville v Waters Munster Glass Ltd RP558/2003, the claimant, having refused to accept a reduction in salary and to work a reduced three day week, was consequently made redundant. Although the claimant argued that he had been unfairly dismissed, the tribunal held that a genuine redundancy situation existed.

It is clear from a UK case, GAP Personnel Franchises Ltd v Robinson UK EAT/0342/07, that where employees do not accept a unilateral variation by the employer, especially one that has an immediate impact (e.g. the reduction in pay or benefits), they should make it clear, preferably in writing, that they do not accept the change and are working under protest. Otherwise the employee may eventually be held to have implicitly accepted the change.

Amending terms of employment in Practice

In the course of varying terms and conditions employers should:
1. Maintain clear communication with employees;
2. Provide employees with reasonable notice of any variation to terms and conditions;
3. Be able to explain why the change is necessary and inform the employees of the alternative (i.e. a more formal re-structuring and ultimately possible job losses);
4. Consider whether the new terms can be imposed in stages as opposed to implementing all variations at once. This may help to ease the transition and allow employees to plan for the change; and
5. Consider whether an incentive can be suggested to assist employees in accepting the change. This does not necessarily have to be a financial benefit.

Collective agreements and contracts of employment-what is the legal position?

Employers’ Obligations and Contracts

Employers need to ensure that they have robust, legally sound contracts of employment in place for all of their staff.

There are 4 main reasons for doing so:
1. it is a legal obligation
2. you will need them for a NERA inspection
3. a well drafted contract will minimize the opportunities open to employees to bring costly and damaging claims against you as an employer
4. it makes good business sense to have clarity between both employer and employee as to their obligations and responsibilities.

We specialize in drafting employment contracts for employers in Ireland.

No matter how small or big your business or school is, we can draft contracts for your particular circumstances.

And we can review and advise on your existing contracts and ensure that you will have nothing to worry about should you be chosen for a NERA inspection.

Our contracts typically include the following terms:

  • date of employment
  • appointment and duties
  • job specification
  • location
  • probationary period
  • hours of work
  • breaks
  • wages
  • annual leave
  • pension
  • retirement
  • absence
  • illness/sick leave
  • maternity, paternity, force majeure leave
  • confidentiality
  • grievance, bullying, harassment, dignity at work, disciplinary
  • internet and email
  • data protection
  • termination-notice and pay on termination
  • health and safety
  • short time and layoffs
  • changes to the terms of employment.

However each employer’s situation is different and each employee is different.

So every contract we draft is an individual contract as opposed to a one size fits all affair.

Learn more about how we help employers here.

Redundancy in Ireland-What Employers and Employees Ought to Know About Non Collective Redundancies

redundancy in ireland

Let’s admit it.

Redundancy is not a pleasant topic to discuss.

But not discussing it, and not understanding your obligations if you are an employer, or entitlements as an employee can prove very costly.

Therefore,  this piece about redundancy in Ireland will look at:

  • what is a redundancy,
  • redundancy payments,
  • where to access a redundancy payment calculator,
  • fair selection for redundancy
  • short time and lay offs
  • disentitlement to redundancy.

Hopefully it will give both employers and employees a good overview of non collective redundancies.

An employer’s obligations in redundancy situations will depend on whether a collective redundancy is proposed or it is a “normal” redundancy (non-collective redundancy) in a small business in Ireland.

The focus of this piece is non collective redundancies; elsewhere on this site you can read about collective redundancies.

Firstly let’s take a look at what a redundancy is..

What is redundancy?

The definition of redundancy in Ireland is set out in the Redundancy Payments Act 1967 and amended by the Redundancy Payments Act 1971 and 2003-

an employee who is dismissed shall be taken to be dismissed by reason of redundancy if for one or more reasons not related to the employee concerned the dismissal is attributable wholly or mainly to—

(a) the fact that his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased or intends to cease, to carry on that business in the place where the employee was so employed, or              

(b) the fact that the requirements of that business for employees to carry out work of a particular kind in the place where he was so employed have ceased or diminished or are expected to cease or diminish, or            

(c) the fact that his employer has decided to carry on the business with fewer or no employees, whether by requiring the work for which the employee had been employed (or had been doing before his dismissal) to be done by other employees or otherwise, or      

(d) the fact that his employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done in a different manner for which the employee is not sufficiently qualified or trained, or         

(e) the fact that his employer has decided that the work for which the employee had been employed (or had been doing before his dismissal) should henceforward be done by a person who is also capable of doing other work for which the employee is not sufficiently qualified or trained.

Key factors in redundancy: impersonality and change

There are two critical factors to be gleaned from this definition-

  1. The redundancy should arise from the doing away with the job, not the person. This feature of impersonality is necessary in a genuine redundancy situation.
  2. Change-the change must arise as a result of change in the workplace which might range from a closing down of the business to a simple reduction in number of employees.

Required period of employment

The required period of employment is 104 weeks of continuous employment.(Section 7(5) Redundancy Payments act 1967).

Dismissal by the employer

To qualify for a redundancy payment, the employee must be dismissed.

This does not occur if the employee’s employment is renewed or re-engaged by the same employer and the terms and conditions do not differ from the previous one.

So if an employee resigns, redundancy payments are not available to him/her.

Short time/lay offs

You can be placed on short time or laid off where the employer is unable to provide work but only where the employer reasonably believes that the lay off will not be permanent.

Short time is the situation where the employee’s pay is less than one half of his normal weekly pay or his hours of work are reduced to less than half his normal weekly hours.

The employer is generally obliged to pay the employed during this time although there are exceptions to this general rule depending on custom and practice in specific situations.

There is no general right to lay off employees and not pay them; in fact, without an implied or express term in the employment allowing lay off the employer may well be in breach of contract.

The right to lay off without pay may be permissible in pretty limited circumstances established through custom and practice.

However  EAT decisions in the past have held that the custom and practice in Ireland since the introduction of the legislation is that there is no obligation to pay during lay off.

You can learn more about the EAT’s decisions in relation to payment during lay off  in this article.

An employee who has been laid off for 4 or more consecutive weeks can give a written notice to his employer indicating his intention to claim redundancy.(Section 12 Redundancy Payments act, 1967).

The employer can then give the employee a counter notice which must inform the employee that their employment will recommence not later than four weeks after the notice and this period of employment will be at least 13 weeks without lay off or short time.

Disentitlement to Redundancy

An employee is not entitled to a redundancy payment in the following circumstances:

  • Termination of the employment contract due to misconduct
  • If the employer offers a new contract of employment or to renew his existing contract of  employment (see note)

Note: the new contract or the offer of a renewed contract must contain the same terms and conditions as the previous contract of employment and must involve the same place and capacity as the previous contract.

If these are different, then the offer of employment must be ‘suitable’ in relation to that employee. If the employee unreasonably refuses an offer of employment then she will be disentitled to a redundancy payment.

These types of cases often involve offers of employment at a different location and each case will be judged on its merits as to whether the offer is reasonably or unreasonable refused by the employee.

See section 15 of Redundancy Payments Act, 1967.

Notice of Redundancy

An employee who is entitled to a redundancy payment (service of at least 104 weeks) are entitled to at least 2 weeks notice.(Section 17 Redundancy Payments Act, 1967). However, longer serving employees have greater entitlements under the Minimum Notice and Terms of Employment Act, 1973. 

In addition contractual notice provisions must be complied with to avoid a claim for wrongful dismissal.

A copy of the  RP 50 form is given to the employee; this form combines RP 1 (notice of redundancy), RP 2 (certificate of redundancy), RP 3 (rebate claim), and RP 14 (employee’s application for a lump sum from the Social Insurance Fund).

The employer then sends the RP 50 form to the Minister for Enterprise, Trade and Employment to obtain a rebate of the payment made.

UPDATE

There is now no need to issue RP 50 forms as no redundancy rebate applies where the date of dismissal by reason of redundancy occurs on or after 1st January 2013. Please refer to this page on the Department of Social Protection website for the procedure.

Collective Redundancies

In a collective redundancy situation there will be additional requirements on the employer imposed by the Protection of Employment Acts 1977 to 2007 and various regulations and other legislation.

As indicated already in relation to unfair dismissals, redundancy is a defence to a claim for unfair dismissal.

Genuine Redundancies

However it must be a genuine redundancy within the terms of the Redundancy Payments Acts 1967 to 2003 which sets out 5 redundancy definitions/situations.

These are:

1. The employer has ceased or intends to cease the business for which he employed the employee;

2. The requirements of the business have changed to the point where the employee is no longer required for the particular work for which he was employed;

3. The employer intends carrying on business with fewer or no employees;

4. The employer has decided the work which is being done by the employee will be done in a different way in the future and the redundant employee is not qualified or trained;

5. The employer has decided that the work will be done by another employee who is capable of doing other work for which the redundant employee is not trained or qualified.

Conduct of the employer in carrying out redundancies

In non-collective redundancies in Ireland there are no specific procedural requirements set out to carry out a redundancy dismissal.

redundancy-payments

What the employer must be very aware of though is the Unfair Dismissals (Amendment) Act, 1993 as this act holds that if the conduct of the employer is unreasonable in carrying out a redundancy then it may amount to unfair dismissal.

So it is vital that the employer act reasonably in carrying out a redundancy and a principal factor in how reasonable the behaviour was will be how the employer selected the employee(s) for redundancy and whether there were other alternatives to redundancy such as alternative employment or some other type of work in the employer’s business.

From an employer’s perspective it is important to be able to point to the reasonableness of his conduct when faced with the necessity for redundancy.

As well as the reasonableness of the employer’s conduct in making a position redundant, she would be well advised to carry out the following steps:

  1. The employers should consider all options before deciding on redundancy. Are there alternatives? The employer should record this decision making process.
  2. Is alternative employment an option for the employee?
  3. Has the selection for redundancy been fair? (see below)

Even though it is not a procedural requirement from a legal perspective it is good practice for the employer to hold meetings and discussions to explore any alternatives and it would be prudent for the employer to make a record of these discussions and proposals.

The ability of the employer to be able to point to a paper trail of how the decision to carry out redundancies was arrived at can prove invaluable at a later date, for example at an EAT or Rights Commissioner hearing (now,  the Workplace Relations Commission service deals with these claims).

Because the onus is on the employer to justify the selection for redundancy.

 Fair Selection for Redundancy

The key point for an employer is to be able to demonstrate that people were selected fairly for necessary redundancies and that the employer acted reasonably at all stages of the process. This obviously only arises in circumstances where the employee is made redundant and there are other employees in similar employment who were not dismissed.

The selection of employees for redundancy has led to many employers paying quite a high price at a later date before the Employment Appeals Tribunal and unfortunately there are no criteria laid down in legislation for the selection of employees.

It is up to the employer to set her own criteria for selection for redundancy.

Some factors to be considered by the employer should include

  • Attendance record
  • Ability
  • Disciplinary record
  • Skill level

While many employers employ a policy of “last in, first out”.

If there is a procedure in place in the workplace to deal with redundancy, as there is with most unionised workplaces, the employer will have to be able to show that the procedure was used to select each employee made redundant.

Nevertheless, no matter what criteria are used, the employer may well have to stand over his/her selection procedures at a later date and being able to objectively justify his choice will be his best defence.

Fair Procedure and Reasonableness

Fair procedure is essential when selecting employees for redundancy. Clear communication to ensure staff are aware of developments is also vital.

Employees should be encouraged to come forward with their own ideas as to how the business might be run more efficiently and consideration should be given to temporary layoff or short week options. Any ideas brought forward by the employees to reduce costs should be given fair consideration.

Objective and fair selection criteria should be used to select what positions are to be made redundant and regard may be had as to whether the dismissal was an unfair one or not by looking   to the reasonableness or otherwise of the conduct (whether by act or omission) of the employer in relation to the dismissal, (Section 6 Unfair Dismissals Act 1977 (as revised)).

When applying criteria to assist with selection for redundancy it is up to the employer to  choose, and he may apply different criteria for different parts of the business. The onus is on the employer to be able to justify the criteria chosen on objective grounds.

A good way for an employer to approach a scenario where employees might be seen to be equally at risk is to use a ‘skills matrix’ which involves setting out the skills needed to keep the business going. Then, the employees at risk of redundancy are measured against this matrix and those who score lowest are made redundant.

This is a legally defensible way to ensure a redundancy decision is not later held to be an unfair dismissal on the grounds of unfair selection.

Decided Redundancy Cases

Here are two cases concerning redundancy which should be instructive.

Coincidentally they both involve solicitor’s firms losing out.

The first case involved fair procedure and the reasonableness of the employer in terminating the employment.

 The Tribunal is mindful of the fact that the burden of proof rests with the respondent to show that it has acted fairly and reasonably in all the circumstances surrounding the termination of this employee.

On balance the Tribunal accepts that the telephone call from France during which the claimant was told that a decision had been made to make him redundant was an unfair way to treat a loyal and exemplary employee. No forewarning was given and no alternative was considered.

In considering compensation to be awarded the Tribunal acknowledges that the respondent’s Principal’s intention was to become a sole practitioner which the claimant did confirm in evidence. The Tribunal accepts therefore that with more consideration a lawful and fair termination of employment would have been implemented ultimately.

The Tribunal therefore awards €17,984.00 payable by the respondent under the Unfair Dismissals Acts, 1977 to 2007.

Brendan Campbell and Anthony Conleth Pendred Practicing As A.C. Pendred And Company Solicitors

The second case involves unfair selection for redundancy:

The Tribunal found that no meaningful consultation took place between the respondent and the claimant. The respondent failed to give advance warning of the nature of the meeting of 1 May 2013 when the claimant was informed that the decision had been made to make her redundant. The claimant was not afforded an appeal procedure. Furthermore, she was not offered the opportunity of having representation at the aforementioned meeting and at the follow-up meeting on 24 May 2013. There were no written notes or memos of the said meetings. There was no attempt to secure a voluntary redundancy. No consideration was given to an alternative to redundancy, such as a pay cut or reduced hours. The respondent did not consider a last in, first out policy. At the meeting on 24 May 2013 the claimant was offered a full time position in the Sligo office. This was not a viable option due to her domestic situation, and Sligo being 48km from the claimant’s home.

The respondent acted unreasonably in failing to apply objective criteria to the selection of the claimant for redundancy.

The Tribunal finds that the claimant was unfairly selected for redundancy and accordingly unfairly dismissed. The Tribunal awards the claimant the sum of €12,765.06 under the Unfair Dismissals Acts 1977 to 2007.

Mary Morris and Callan Tansey Solicitors UD143/2014

Redundancy Entitlements

Calculating your redundancy entitlements is pretty straightforward with the redundancy calculator provided online by the Department of Social Protection.

Redundancy payment entitlement

To be entitled to a redundancy payment you must have the requisite period of service served which is:

  1. 104 weeks of continuous employment attained after the age of 16 years.
  2. Dismissal

To be entitled to redundancy you will need to have been dismissed from your job; if you are given a new contract of employment or your old contract is renewed you will not be entitled to redundancy.

 Therefore if you resign from your job you will not be entitled to a redundancy payment.

Redundancy payments

Redundancy payment entitlements are calculated by reference to weeks per year of service and is basically calculated as follows:

  • 2 weeks’ pay for each year of continuous employment over the age of 16 years
  • An additional one week’s normal earnings.

Normal weekly earnings is her normal weekly wage at the date she was declared redundant together with her normal average overtime earnings.

All earnings over €600 per week are disregarded though in calculating statutory redundancy payments and redundancy payments are tax free.

(Continuous employment is not broken by layoffs, holidays or sickness.)

NOTE: the definitions of ‘continuous employment’ and ‘reckonable service’ are important ones and can be seen in Schedule 3 of the Redundancy Payments Act,1967.

Payments are then calculated by reckonable service, not the period of continuous employment.

Reckonable service does not include time absent from work due to

  • absence in excess of 52 weeks due to an occupational accident or disease
  • absence in excess of 26 weeks due to illness
  • absence due to lay-off by the employer.

An employee who is being made redundant is entitled to two weeks’ notice and must be given a redundancy certificate by the employer. The employer was entitled to a rebate from the Irish government of 60% of the statutory element of each lump sum payment, provided he has given the requisite two weeks’ notice.

However from January 1st 2013, the employer statutory redundancy rebate was abolished. Where the date of dismissal occurred in 2012 the employer rebate is 15%. If the date of dismissal was in 2011 or earlier the employer rebate is 60%.

Collective redundancies place specific statutory obligations on the employer, for example the requirement to consult with employees. Failure to do so or advise the government of a collective redundancy situation can lead to a criminal conviction and hefty fines of up to €5,000.

The upper age limit of 66 years for entitlement to redundancy was removed by the Protection of Employment Act 2007.

Ex Gratia Payments

An ex gratia payment is an extra redundancy payment over and above the statutory entitlement. The employee is not entitled to one but it may be negotiated between the parties.

Statutory redundancy is not taxable; ex gratia payments are.

Redundancy calculator

You can access a redundancy calculator on the website of the Department of Social Protection to calculate your redundancy entitlements.

Here’s an excellent guide to the redundancy payments scheme from the Department of Enterprise, Trade and Innovation. It dates from 2010 but, nevertheless, explains redundancy very well. Do check with a professional-solicitor or accountant-for any changes since then, though.

UPDATE

The December, 2012 budget made some significant changes re

  • redundancy rebates
  • prsi
  • maternity leave and
  • termination/ex gratia payments.

Since January, 2013 there is no employer rebate in respect of redundancy. See Department of Social Protection.

Disputes about Redundancy Payments Acts, 1967-2007

Disputes about redundancy payments and entitlements are dealt with by the Workplace Relations Commission.

Relevant Legislation

The Redundancy Payments Act, 1967

The Redundancy Payments Act, 2003

The Redundancy Payments act, 1979.