Legal Updates

When is a Redundancy not a Redundancy?

While most redundancies are genuine with no other option open to employers, employees should be aware of the requirements employers must meet to justify redundancies and the options open to employees if the employers fail to do so. In these uncertain times employees must ensure that they are treated fairly and if not, it is important that they know their rights and entitlements and can pursue the correct course of action if required.

Redundancy Criteria

“It is the job which is redundant and not the employee”

The emphasis must be on the job and not the person. The employer must show that a valid redundancy situation exists. A valid redundancy only exists where it is related to one or more of the permitted redundancy circumstances and not related to the employee concerned i.e. it is the job which is redundant and not the employee.

The permitted redundancy criteria include:

  1. the 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
  2. the employer ceasing to carry on business or ceasing to carry on business in the location where the employee worked; or
  3. the employer’s requirements for employees in a specific category has diminished; or
  4. the employer has decided to let work be done in a different manner in future and the employee is not sufficiently qualified to work in the different manner.

Before making employees redundant, the employer is obliged to consult with the affected employees and consider all alternatives. The employer must also be able to point to objective and fair criteria on which he/she based the selection of employees for redundancy. The criteria chosen must not have an indirectly discriminatory effect e.g. effecting women more than men or non-nationals more than nationals.

Unfair Dismissal

“The burden of proof falls on the employer in an unfair dismissal claim”

If an employer attempts to make an employee redundant but fails to meet the required redundancy criteria, the employee may have grounds to make a claim of unfair dismissal (subject to the employee having one year’s continuous service, being aged over 16 years and under the age of normal retirement for their profession).

The burden of proof falls on the employer in an unfair dismissal claim i.e. the employer must be able to show that there were substantial grounds justifying the dismissal. The most common justifications used by employers are redundancy, an inability to do the job, or misconduct. If an employer relies on redundancy as a defence, the employer must demonstrate that one or more of the valid redundancy criteria exist. By way of example; an employee is made redundant because the employer claims the specific role carried out by the employee is no longer required. Soon after the employee is replaced a new employee who continues to carry out the same job function as the previous employee at a reduced salary. In this case a valid redundancy situation did not exist.

Constructive Dismissal

“This time the burden of proof shifts to the employee”

If an employee resigns from his/her employment, there is no entitlement to receive a redundancy payment. If an employee has been forced to resign as a result of the conduct of the employer, the employee can claim constructive dismissal. This time the burden of proof shifts to the employee who must demonstrate that the conduct of the employer was so serious that it was reasonable for the employee to resign.

Constructive dismissal claims have been upheld by the Employment Appeals Tribunal (EAT) in situations where an employer unilaterally reduced salary, changed working hours, changed location of employment and in cases of bullying and sexual harassment.

As most employees do not have a contractual right to a pay increase the introduction of a pay freeze is unlikely to be grounds for constructive dismissal. Employees should be aware that if an employer promised an increase with or without certain targets being met, the employee should not accept the pay freeze and should pursue the employer for the full increase. Where an employer reduces salary, the employee can resign and claim constructive dismissal on the basis that such action constitutes a fundamental repudiation of his/her contract of employment.

 On the other hand an employee need not resign in order to seek redress in cases where salary has been cut without his/her consent. In such situations the employee can (subject to his/her contract terms) make a claim for non-payment of wages. Likewise if employers try to reduce or scrap bonus payments where targets have already been met employees have cause to bring a similar claim. Employers should ensure that changes in bonuses and salary are carefully documented and have written consent of the employees.

Notwithstanding the above it is important that an employee’s contract of employment be reviewed prior to taking a claim for constructive dismissal as the employer may have certain unilateral rights set out in the contract terms.

Remedies

Re-instatement, Re-engagement or Compensation

If an employee believes that they have been unfairly/constructively dismissed, they may submit a claim to a Rights Commissioner or to the EAT. Written notice of a claim must be submitted within six months of the date of dismissal. The employee may seek one of three remedies;

  1. Re-instatement: This means that the employee is treated as if he/she had never been dismissed. Not only are they entitled to loss of earnings from the date of the dismissal to the date of the hearing, they are also entitled to any favourable changes in the terms of employment during that period, for example, pay rises. This remedy is rarely used.
  2. Re-engagement: This means that the employee will be given his/her job back but only from a particular date, for example, the date of the decision favouring of the employee. This means that the employee will not be entitled to compensation for any loss of earnings. Often this remedy is used where it is felt that the employee contributed to the dismissal, even though the actual dismissal was unfair. Again, however, this remedy is rarely used.
  3. Compensation: This is the most common remedy. It is essential to note that compensation is only awarded in respect of financial loss. An employee cannot therefore claim any compensation for such matters as injury to feelings or stress caused by the dismissal. Compensation is subject to a maximum of two years remuneration.

As an employee’s conduct towards the employer will be examined in any claim of constructive/unfair dismissal, it is recommended that employees follow the employer’s grievance procedures (if any) before starting legal proceedings.

Redundancy Payment

“The payment is capped at €600 gross per week”

Employees must have worked continuously for their employer for at least two years in order to be entitled to a redundancy payment. In certain circumstances where a break in service occurs, the law steps in to protect the employee and deems unbroken service e.g. parental leave, maternity leave and transfer of business to a new owner.

The redundancy payment is calculated on the basis of the employee’s years of service. An employee is entitled to two week’s pay (capped at €600 gross per week) for each year of continuous employment over the age of 16 years and an additional one week’s normal earnings. Depending on certain circumstances the payment may or may not be tax free. Employees should also be aware when agreeing redundancy terms, that an employer can apply to the Department of Enterprise, Trade and Employment for a 60% rebate of the statutory sum paid. The rebate is limited to 60% of the statutory sum and does not apply to any supra-statutory amount paid by the employer.

Where an amount greater than the statutory sum was paid in a previous redundancy situation, there is no strict legal obligation on employers to match this package in a new redundancy situation, nevertheless a precedent may have been set which should be highlighted by the current employees as they may (in certain circumstances) have some recourse under equality legislation on the basis that they are being treated differently from other employees.

Insolvency Payments Scheme

“The Minister then steps into the shoes of the employee and becomes a creditor of the employer”

Does an employee who has been made redundant have any redress where the employer is insolvent and the employee is owed wages or holiday pay? Under the Insolvency Payments Scheme (IPS) employees can claim arrears of wages, holiday pay, deductions which have not been paid over by the employer (all subject to a maximum of 8 weeks) e.g. health insurance and pay in lieu of notice. In the case of redundancy entitlements the full amount is paid from the Social Insurance Fund. The Department of Enterprise, Trade and Employment pays the employee and the Department then becomes a creditor of the employer.

The above information is a very brief overview of the law pertaining to redundancy and unfair dismissal and should not be taken as definitive legal advice. If you are an employer or employee concerned about a possible redundancy situation please contact Marguerite O’Malley (Senior Associate) of Adrian Burke & Associates at momalley@adrianburke.ie.

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