Redundancy
Introduction:
The news of potential redundancies in the tech sector in Ireland will be causing anxiety for many, coming as it does so close to the Christmas holiday period and with a housing crisis, energy crisis and inflation at an all time high. The employees of Twitter, Stripe, Intel and Meta, Facebook’s parent company, will be seeing events unfold overseas, which will have added to their stress. The Irish economy and labour market has benefited significantly from the investment of such tech and manufacturing companies. Many of those potentially affected will not have faced redundancy before and will have questions. We have answered some of the more common questions in this blog post.
What is Redundancy?
Redundancy occurs when an employee’s job no longer exists. It is important to note that it is the role and not the employee that becomes redundant.
Section 7(2) of the Redundancy Payments Act 1967, as amended by Section 4 of the Redundancy Payment Act 1971, outlines when a redundancy is deemed to have occurred. Some examples of a redundancy scenario include the following:
| Business Closure: | This will occur when the employer has ceased, or intends to cease, to carry on the business for which the employee was so employed. |
| Location of the Business: | This will occur when the requirements of the business to have employees carry out work of a particular kind in the place where they were so employed has ceased or diminished. |
| Reorganisation: | This will occur where the business has decided to carry on the business with fewer or no employees. |
| Lack of Work: | This will occur when the business has decided that the employees are no longer required, there is a reduced need for employees with particular skills or new technology has made the role unnecessary. |
| Restructuring: | This will occur when the business has decided that the work for which the employee had been employed should be henceforward done by a person who is capable of doing other work for which the employee is not sufficiently trained or qualified. |
As can be seen from the above, there must be genuine and objective reasons for a redundancy such as the business closing down, the business moving location, the restructuring of the business, financial difficulties or the changing needs for skilled labour. The importance of this requirement was highlighted by Charleton J in the case of Panisis -v- JVC Europe Limited [2012] ELR 70:
“In an unfair dismissal claim, where the answer is asserted to be redundancy, the employer bears the burden of establishing redundancy and of showing which kind of redundancy is apposite. Without that requirement, vagueness would replace the precision necessary to ensure the upholding of employee rights. Redundancy is impersonal. Instead, it must result from, as s 7(2) of the Redundancy Payments Acts 1967, as amended, provides, “reasons not related to the employee concerned.” Redundancy, cannot, therefore be used as cloak for the weeding out of those employees who are regarded as less competent than others or who appear to have health or age related issues. If that is the reason for letting an employee go, then it is not a redundancy, but a dismissal.”
Being Selected for Redundancy:
An employer must assess and decide objective criteria to determine which positions are at risk of being made redundant. This process must be objective and unbiased for the selection process to be fair. The most common method of selection is that of, “Last In, First Out”. This may not be a suitable method for every organisation, particularly in the departmentalised structure of tech and manufacturing companies where roles are not interchangeable. For example, an engineer from the technology department will not be qualified to work in the marketing department. Ultimately, organisations will need to examine the roles and technical expertise required for each department going forward.
Whatever the selection process, it must be objective. If a selection process is based on factors such as an employee’s political views or because of his/her membership of a trade union for example, this will result in an unfair dismissal rather than a redundancy. Where an employee alleges that he/she was been unfairly selected for redundancy and therefore unfairly dismissed, the onus of proving fair selection and a fair dismissal will be on the employer pursuant to Section 6(6) of the Unfair Dismissal Act 1977 (as amended).
Similarly, a selection process based on one of the nine grounds for discrimination, including pregnancy, will be discriminatory and/or unfair and could potentially expose an employer to a claim under the Employment Equality Acts.
The selection process will come under close scrutiny if an employee claims that he or she was unfairly selected for redundancy or that the process was discriminatory.
Redundancy should be avoided:
Redundancy is a last resort and should be avoided if at all possible.
Before a position is determined as being redundant, an employer must invite the employee to participate in a consultation process. The purpose of this consultation process is to explain to the employee why a position has been selected as being at risk of redundancy and to explore ways in which redundancy might be avoided. This might involve alternative employment within the organisation or an employee retraining for an alternative role.
Employees should note that refusal of suitable alternative employment without good reason can result in no entitlement to a redundancy payment pursuant to Section 15 of the Redundancy Payments Act 1967.
What is a Collective Redundancy?
It appears that collective redundancies are being faced by employees in the Irish tech sector. Under the Protection of Employment Act 1977 – 2014, a collective redundancy will occur when an employer is seeking to make a minimum number of employees redundant within a 30 day period and the number of such dismissals is:
- at least five in an establishment normally employing more than 20 and less than 50 employees;
- at least ten in an establishment normally employing at least 50 but less than 100 employees;
- at least ten per cent. of the number of employees in an establishment normally employing at least 100 but less than 300 employees; and
- at least 30 in an establishment normally employing 300 or more employees.
An employer must engage in a consultation process with employees with a view to avoiding the proposed redundancies, reducing the number of affected employees by the proposed redundancies or otherwise mitigating the consequences of the proposed redundancies. The employer must also consult with the employees on the basis on which it will be decided whether particular employees will be made redundant. This consultation process must take place at the earliest opportunity or at least 30 days before the first notice of dismissal is given.
The legislation also obliges the employer to furnish certain information to the employees’ representatives during the consultation process. The information supplied must include the following in writing: –
- the reasons for the proposed redundancies;
- the number, and description or categories, of employees whom it is proposed to make redundant;
- the number of employees normally employed; and
- the period during which it is proposed to effect the proposed redundancies.
The employer must also supply the Minister for Enterprise, Trade and Employment with copies of all of the above information in writing as soon as possible. In addition, the employer is obliged to notify the Minister in writing of its proposals at the earliest opportunity and at least 30 days before the first dismissal takes place.
Redundancy Payments:
An employee dismissed by reason of redundancy shall be entitled to a redundancy payment if he/she has 2 years’ (104 weeks) service in insurable employment. The statutory redundancy payment is a tax free payment which is calculated by reference to an employee’s remuneration and length of service.
An employee with the requisite service shall be entitled to a minimum statutory redundancy payment of:
- Two weeks’ pay for every year of service, but capped at a maximum of €600.00 per week; and
- One additional weeks’ pay.
Some employers have a custom and practice of paying an additional payment in excess of minimum statutory requirements. These additional payments are subject to tax, but an employee may be eligible for certain tax exemptions which can make for a tax efficient termination package.
An employee being made redundant will be entitled to be compensated for any annual leave accrued but not yet taken at the date of termination.
If an employer has acted unfairly or in a manner which is discriminatory, there may be other avenues for redress in addition to the redundancy payment offered. In the claim of An Employee -v- An Employer UD206/2011, the EAT considered the reasonableness of the employer’s conduct in the context of a claim for unfair dismissal arising out of the unfair selection for redundancy and the fairness of procedures applied. The Determination of the EAT was as follows:
“The Tribunal is unanimous in finding, under the Unfair Dismissals Acts, 1977 to 2007, that the claimant was unfairly dismissed because she was unfairly selected for redundancy. The Tribunal deems compensation to be the most appropriate remedy and awards the claimant fifty thousand euro (€50,000) under the said legislation. For the avoidance of doubt, this award is in addition to all payments already received by her in connection with the termination of her employment including a redundancy payment of €10,014.00 paid to the claimant under the Redundancy Payments Acts, 1967 to 2007.”
Conclusion:
Redundancy can be a very stressful time and it must be managed correctly by an employer. If you require further information, please contact Cara Walsh or Michelle Loughnane by telephone on 01 6765473 or by email at cwalsh@mwmlegal.ie or mloughnane@mwmlegal.ie
*Before acting or refraining from acting on anything in this guide, legal advice should be sought from a solicitor.
