Redundancies: Practical Employer Guidance

Introduction

The law relating to redundancy is an area that comes up almost on a daily basis for our RDJ Employment Team. Whether a business is re-structuring, re-sizing or reducing their workforce, the potential redundancy of certain roles will have to be considered. Navigating this area of the law can be tricky for employers and redundancies not effected in line with the legislation can be costly, both in financial and reputational terms. Employees can challenge both the redundancy decision and also the process used to affect the redundancy by way of a statutory claim to the Workplace Relations Commission (“the WRC”).

The purpose of this Insight is to provide a comprehensive overview of the law in this area and to outline the key elements of a redundancy process to be considered by employers where redundancies are in contemplation, whether collective or individual redundancies.

Is it a genuine redundancy?

The Irish legal definition of redundancy is quite broad, meaning that there are many circumstances which can constitute a redundancy situation. In that regard, under the Redundancy Payments Acts 1967-2014 (“the Redundancy Payments Acts”) 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.

Along with the fact that the definition is broad and covers many circumstances, there are also two extremely important requirements to meet the threshold for redundancy. Firstly, impersonality, i.e. the redundancy must impact on the role and not the individual employee in that role and secondly, there must be a change in the workplace, i.e. there must be a reduction in roles or a reduction in the number of employees as set out in the various scenarios above.

Voluntary or compulsory redundancy?

Employers will sometimes consider offering a voluntary redundancy programme, to avoid having to implement compulsory redundancies. Such programmes can be effective where a workforce reduction is required but they should not be undertaken lightly.

It is important to take account of the fact that the employer may have to refuse an application for voluntary redundancy which can go down badly with the employee. Furthermore, the paperwork drafted around a voluntary redundancy programme needs to be very carefully crafted so that an employer has full discretion on the applications received and a clear path for those whose applications are accepted.

It is also important for employers to understand that once an application for voluntary redundancy has been accepted, the employee is then being made redundant in the same manner as if it had been a compulsory redundancy and all of the same statutory obligations and redundancy entitlements arise.

Collective redundancies or not?

The first step in any redundancy process is to determine the number of employees within your organisation that are potentially impacted, as well as the timeframe for effecting those redundancies, as this will determine whether a collective redundancy situation arises. The process to be followed in a collective redundancy scenario is outlined in legislation and failure to follow the correct legislative process could lead to criminal sanctions.

The Protection of Employment Acts 1977 - 2007 (the “Protection of Employment Acts”) provide that collective redundancies occur where a certain number of employees are all made redundant within a thirty-day period. The number of redundancies required to trigger a collective redundancy situation depends on the size of the organisation. The threshold numbers are as follows.

Furthermore, in a collective redundancy scenario, there are statutory obligations to consult with and provide information to employee representatives, and to notify and inform the Minister for Enterprise, Trade and Employment.

The Protection of Employment Acts are very prescriptive in setting out the obligations on an employer in a collective redundancy scenario. The statutory consultation process must commence in good time and/or at the earliest opportunity (i.e. at the point in time when it becomes clear collective redundancies are to occur). This consultation period must last at least 30 days before notice of the first dismissal on grounds of redundancy is served. Employee representatives must be provided with all relevant information relating to the proposed redundancies, including but not limited to:

• the reason for the proposed redundancies,
• the number and descriptions/categories of employees whom it is proposed to make redundant
• the number of employees and description/categories normally employed,
• details of any agency workers engaged to work for the employer,
• the period during which it is proposed to affect the proposed redundancies,
• the criteria proposed for the selection of the workers to be made redundant, and
• the method for calculating any redundancy payments other than those methods set out in the Redundancy Payments Acts.

What is the requirement for a consultation process in individual redundancies?

Where the number of employee roles impacted is less than the collective redundancy threshold numbers, the question arises as to whether there is any consultation required. Whilst it is not a statutory obligation, the caselaw has made it clear that an “at-risk consultation process” should also be entered into with any employee whose role is at risk of redundancy, even where it is not a collective redundancy situation. This process should last a minimum of two weeks where possible, and a number of one to one meetings with the employee should be arranged.

The purpose of this process is to consider all possibilities as to how the redundancy could be avoided, such as reduced pay or reduced working hours, and to examine whether there are any suitable alternative positions within the business. Genuine dialogue should take place between the employee and the employer during this “at risk of redundancy” stage, with the employee’s suggestions to be considered by the employer. Employers ought to fully consider all possible alternatives to the termination of employment where a genuine redundancy situation exists. It is only after all possible alternative avenues have been exhausted to no avail and the consultation process concluded, can it be confirmed that the role is redundant. It is crucial that this consultation process is carried out fairly and transparently.

If the redundancy of roles is inevitable (e.g. the business is closing down), does the employer still have to go through the consultation process? The short answer is yes, consultation is always required in redundancy situations. There may be circumstances, such as a full shut-down, where there is no real prospect of alternative employment, but consultation is still required.

When is the decision to make roles redundant made?

Crucially, no decision to make the role redundant should be made and/or recorded until the at risk consultation process has ended. So, for example, if Board approval is needed to commence a redundancy process, the Board should simply approve the commencement of an at risk consultation process. A decision to make a role redundant should only be recorded after the ending of the at risk consultation process. It is important to remember that employees impacted by redundancy processes are very likely to make a Data Subject Access Request if they are considering challenging their redundancy and any documentation which suggests that the decision has been made in advance of the at risk process will be detrimental to the employer’s defence of any claim brought to challenge the redundancy.

Once the decision has been made at the appropriate time, a comprehensive letter should be sent to the employee, setting out the reason for the redundancy, the process undertaken and the financial package being made available to the employee.

Is there a right of appeal?

While the right to appeal is not a legislative requirement, it has developed as part of best practice to show that a fair and transparent process has been adopted. Therefore, it is preferable to offer the employee an opportunity to appeal the decision to make their role redundant.

What about employee representation during redundancy consultation process?

Employees may request to be accompanied by either a legal representative or a trade union representative at meetings during the consultation process. There is no automatic entitlement to legal representation at such meetings, which are internal company meetings. Entitlement to a trade union representative depends on whether the organisation recognises a trade union and also whether the internal policies and procedures provide for such representation. Unless the internal policies in place in the organisation provide otherwise, employers may provide only for work colleagues to accompany employees to at-risk consultation meetings.

What happens if a grievance is lodged during a consultation process?

The answer here depends on what the grievance relates to. Where an employee lodges a grievance during a consultation process that relates to the at-risk redundancy process itself, it is best practice to pause the consultation process and investigate the grievance. If the grievance is found to be unsubstantiated, the consultation process can proceed from where it left off. If, on the other hand, the grievance is unrelated to the at-risk process, and relates to some other workplace issue, the at-risk consultation process and the grievance process could run in parallel.

Can we engage with an employee on sick leave during a consultation process?

Where an employee is on certified sick leave, it is worth having them assessed by occupational health to ascertain whether they are fit to work or, in the alternative, fit to engage in the at-risk consultation process. If occupational health deem the employee fit to engage, the consultation process can continue. If not, then the employer will have to wait for the employee to be deemed fit to engage. If the employee is availing of a permanent health insurance benefit (“PHI”) from the employer, then such employees should be the last ones to be made redundant in any process as termination of their employment for redundancy will deprive them of the PHI benefit.

What happens if an employee refuses an alternative role offered during a consultation process?

Where an employee unreasonably refuses to accept an offer of suitable alternative employment, the employer can, under the Redundancy Payments Acts, refuse to make a statutory redundancy payment. However, the Redundancy Payments Acts do not define “suitable” alternative employment. Therefore, it falls to be determined in each individual case as to what might or might not be deemed a suitable alternative to redundancy. In that regard, an employee can challenge the employer’s decision to rely on the “suitable alternative employment” offer to avoid making a redundancy payment by lodging a claim for the statutory redundancy entitlements with the WRC. Generally, the WRC and the Labour Court (on appeal) will examine whether the location, working hours, salary, benefits and level of responsibility are of a similar nature to the previous role. Suitable alternative employment does not need to be an exact match to a previous position. Furthermore, where the “suitable alternative employment” provisions are being pursued by the employer, the employee can trial the alternative for one month and, if during that period, the employee decides they do not want to continue and wish to claim their redundancy, they can do so. Therefore, the benefit of these provisions is somewhat questionable.

What redundancy payments arise?

The statutory redundancy entitlement is 2 weeks’ pay for every year of service, subject to a statutory limit, which is currently €600 per week. One bonus week gross pay is added to this calculation, subject also to the cap of €600 per week. The statutory amount is paid to the employee tax free.

Many employers will also pay an additional “ex gratia” amount to an employee being made redundant and if that is being considered, legal and tax advice should be sought for the purposes of ensuring a suitable Severance Agreement/Waiver is signed by the employee in exchange for the ex gratia payment to offer protection to the employer and also to ensure the ex gratia payment is taxed appropriately, as termination payments over and above contractual entitlements can be paid in a tax favourable manner (although not necessarily tax free).

Contractual payments, such as pay in lieu of notice and unused holidays, may also be due to the employee.

What happens if the employer is unable to afford a redundancy payment?

If the employer is genuinely unable to pay statutory redundancy entitlements due to financial difficulties or insolvency, an application for payment under the Redundancy Payments Scheme may be submitted to the Department of Social Protection. When such a redundancy payment is made from the Social Insurance Fund, a debt is raised against the employer.

Are fixed term workers entitled to redundancy payments?

It is important to note that where the circumstances of the non-renewal of a fixed term or specified contract of employment meet the definition of redundancy as provided for in the Redundancy Payments Acts, then the employee is entitled to a statutory redundancy payment, and possibly to an enhanced ex gratia payment if such payments are the norm for comparable permanent employees.

What happens if an employee leaves earlier than expiration of notice?

An employee who has received a notice of redundancy may decide to leave the employment earlier than the date of redundancy notified to him/her. If the employee decides to do so, they can complete a form RP6 to seek to leave their employment early. An employer does have discretion as to whether to grant such a request or not, as set out in the form. Employers generally will comply with a request by an employee to leave early and will pay redundancy entitlements, particularly where the employee has secured alternative employment and is leaving for that reason.

What about the enforceability of post-termination restrictions in a compulsory redundancy?

Any restrictive covenants signed up to by the employee remain enforceable by the employer even where the termination of employment was affected by way of redundancy. This is the case unless the employer agrees to waive its rights as part of a Severance Agreement/Waiver.

What about re-hiring redundant employees?

There is nothing precluding an employer from re-engaging or rehiring an employee who was made redundant where a genuine redundancy situation once existed. The question then arises as to whether this impacts their statutory entitlement and their continuous service?

For the purpose of redundancy, an employee is not taken to be dismissed if her/his contract is renewed, or s/he is re-engaged by the same employer under a new contract with the same terms and this takes effect immediately (or within 4 weeks with prior notice).

Re-hiring will also raise questions about what happens to any statutory redundancy payment previously paid to the employee and also the potential Revenue implications for any ex gratia payment previously paid.

Conclusion

Redundancy is a complex area of employment law and getting it wrong can be costly for employers, both financially and reputationally. It is important to make sure you have all your legal and tax advice in place before embarking on any redundancy process.

Please do not hesitate to contact our RDJ Employment Team for further advice and guidance in this area.

Related Insight – Collective Redundancies Update published 8 July 2024