Companies have reached the point where drastic action is needed, so MOP runs through some need-to-know employment law for when implementing cost-cutting measures
10 November 2008
We are all aware at this stage of the worsening economic conditions. Many industries have been hit hard by the credit crunch and the retail sector is unfortunately no exception as consumers are beginning to tighten their belts. As a result, employers are looking for alternative ways to effect cost savings in their businesses. Usually, redundancies are only used as a last resort. However, in the current market, many employers are being forced to consider such unsavoury options. The article below sets out the general guidelines to follow, if this situation arises in your business.
- Is this a genuine redundancy situation?T. Generally a redundancy situation exists where the work which the employee performs is no longer required. In this respect, redundancy should be impersonal and have nothing to do with the employee. Examples are where an employer requires fewer employees to do work of a particular kind e.g. due to a downturn in orders/sales, where the employer has decided to rationalise/reorganise the company, or of course where a company simply closes down.
- What process must be followed? Employers should put a considered process in place prior to taking any steps to implement proposed redundancies. If a formal redundancy procedure is already in place e.g. a procedure agreed with a trade union and/or in an employee handbook, it should be followed. The employer must be in a position to show that it considered all possible alternatives to redundancy prior to taking the decision e.g. is there alternative work in another part of the business which the employee could perform? This will be important in the retail sector as the skills of many positions could be transferable within the business. Selection for redundancy is not an issue if it is a stand alone position or there is only one person impacted. In other cases, it may be necessary to provisionally identify a selection pool for redundancy from which employees can be selected from (considered further below).In some situations, a general announcement to all staff of the proposals can be a good idea to make staff aware of the situation and avoid inaccurate gossip. Thereafter, meetings can be arranged with the affected employees. There is no specific statutory requirement for employers to consult with employees in a particular way prior to the decision to effect redundancies (unless it is a collective redundancy, see more on the next page). However, in the interests of good industrial relations, it is sensible to do so and in addition, an employer has an obligation to act reasonably in any dismissal situation. This would include consulting with the employee. The consultation process need only be one or two meetings with the employees at which the reasons for the proposed redundancies and alternative proposals can be discussed and considered. At the end of this process, if redundancy is the only option then employees should be notified of the redundancy formally.
- How does an employer select employees for redundancy? When selecting from a selection pool, an employer should apply selection criteria and in a reasonable and fair manner. The last in, first out method is used by many employers. However, employers should ensure that any criteria used is as objective as possible, e.g. in terms of qualifications, skills, experience etc and further, that it is not discriminatory, directly or indirectly, in breach of the Employment Equality Acts 1998-2007. An employee is entitled to bring a claim for unfair dismissal if he/she considers that they were unfairly selected for redundancy. Therefore, care should be taken in this process. Examples of these situations might include where it was the custom and practice of the company to use the last in, first out criteria and this was not followed, or where the selection criteria were not properly applied. It is important that a record exists of the rationale behind all decisions. An inability to demonstrate the process used to reach a decision will leave an employer open to a claim of unfair dismissal.
- What is the notice required to be given to employees under the Redundancy Payments Acts? The RP Acts require a minimum two weeks’ notice of termination of employment by reason of redundancy. However, if an employee has a longer period of contractual notice or statutory minimum notice (up to eight weeks depending on service) then this must be provided. Formal notice under the RP Acts is given by the employer by way of an RP50 Form. The employer must send the RP50 Form to the Minister for Enterprise, Trade and Employment, to claim the statutory rebate of 60% of the statutory redundancy payment.
- Who is eligible for a statutory redundancy payment and how is it calculated? Employees must have at least two years service to be entitled to a statutory redundancy payment. A statutory redundancy payment is the minimum lump sum payment which an employer is obliged by law to pay to all eligible employees dismissed by reason of redundancy. The payment is calculated by a formula of two weeks pay per year of service, plus an additional week’s pay. The weekly pay is subject to a ceiling of €600. The Department of Enterprise, Trade and Employment have an on-line redundancy calculator, which allows the employer to calculate the statutory redundancy entitlement for each employee. There is nothing to prevent an employer from paying a discretionary sum over and above the statutory amount, although there is no legal obligation for them to do so.
- Can an employer put employees on lay-off or short-time? Lay-off / short-time occurs where, for a temporary period of time, the services of an employee are not required due to a lack of work, or there is a reduction in the number of hours of work required. There must, however, be a reasonable expectation that the situation will improve otherwise a redundancy situation may occur. This is particularly relevant in the current economy in the retail sector. Whilst shoppers may be reluctant to part with their money at this time, the situation may improve over the coming months with the Christmas period looming. The Christmas period is of course one of the busiest periods of the year for retailers. If such a situation arises, the employer could give notice to the employee of the temporary lay-off/ short-time. There are statutory and contractual considerations in lay-off/short-time situations and specific legal advice should always be taken. It is also advisable to state in a contract of employment that no payment (lay-off), or a reduced payment (short-time) will be made whilst on temporary lay-off / short-time.
- Do employees have an entitlement to time off to look for work during the notice period? Yes. An employee is entitled to reasonable paid time off to look for new employment during the two week redundancy notice period. The employer is reasonably entitled to ask for evidence of any such arrangements made by the employee.
- Should employees receive a redundancy certificate? An employer must supply the employee with a Form RP50 at least 2 weeks in advance of the dismissal. The Form RP50 confirms the employee’s right to the statutory redundancy payment, and the amount of the statutory redundancy payment.
- What can employees do if they feel that they have been unfairly selected for redundancy or that the process was unfair? The most common legal remedy sought by an employee is an unfair dismissal claim to a Rights Commissioner (“RC”) or Employment Appeals Tribunal (“EAT”). The burden of proof is on the employer to show that the criteria used for redundancy selection were reasonable, fair, objective, that they were properly applied, and that proper procedures were followed. The maximum award a RC or EAT can make is two years’ gross remuneration. However, maximum awards are rare and the awards are usually limited to the financial loss suffered.
In summary, whilst the retail sector may have been affected in recent times by the economic downturn, it is hoped that the Christmas spirit will encourage consumers to spend their hard-earned cash. However, some employers are already affected and are seeking to introduce cost-cutting measures, which may include redundancies. With this in mind, if redundancies are being implemented or considered, then at a minimum, the legal process should be carefully considered to avoid any potential employment law claims by disgruntled employees.
A collective redundancy situation arises if, during a period of 30 days, the number of redundancies being implemented by an employer amounts to the following:
• 5 employees in a company employing more than 20 but less than 50 employees;
• 10 employees in a company employing 50 to 99 employees;
• 10 per cent of the employees in a company employing more than 100 but less than 300 employees;
• 30 or more employees in a company employing 300 or more employee
In these circumstances, an employer must notify the Minister for Enterprise, Trade and Employment in writing of the collective redundancy. There are obligations to inform and consult with employee representatives on certain matters including the reasons for the redundancies. However, specific legal advice should be taken in such circumstances to ensure the process is conducted appropriately.