Monday, March 16, 2020
As everyone knows, the government is enacting unprecedented measures to try to contain the spread of the coronavirus.
Everyone hopes for the best – but the outcome is far from certain. Aside from the effect on public health, the virus is already starting to cause damage to the economy. Hopefully the measures the government is taking will mitigate that damage – but employers may have to look at very difficult decisions sooner or later if revenue starts to dry up.
As most employers know, employee rights, including the right to remuneration, are rigorously protected in Ireland. Equally, once an employee has more than 52 weeks of continuous service, their employment is effectively permanent. These two factors make it more challenging for an employer to reduce workplace costs.
That said, a number of options are available.
1. Obviously an employer can immediately move to trim discretionary benefits – benefits that don’t have contractual status. However, these typically aren’t high value so there’s probably only limited utility in removing them.
2. Payroll costs are another matter. The first, and most important, point to note is that there is nothing to prevent an employer from immediately engaging with the workforce. An employer can explain how bad the situation is becoming (with reference to hard data and figures), indicate that cuts have to be made and ask staff if they are prepared to make sacrifices to keep the business viable.
That employer can also be direct in saying that if there are no alternatives, it is going to have to take more draconian steps.
An employer can’t cut remuneration (or working hours – or any other term/condition of employment) unilaterally, but cuts can certainly be made by agreement. This occurred during the last recession for example – in certain businesses, staff willingly agreed to work 4-day weeks or take % reductions in salary and so on.
A prudent employer is best–advised to begin by trying to work with staff. Very often a workforce that recognise that an employer is being frank and honest with them will be far more likely to take a practical approach to a proposal to reduce remuneration or other benefits.
Obviously this approach may not work in all circumstances. There will likely be situations in which an employer simply has to take steps to reduce headcount as soon as possible. There are two main ways of doing this.
3. First of all, Irish employment law recognises the concept of lay-off. A lay-off arises where an employer does not have work for its staff for a period of time but hopes that the situation will improve.
The benefit to an employer is that employees who have been laid-off do not have to be paid for the duration of the lay-off. A lay-off can’t continue indefinitely; after certain periods of time have passed staff may be able to trigger a redundancy. However, lay-offs can certainly alleviate pressure on an employer’s budget for a period of time.
There are two important takeaways for employers. Firstly, a lay-off can only generally be implemented if it’s provided for in individual contracts of employment. Secondly, an employer needs to implement a fair selection process (involving consultation with staff and the use of objective selection criteria).
4. Lay-offs are only an interim measure, however, and in certain cases it may be necessary to immediately move to the redundancy of roles.
Redundancy is permitted in circumstances where an employer is under severe financial pressure and must reduce expenditure, including payroll.
The two most important points to note in relation to redundancy in Ireland are that (a) it is impersonal – roles, not individuals, are made redundant and (b) a fair process must be followed. An employer that fails to observe either of these principles is at risk of an unfair dismissal claim. Choosing poor performers deliberately, for example, is susceptible to challenge – the element of impersonality has to be present.
In addition, if employers are contemplating large-scale redundancies, collective redundancy legislation may kick in. This can be an added complication in practice – if employees above a certain threshold are being made redundant, then an employer must enter into a mandatory 30 – day consultation period and must also notify the Minister for Enterprise. Employers who fail to do either of these things can be prosecuted.
If at all possible, employers should follow a graduated approach – start with trimming hours/days (or contemplate reducing all salary payments) and only move on to the more serious remedies if there is no other option.
It is to be hoped that we will not find ourselves in a similar situation to the 2007 – 2011 recession but prudent employers may believe it is necessary to plan for the worst now.
For further information or advice, please contact Patrick Walshe.