How To: Successfully Manage Cutbacks In The Pandemic

The Future

As the saying goes: ‘predictions are hazardous, especially about the future’. And it is certainly true that predictions about the duration of and the fall-out from the perilous COVID-19 pandemic are proving problematic. However, on the optimistic basis that the virus can be contained by July next, the Economic and Social Research Institute (ESRI) forecasts that the Irish economy will shrink by 7% this year. More disturbingly, in the event of a prolonged disruption to the end of the summer, Ernst and Young Ireland puts the same shrink figure at 13 per cent, with up to 675,000 people – nearly a third of the workforce – either losing their jobs or being furloughed before the economy starts to improve. 

Of course, this bleak scenario can be compared with an even more strained international outlook. Though estimated to reduce Ireland’s gross domestic product by 10-15%, the Organisation for Economic Co-operation and Development (OECD) predicts that the Irish economy will be the least impacted of all by the pandemic. Whilst this impact will undoubtedly be costly and consequential for Ireland, it is the mildest impact forecast for any of the OECD countries. Their prediction serves to reinforce Davy stockbrokers earlier forecast, that – in contrast with the 2009 recession - Ireland's economy should prove to be far more resilient than the rest of Europe. 

As a result of COVID-19, there is currently consensus that governments must support businesses and workers who are losing income. In the absence thereof, the risks associated with knock-on effects would be calamitous for the wider economy. Of course, the means of financing these expenditures will also take its toll. Whilst the Department of Expenditure and Reform estimates that the cost of income supports (introduced on March 9th and March 24^th last) will be €4.5 billion, the Parliamentary Budget Office estimates that the overall bill will be closer to €6.7 billion. And this is based upon an assumption that the payments are for a 12-week period. But the current economic priority - alongside maintaining the supply of essential goods and services - is that businesses avoid bankruptcy, whilst maintaining their employment levels. As the Minister for Finance put it recently: ‘we’re in the midst of a deep recession’. Given this grim national and international economic outlook, it’s little wonder then that the colourful American President Donald Trump was ahead of himself when he recently stressed the need for Americans to get back to work by Easter!

The Provisions and Practices

The necessity for government intervention prompted the introduction of income supports for employers and their staff along the following lines:

• The Temporary Wage Subsidy Scheme (TWSS) – this scheme was launched on March 24^th last, taking effect (for 12 weeks) on March 26^th. On April 15^th changes to the scheme, which are not backdated, were announced, taking effect from May 4^th next. In summary, the scheme now enables a subsidy to: (i) increase from 70 to 85% of net pay for employees with a previous average take home pay of below €412 per week; (ii) pay €350 per week to employees with a previous average take home pay of between €412 and €500 per week; (iii) remain at 70% for employees with a previous average take home pay of between €500 and €586 per week; (iv) be available on a tiered basis for employees with a previous average take home pay of over €586 per week and (v) be available to employees who were taking home more than €960 per week (with effect from April 16^th last).
• The Pandemic Unemployment Payment – with effect from March 24^th last, this COVID-19 pandemic unemployment payment is paid at a flat rate of €350 per week, to be appliedfor the duration of the COVID-19 public health emergency.
• The COVID-19 Illness Benefit – backdated with effect from March 9^th last, a €305 payment per week is available to those who are medically required to self-isolate or for the duration of their medically-certified absence from work with a COVID-19 diagnosis. This benefit payment was increased to €350 per week on March 24^th last.

The relevance and importance of these measures is evident from the fact that official estimates now confirm that over one million people (out of a labour force of ~2.3m.) are either fully or partially dependent on the state for income support. This figure includes ~43,500 employers employing ~255,000 availing of the TWSS, ~590,000 in receipt of the Pandemic Unemployment Payment and the 212,000 on the Live Register receiving the standard Jobseekers' Benefit of €203 per week. Little wonder then that the Minister for Employment Affairs and Social Protection should point out that these figures are ‘unparalleled in our nation’s history’.

Notably, the Government also recently amended the redundancy laws, providing that workers laid off or put on short-time (due to the pandemic) cannot trigger a claim during the ‘emergency period’, running from March 13^th to May 31^st next, with scope for an extension if required. This move is largely designed to prevent crisis scenarios, whereby employers can’t afford redundancy pay-outs due to cash-flow and/or insolvency issues. As explained by the Minister for Finance when introducing the revision: ‘I want to stress, however, in the clearest terms that an employee's right to claim redundancy after a temporary period of lay-off or short-term work is not being removed. It is simply being curtailed for a temporary period in this emergency situation’.

Alongside these schemes, ‘needs must’, as some workplaces come to their own arrangements. These include the Staff Panel National Joint Council and the Health Service Executive (HSE), in respect of whom the Industrial Relations News recently noted – with reference to their dramatically revised work practices - that ‘there is no indication that they will do anything other than cooperate with the policies and procedures detailed by HSE HR’ in their updated documents and circulars. Similar collaborative approaches are to be seen in the decimated aviation sector, as organisations like Aer Lingus, Ryanair and the Dublin Airport Authority and their respective representatives adapt to survive. For example, Ryanair has cut pay by 50% (for April), as staff at the Dublin Airport Authority take mandatory leave and/or time in lieu, alongside a four-day working week and a pay cut, whilst at Aer Lingus the workforce are on 50% reduced pay and a short-time working arrangement. A similar scenario prevails at Communicorp (owner of the country’s largest independent radio station network, incl. Newstalk and Today FM), where all wages have been cut by up to 25%. This contrasts with the Irish Times newspaper, that has opted to cut pay by 30% for higher paid managers and editors. Notably, the Gaelic Athletic Association has also reduced staff wages (for April), deploying a sliding scale of 10-20%, whilst their counterparts at the Football Association of Ireland are opting for a tiered pay deferral scheme for staff. It is also notable that the (normally relatively radical) Association of Secondary Teachers of Ireland has stated that its members would not be looking for more pay should they be required to do more work to cope with the pandemic’s fall-out. Another option, being pursued by transport company CIE and broadcaster RTE, entails the imposition of compulsory annual leave arrangements, whilst Trinity College has announced a freeze on staff recruitment as an initial cost containment measure. 

Of course, the stark reality is that few employers can follow the example set by former England footballer Gary Neville, who recently took to Twitter to assure his followers that though his 2 Manchester hotels were closing, no staff would be made redundant or asked to take unpaid leave. In this regard it is likely that many employers will try to follow the example of Disney, the world’s biggest holiday entertainment giant, who have now put 100,000 workers on unpaid leave for the purpose of saving the company up to £400million a month. Hence, in addition to grappling with health and safety risk assessments, protective equipment and remote working arrangements, it is inevitable and essential, that employers should scrutinise options like homeworking, redeployment, reduced hours, unpaid sabbaticals, pay rise and bonus deferrals, pension holidays and the release of zero-hour, agency, self-employed consultant and sub-contractor staff. 

However, the legal reality is that anything that constitutes a variation in an employee’s contract warrants their consent or provides them with substantive grounds for a claim. Hence, employers should be liaising with their staff for the purpose of securing consent to contractual revisions, which should then be put in writing. In the absence of consensus, the Workplace Relations Commission (WRC) recently reminded parties that employees can make a complaint under the relevant employment legislation. Hence, employers would do well to heed these legislative provisions, especially as they pertain in the current crisis to health and safety, working hours, pay cuts, lay-off and redundancy-type initiatives.

Cutting Pay

Employer efforts designed to reduce labour costs need to be undertaken with consideration, consultation and consensus. Though employers may change work practices unilaterally, this cannot be done so easily with pay and conditions. That is, employers cannot unilaterally alter the core terms of the contract of employment, though they can change work practices that have developed through custom, as long as these practices are not deemed to have contractual status. So, if an employee’s entitlement to a benefit is clearly provided for in the employment contract, consent to any variation thereof must be given. In the past, the courts have criticised failures to engage staff and to involve them in decision-making relating to their contracts (e.g. the 2007 High Court judgmentFinnegan v J. & E. Davy IEHC 18). That is, contractual variations must be agreed between the parties, regardless of whether the terms are express, implied, tacit or by acquiescence (Cowey v Liberian Operations Ltd [1996] 2 Lloyd’s Rep. 45). Some experts claim that employers can unilaterally alter terms and conditions, provided that reasonable notice is given, as well as an explanation for the change. In the current climate it is relevant that if an employer can credibly argue that the alternative is job losses and/or closure, this may be viewed more sympathetically by third parties. However, this is far from a risk-free option, as case precedent indicates that the unilateral variation of an employee’s contract will give rise to: 

• Constructive dismissal claims under the Unfair Dismissals Acts.
• Unlawful deduction claims under the Payment of Wages Act.
• Claims for damages under common law.
• Disputes under industrial relations processes or legislation.

Making Staff Redundant

Case law also indicates that in addition to any move to change terms and conditions of employment, when making staff redundant, clear communication is crucial. As far back as 2005 the Employment Appeals Tribunal (EAT) explained that: ‘in defending a claim for Unfair Dismissal in respect of a redundancy situation, an employer should be able to prove that the employee facing redundancy was kept fully appraised of developments’. This determination is based upon the provision pertaining to the ‘reasonableness’ of an employer’s conduct, as provided for in Section 6(7) of the 1993 Unfair Dismissals Act. Arising therefrom, in Roche v Richmon Earthworks Limited, the Tribunal found that the dismissal was unfair, as a failure to consult with the claimant rendered it so (UD 329/97). That is, case precedent indicates that in such scenarios, employers must engage in effective and meaningful consultation with employees through a series of meetings (see also Barton v Newsfast Freight Ltd. (UD 1269/05) and Fennell -v- Resource Facilities Support (2011) 22 ELR 26). The importance of fair procedure when selecting staff for redundancy also featured in the aforementioned Vintners Federation of Ireland case. The employees were regional representatives with over ten years’ service. Prior to being made redundant, one of the employees had put forward proposals for cost-cutting measures. However, these proposals were not given serious consideration. In addition, a Dublin-based role was created as part of the restructuring, but the company did not consider the claimants for the position. In the opinion of the EAT, although there was a genuine redundancy situation, the company had acted unfairly in not considering the proposals put forward and in not considering the employees for the new position.

Likewise, in 2019 the WRC upheld a redundancy-related dismissal claim, holding that ‘No evidence was presented as to what engagement with the Complainant took place regarding alternative roles the Complainant could be deployed to even on a short-term basis. I cannot be but influenced by the way the Complainant was dismissed.  He was giving (sic) no warning of what was in contemplation.  He didn’t have an opportunity to influence the Respondent’(ADJ-00021655). Related thereto, the Irish Business and Employers’ Confederation (IBEC) warns that though claims of economic distress constitute grounds justifying dismissal via redundancy, an extremely high standard of evidence or openness about financial affairs is required. IBEC has also advised that staff be encouraged to come forward with their own ideas as to how the business can be run more efficiently. Two key cases that came before the EAT reinforce the merit of this advice. In the 2008 Park Developments case (UD 950/2008 to UD 957/2008), the Tribunal’s judgement was driven by the fact that ‘no consideration was given to temporary layoff or short week options’, whilst in 2009 the Vintners Federation of Ireland was cautioned by the Tribunal, as it ‘did not give any genuine consideration to the proposals put forward by one of the claimants to reduce costs’  (ELR155). However, there may be some consolation for employers from the fact that in 2003, in the Neville v Waters Munster Glass case (RP558/2003), the claimant - having refused to accept a reduction in salary and to work a reduced three-day week - was consequently made redundant. Though the claimant argued that he had been unfairly dismissed, the Tribunal held that a genuine redundancy situation existed. It is also apparent (from a UK case, GAP Personnel Franchises Ltd v Robinson UK EAT/0342/07) that where employees don’t accept an employer’s unilateral contract change, they should make their position clear, preferably in writing, explaining that they do not accept the change and are working under protest. In the absence thereof the employee may eventually be held to have implicitly accepted the change.

Redundancy Law

Under the Redundancy Payments Act 1967, the clause most appropriate to the current crisis is that legitimate redundancies can arise due to the ‘fact that the requirement 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’. Statute law provides the general right to redundancy payments, provided one has been employed for the ‘requisite period’ (i.e. 104 weeks’ continuous employment). It is also obligatory to provide notice of termination to those with 13 or more weeks’ service, with longer serving employees having longer notice entitlements (under the Minimum Notice and Terms of Employment Act, 1973-2001). Where employers plan to implement collective redundancies, they must - under the Protection of Employment Act 1977 - give the relevant Minister written notice of proposals at the earliest opportunity and at least 30 days before the first dismissal takes effect. The Act also provides that an employer contemplating a collective redundancy must - with a view to reaching agreement - consult the employees’ representatives. It is also pertinent that an employee cannot be given notice of redundancy whilst on maternity (or additional maternity) leave. The date of an employee’s notice in such a redundancy situation is deemed to be the expected return to work date, as notified to her employer under the maternity legislation.

Redundancy: Staff Selection

Case law confirms that the definition of ‘redundancy’ has two important characteristics: (i) ‘impersonality’ and (ii) ‘change’. With (i) impersonality, ‘redundancy impacts on the job and only as a consequence of the redundancy does the person involved lose his job’ whilst (ii) ‘change’ entails closedown or a reduction in the required number of employees (see St. Ledger v Frontline Distributors Ireland Ltd. [1995] E.L.R. 160). For example, in the case of Ponisi v JVC Europe Limited [21 E.L.R. 320 & (UD 949/2008)] the ‘impersonality’ element was absent and the EAT wasn’t satisfied that a genuine redundancy existed as a component of a restructuring initiative. As part of the restructuring, a new position was created. But it was successfully argued that the new position was essentially the same as an existing role (as general manager), but with a lower salary and loss of status. In awarding €161,420 to the complainant, the EAT held that despite the fact that redundancies within the company were necessary, the affected employee’s position had not been made redundant and a change in job title could not disguise this fact. Related thereto, in addition to the ‘case for communication’, case precedent indicates that employees have to be selected for redundancy using objective, fair and reasonable criteria. For example, both the ‘case for communication’ and the use of an appropriate redundancy selection process featured in the EAT’s determination in Scully v Largan Developments [12 (1993) E.L.R. 224]. Related thereto, Section 5 of the Redundancy Payments Act 2003 states that the ‘objective’ nature of redundancy should arise ‘for one or more reasons not related to the employee concerned’ (i.e. the ‘impersonality’ factor). In the absence of such ‘objectivity’, employees may successfully claim that they were ‘singled-out’ when other positions might have been deemed to be equally at risk, or that the criteria applied in the selection process were unfairly biased against them. For example, at hearings, the EAT repeatedly sought evidence that employers had used fair or reasonable criteria when selecting employees for redundancy. Likewise, at the WRC, where (in 2019) an Adjudication Officer (AO) accepted ‘that the Respondent is entitled to restructure its business especially in view of the mounting losses that incurred and reduce its workforce as necessary. However, no evidence was presented to me to show that consideration was given to the selection process for redundancy’. Whilst accepting the respondent’s dilemma, the A.O. still found the dismissals to be unfair, as the employer had failed to show that the redundancy selection process was appropriate (ADJ-00021655).

This case also underlines the importance of fair procedures and of selecting employees for redundancy based on objective criteria - which should be communicated to the employees concerned. Whilst it may be possible to use different criteria for different areas of a business, the onus is on the employer to show that there were objective reasons for doing so. Hence, when faced with compulsory redundancies, employers need to carefully plan out their selection process and should consider relevant precedent (i.e. has the organisation effected redundancies in the past and if so, what selection methods were used). The three most common approaches adopted in such scenarios are: (a) last in first out (LIFO), (b) an interview process and (c) a skills matrix. Depending on case circumstances, all three have been adjudged to be legitimate processes. 

A Legitimate Redundancy Procedure

For the redundancy selection decisions to be legally defensible - when using the interview or matrix process - one must ensure that the criteria used are objective, don’t purposely or unnecessarily place one or more employees at an unfair disadvantage and don’t fall foul of the provisions of the Employment Equality Act 1998-2015. The ‘skills matrix’ process is often deployed as a less resource consuming approach than that of interviews. It entails the employer starting out by identifying the skills needed to allow the business to continue as a going concern. The skill set of each employee is then measured in an impartial manner and assessed vis-a-vis the predetermined criteria/skills. Those who score highest vis-a-vis the set criteria are retained. The bottom line is that the matrix must ensure an unbiased assessment of each employee against objective, consistent and appropriate criteria - in a manner that is free from bias and justifiable by reference to documentary evidence. Before finalising the matrix, employers should consult with the employee representatives in respect of the criteria chosen and their relative weightings. Whilst these criteria and weightings are not set in stone, they should be defensible vis-a-vis the employer’s business needs. Caution should be exercised with this process, as in McGarvey v Intrium Justicia – EDA095, the Labour Court determined that the matrix used – entailing skills, experience, qualifications, cooperativeness, commitment, initiative and future potential criteria - was unsatisfactory, as it was ‘complex, opaque, subjective and open to manipulation in order to achieve a particular result’. In this regard the best advice is to look forward rather than backwards, with a focus on what the organisation will need. Justification for the weighting of specific criteria may also be required and this should also reflect the organisation’s future needs. In summary, in a compulsory workforce reduction scenario using a ‘skills matrix’, the employer should be able to:

• justify the selection, weighting and application of the criteria and the scoring process used;
• substantiate scores allotted via accurate records, if at all possible;
• minimise subjectivity in the assessment process, via usage of more than one assessor;
• apply moderation methods for the elimination of inappropriate anomalies (e.g. persistent leniency or severity of assessors).

Sample selection criteria include performance history, the ability to generate income, to delegate, skill levels, qualifications, training, relevant experience, competencies, relationships with clients and colleagues and flexibility.

Conclusion

In the absence of an altered employment law framework to cope with the fall-out from the virus crisis, it is clear that the case for communication and consensus in respect of coping and recovery mechanisms has much merit.