Managing Redundancy

Caroline McEnery writes:

Organisations under financial pressure may have to reconsider their payroll costs, but it is vital that employers remain legally complaint when restructuring their staff. Firstly we always recommend employers explore all avenues prior to opting for the redundancy route but if it’s unavoidable we offer step by step guidance through the process. The announcement of redundancies will invariably have an adverse impact on morale, motivation and customer service if not managed correctly. However, the negative effects can be reduced through sensitive handling of the process for employees who will be made redundant and those remaining.

Options to be considered prior to redundancy include short time, layoff, voluntary unpaid leave, pay reductions or renegotiation of employee terms and conditions. Any changes to employee’s terms and conditions must be agreed in advance with the employees otherwise you will be in breach of employment legislation. It is also important to remember, that if any agreements are made with the employee, that the employer must remain in full compliance with employment legislation i.e. you cannot agree to pay less than statutory minimum wage.

Firstly the company should seek advice on their obligations under the Redundancy Payment Act. The company should confirm the cost savings they need to make at the beginning and agree to communicate honestly with employees throughout the process. Following this employers must assess each role in the company by outlining all responsibilities and identifying the contributions of each role to the organisation. This criteria along with other factors will be analysed in the fair selection of employees to be made redundant.

Remember a dismissal by reason of redundancy can be deemed unfair if the employer is considered to have made an unfair selection. In a tribunal the first thing that will be examined is the selection and how it was made. Selection criteria must, most importantly, be based on the roles in the company and not on the employee or their performance. Redundancy selections must be impersonal and the criteria examined should be relevant to the crucial needs of the business at that time. Criteria can include factors such as qualifications, skills and disciplinary records. Once the criteria is decided upon it should be reviewed by another person so that it is not based on the opinion of one person solely.

Employees must be consulted from the early stages and throughout the process. At the first meeting the company should explain that the business is struggling and that pay reductions, reduced hours or redundancies may have to be the next step for the business in order to survive. Following the meeting a letter should be given to each employee outlining exactly what was discussed. This ensures all employees are fully aware of the situation. Further meetings should be held throughout the process to get feedback from staff and to keep them up to date on company decisions.

In the case of collective redundancies consultation must begin at least 30 days before notice of redundancy is given. Collective redundancies occur when the number of employees to be made redundant is as follows:

• 5 employees where 21-49 employees are employed.
• 10 employees where 50-99 employees are employed.
• 10% of employees where 100-299 employees are employed
• 30 employees where 300 or more employees are employed

The Minister for Jobs Enterprise and Innovation must be notified by the employer in the case of collective redundancies.

Statutory redundancy entitlement is calculated the same way for both full time and part time employees as long as they have two years continuous service with the employer.The statutory redundancy payment is two weeks’ pay per year of service, weekly pay is capped at €600 per week. A bonus week of wages is added to this payment. In general if an employee is made redundant within one year of a reduction in their hours, their redundancy payment will be based on their earnings for full time hours. As of the 1st of January 2013 employers are no longer entitled to a rebate when they make a position redundant. The statutory lump sum is always tax free.

The employer may wish to make an extra payment on top of the statutory payment. This is referred to as an Ex Gratia payment. The Basic Exemption is a payment of €10,160 with an additional €765 for each year of service tax free. Alternatively the employer may be able to pay an Increased Exemption or a Standard Capital Superannuation Benefit.

Unfortunately we have seen many employers facing imminent redundancies in their workforce in Ireland in the recent past. Some of these employers have been unable to pay employees their redundancy entitlements due to insufficient funds. In this case, if the employer is considered insolvent, employees may be entitled to a payment from the Social Insurance Fund. If the employer has not gone into liquidation but cannot or will not pay redundancy this will not be an option. When this occurs employees should make a complaint to the Rights Commissioner, the Employment Appeals Tribunal or to the Labour Court.

It is worthwhile for companies to have a Redundancy Policy in place outlining the legislation, the statutory consultation obligations, the factors that the company will consider as well as the steps that they will take and the redundancy programme. A well designed redundancy programme can include assistance for employees to update their CV, refresh their interview skills and provide advice on job hunting. This can ease the tension in the workplace when the redundancies are announced and provide employees facing redundancy with invaluable job seeking skills.

Employers must remember that redundancies can prove to be a very expensive option if not handled correctly. We would urge companies to take advice on the matter to ensure that a genuine redundancy situation exists and that the process is implemented correctly and in line with the legislation. A good handling of the redundancy process is vital not only from a legal point of view but for an employer’s reputation, customers, existing workforce and the public at large.