How to manage redundancies correctly
When a company decides on a collective redundancy programme, one of the most significant issues they need to consider is what redundancy policy to use.
There have traditionally been three policies available to employers:
1. FIFO or first in first out
2. LIFO or last in first out
3. Selection matrix
FIFO is now considered an outdated practice, as it neglects the value that more experienced people contribute.
So the recent choice for companies has typically been between LIFO and the use of a selection matrix.
By far the simplest approach is LIFO – where the roles to be made redundant are simply those most recently filled.
The management of this type of programme is uncomplicated and rarely exposes companies to legal risks.
If a company’s stated policy is LIFO then an employee is unable to use high performance as a stick with which to beat the company. This is because with LIFO it is purely about the numbers. The company would be at fault if they were using LIFO but retained some targeted employees.
The downside of using LIFO is that the company runs the risk of losing more productive employees than it retains.
If a company wants to ensure that it retains the best employees then the only viable choice of redundancy programme is to the selection matrix. However, the use of such a policy brings with it the risk of dealing with cases of unfair dismissal.
Companies need to tread carefully– case law is continuously developing in response to cases brought against employers for unfair redundancies.
An example of this is “bumping”. This is where an employee’s role is made redundant but they are moved into another employee’s role – resulting in that other person being made redundant.
Bumping seemed to be extinct as a practice in Ireland but in a recent decision determination (UD2409/2009 – RP2753/2009) the Employment Appeals Tribunal (EAT) found fault with an employer and ruled that “in failing to consult the claimant and explore the possibility of reverting him to his former position the respondent had not acted reasonably”. The claimant was awarded €40,000 (fines and awards can be up to 2 years salary).
The EAT in that determination made reference to a 1980 ruling by the English Court of Appeal. This case gives a hint as to the complexity of what Irish employers may need to contend with.
With collective redundancies companies are obliged under Irish law (1977 Protection of Employment Act) to “initiate consultations with employees’ representatives representing the employees affected by the proposed redundancies”.
The same act defines a collective redundancy to apply when the number of employees to be dismissed reaches certain thresholds:
1. 5+employees in an establishment employing 21-49 employees.
2. 10+ employees in an establishment normally employing 50-99 employees.
3. 10%+ of employees in an establishment normally employing 100-299 employees, and
4. 30+ employees in an establishment normally employing 300 or more employees
It is important to point out that employees are not made redundant. Rather, it is roles that are made redundant.
The National Employment Rights Authority has produced a helpful paper providing background on the definition of collective redundancies and that also provides clear guidance to employers on their obligations.
We hope this article has been useful to you and appreciate your feedback. If you’d like any more information, please emailmcullen@insighthr.ie or call us on 056 7701060.