In March, the Economic and Social Research Institute predicted that the Irish economy could shrink by 7% in 2020, with EY Ireland stating it could shrink as much as 13% depending on the length of the Covid-19 restrictions. For a nation still not fully recovered from the financial crisis of 2008, this is devastating.
Even before the Coronavirus pandemic hit, experts were warning of a looming recession. In 2019, the head of The National Treasury Management Agency (NTMA), Conor O’Kelly, was quoted as saying that the chance of another recession hitting was “100%” whether “it’s Brexit or Italy or something we can’t even think of today that will end up hitting” (Irish Times, 2019). Perhaps this pandemic was unprecedented, however the impact it will likely have on the Irish economy was not. Many employers have already had to face short-time, lay-off and redundancy situations since mid-March, and unfortunately there may be more on the horizon. It might be helpful then to revisit some of the definitions and rules regarding the various situations.
The differences between short-time, lay-offs and redundancies
Short-time working arrangements exist where you have had to reduce either an employee’s weekly hours or pay by more than 50%. During the crisis, you might need to do this to ensure that your workplace is not over-crowded, or for other reasons relating to governmental guidelines. You might also have to do this due to a reduction in your business’s income. In a lay-off situation, your employee temporarily ceases working but remains an employee, even if he or she is not being paid. If you are considering either of these options, then the first thing to do is review contracts of employment and applicable policies to clarify whether lay-off and short-time are provided for, and whether it is made clear that lay-off periods will be unpaid. If there is no contractual provision for layoff, employers may face claims later for pay under the Payment of Wages Act. Where lay-off and short-time are not provided for within existing documentation, an employer will have to rely on the unprecedented nature of the pandemic to justify the decisions made. However, this has not been tested in practice and who knows how this will be viewed by the WRC once the threat of the pandemic subsides.
Short-time working arrangements exist where you have had to reduce either an employee’s weekly hours or pay by more than 50%. During the crisis, you might need to do this to ensure that your workplace is not over-crowded, or for other reasons relating to governmental guidelines. You might also have to do this due to a reduction in your business’s income. In a lay-off situation, your employee temporarily ceases working but remains an employee, even if he or she is not being paid. If you are considering either of these options, then the first thing to do is review contracts of employment and applicable policies to clarify whether lay-off and short-time are provided for, and whether it is made clear that lay-off periods will be unpaid. If there is no contractual provision for layoff, employers may face claims later for pay under the Payment of Wages Act. Where lay-off and short-time are not provided for within existing documentation, an employer will have to rely on the unprecedented nature of the pandemic to justify the decisions made. However, this has not been tested in practice and who knows how this will be viewed by the WRC once the threat of the pandemic subsides.
You must also give your employee notice – though admittedly there may be very little notice given when the situation occurs due to an emergency such as the coronavirus pandemic. The main thing to remember is that both lay off and short-time situations are temporary. However, usually an employee can apply for redundancy if they have been laid off or working short-time for four weeks or more, though this rule has changed for the duration of the pandemic – more below.
Redundancy then is when an employee is permanently released from their jobs for one or more reasons which are not directly related to the performance or behaviour of the individual. If an employee is dismissed due to redundancy the dismissal will not be deemed to be unfair provided that
(1) there are substantial grounds justifying the dismissal
(2) the selection process is fair, and
(3) the employer’s conduct is reasonable.
If an employer does not observe these conditions, there is a very strong likelihood that the redundancy could later be successfully challenged by the employee. It is therefore vitally important that the selection process used is fair and transparent and is applied consistently across all roles in the selection pool. The Coronavirus pandemic has made it difficult for many businesses to trade normally and therefore revenues may have been affected. There are also many job functions that simply cannot be fulfilled during the period of restrictive measures. Either of these may be a fair reason for your business to make lay-offs or redundancies, though the specific route should be strongly considered.
Changes to redundancy rules during the pandemic
There have been some changes to the redundancy rules throughout the Covid-19 emergency period, which is currently defined in legislation as between the 13th of March 2020 and the 31st of May 2020, though this may change. Whereas employees laid off or put on short time working hours could normally claim redundancy after a certain time period, those who are laid off or put on short-time work during the Covid-19 emergency are not entitled to claim redundancy.
Supports during the pandemic
Since the beginning of the restrictive measures, there has been a lot of information (and misinformation) disseminated regarding what supports are available to employers during the emergency period.
If you wish to temporarily lay staff off, then you have two options available to you. The first is that you lay them off without pay. In this instance, your employee can claim the Pandemic Unemployment Payment of €350 per week. This is significantly higher than the standard jobseekers’ claim which they would make during non-emergency times. The second option is that you continue to pay them and claim 70% of their net pay back from the government through the Covid-19 Wage Subsidy Scheme. However, be aware that this payment is capped. There is also no subsidy provided where an employee earns above €76,000 per annum, which will inevitably lead to highly skilled workers and/or senior managers losing their jobs. You must sign up for this through Revenue and you must show evidence of loss of 25% of trade, however currently there are no specific rules on how to do this.
If you put your employees on short time, they can sign up for Short Time Work Support, providing that they work only 3 days or less per week. If you need to make redundancies, then your employees can sign up for the Pandemic Unemployment Payment.
Things to be aware of if going down the redundancy route.
Although these are unprecedented times, you still need to ensure your reason for going down the redundancy route is fair and nondiscriminatory. Just because we are in a crisis does not mean that you can use Covid-19 as an excuse for bypassing standard redundancy procedures.
So how do you go about selecting employees for redundancy? Using a last-in-first-out (LIFO) approach is seen by many companies to be the easiest way to select employees for redundancy. In such cases, the employer will consider the length of service, and the employees with the least amount of time at the company will be let go. While this is a well-established practice, it might not necessarily suit your business. For instance, you may have recently hired several employees who can bring a new set of skills to the company, and you may wish to retain these employees in order to fulfil specific business goals.
The only other viable choice of redundancy programme is to use a selection matrix. However, the use of such a policy brings with it the risk of dealing with cases of unfair selection for redundancy. So, employers need to tread carefully when using it – not least because case law is developing all the time in response to cases being brought against employers for unfair redundancies. An example of this is “bumping” – where someone’s role is made redundant, but they are moved into another person’s role – resulting in that other person being made redundant.
This had been thought to be an outdated practice in Ireland but in a decision, the WRC 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”. In that case, the claimant was awarded €40,000. (Fines and awards can be up to 2 years’ salary.) And the WRC in that determination also made reference to a 1980 ruling by the English Court of Appeal. This 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:
- 5+employees in an establishment employing 21-49 employees.
- 10+ employees in an establishment normally employing 50-99 employees.
- 10%+ of employees in an establishment normally employing 100-299 employees, and
- 30+ employees in an establishment normally employing 300 or more employees
So how then should a company go about devising a selection matrix that achieves its main goal of fairly identifying the roles to be made redundant while also avoiding exposing the employer to potential claims of unfair targeting? The fundamental requirement is that any criteria used should be objective and evidence-based.
One useful guideline is that competencies should be as specific as possible. For example, “attitude” would be a weak criterion to use as it is ambiguous. Qualifications, in contrast, allow a universally clear interpretation. A company might rank a PhD ahead of a Master’s, a Master’s ahead of a Bachelor’s and a Bachelor’s ahead of a Diploma. If points were awarded to the highest qualification achieved, then a natural ranking of individuals would emerge. However, it would be too restrictive to use qualifications as the sole criterion. For example, imagine if a group of engineers all had the same Master’s level qualification. Obviously, some other criteria would be needed for the selection matrix.
If the employer has a performance appraisal system, then elements of that might be usable in devising the selection matrix. As with the above “attitude” example, care is necessary here as performance appraisal systems can include performance criteria that – while legitimate for the purpose of performance appraisal – are too nebulous for a selection matrix. “Initiative” is a good example. A manager and their team members can have a shared understanding of what initiative means in the context of performance but “initiative” as a criterion for a selection matrix is arguably too vague.
Even if an employer has defined clear and numerically based selection criteria, they might still be dangerous. For example, employers cannot use an element of performance as a criterion unless there is a pre-existing record of how the employees have performed. Sales is an example – where there might be pre-existing sales figures for different employees.
As with performance appraisal systems, employers may wish to weight different elements of the matrix differently, for example adding more weight to sales performance than to qualifications. Such weighting is allowable and may be a valuable mechanism to allow the employer to objectively identify in a nuanced way the relative contributions of different employees. But the simpler the better with any such weighting to ensure fewer headaches for the EAT in any future potential examination of the employer’s redundancy procedure.
Obviously, the criteria used in the matrix cannot include any measure that is discriminatory, for example, absences due to disability or pregnancy. But even here care is needed to avoid any claim of discrimination. It would be wise to not include any absence-based criteria unless there are no others that can be used. And, if sickness is to be used, employers need to be careful that an employee thereby affected cannot say that the “sickness” is due to some manner of disability. So, it is not sufficient for employers to avoid the standard areas such as gender, age, race, etc. as grounds for redundancy.
If a company thinks that it is in their best interest to use a selection matrix as the basis for a redundancy programme, it would be foolhardy of them to make a choice between the selection matrix and Last In First Out without getting professional advice.
As redundancies are a permanent measure, we advise any employer to strongly consider temporary lay-offs or short-time solutions first. After all, when your business can trade as normal again, it would be good to hit the ground running rather than having to hire a whole new team. If you do need to make permanent decisions about roles, then it is important to carefully plan the process and get support if needed. This is a tricky path to navigate and the last thing you need to worry about when restrictions are lifted is a potential claim against you.
If you have any questions or you are unsure which route to take, do not hesitate to get in touch.