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Redundancy and Severance Agreements
Unfortunately, due to a multitude of issues including rising cost of living, energy uncertainty and a reduction in available investment capital , many employees are being faced with the prospect of redundancy as their employers reduce the company headcount or as businesses cease trading entirely. However, regardless of the economic climate, employers are required to ensure that redundancy is both fair and valid. The purpose of this article is to provide guidance on what is required in order for a redundancy to be fair and valid and to provide insight into the effect of entering into a Severance Agreement in a redundancy situation.
Reasons For Redundancy
In order for a redundancy to be valid, the dismissal must arise for one of the following reasons:-
- Where an employer has/intends to cease carrying on its business, or at that location i.e. where the business moves to another location.
- Where the requirements for an employee to carry out work of a particular kind in the place where he/she was employed has/is expected to cease or diminish i.e. there is no longer a requirement for that role to be carried out.
- Where the employer has decided to carry on the business with fewer or no employees i.e. a reorganisation with fewer staff.
- Where an employer has decided that the work for which the employee has been employed should from now on be done in a different manner for which the employee is not sufficiently qualified or trained i.e. a reorganisation where the employee is not sufficiently trained and training would not be a viable option.
- Where it is decided that the role for which the employee has been employed should from now on be carried out by a person who is also capable of doing other duties for which the employee is not sufficiently qualified or trained, i.e. job enlargement where training would not be a viable option.
The Protection of Employment Act 1977 was revised in October 2020 and governs the mandatory process that must be adhered to by employers who are proposing collective redundancies. Collective redundancies are where a specific number or percentage of employees, as set out in the legislation, are laid off for reasons which do not relate to a specific individual. Collective redundancies are not just limited to large companies and can include companies with as few as 20 employees.
Under the Protection of Employments Act, the employer must engage in a consultation process with employees with a view to reaching agreements and to consider alternatives such as avoiding redundancies or reducing the number of employees impacted. Where proceeding with making employees redundant, the company is obliged to provide information to those affected/their representatives (e.g. a trade union) including, i) the reason for proposed redundancies, ii) the number, description of categories of employees to be made redundant and iii) the selection criteria by which their decisions were made. Employees are also entitled to detail as to the calculation of ex gratia redundancy payments and the period of time over which it is proposed to make employees redundant.
In addition, employers are obliged to notify the Minister for Enterprise, Trade and Employment at least 30 days before the first redundancy takes effect. No redundancies can take place for this 30-day period from notification to the Minister. This notification must also include details of the consultation with the employees or their representatives.
The Selection Process
An important factor in the redundancy process is the selection criteria. While there is no set selection method outlined in legislation, the two main methods adopted are:
- Last in first out (LIFO).
- Selection process – for example, an interview or selection matrix where employees are scored against a list of pre-agreed criteria, levels of key skills held by employees as well as other work-related matters such as length of service, disciplinary record, punctuality and absenteeism where relevant.
The Consultation Process For Non-Collective Redundancies
In circumstances where your redundancy is not collective, there remains an alternative process which should be carried out over at least a two-week period (Employees who are impacted must be informed that they are ‘at risk’ of being made redundant.
Employees must be informed of:-
- The proposed redundancy;
- The procedures which will be followed;
- The selection criteria that will be used;
- Possible alternative positions within the company.
Employees should be issued with an ‘at risk letter’ following the initial meeting. Employers should also continue to consult with employees throughout the consultation process. Where no alternative to redundancy can be found, a final meeting should be held with employees to inform them whether or not they are being made redundant and what redundancy payment they will be paid, if they are entitled to one. Employers are then required to issue the relevant employees with their formal Notice of Redundancy.
Statutory Entitlements On Redundancy
The statutory redundancy payment is a lump-sum payment based on the pay of the employee. All qualifying employees with 2 years-service or more are entitled to:
- Two weeks’ pay for every year of service over the age of 16; and
- One further week’s pay.
The amount of statutory redundancy is subject to a maximum earnings limit of €600 per week. It is also common place for employers to offer ex-gratia payments on top of the statutory payment, however, there is no obligation on an employer to do so. Open Statutory redundancy entitlements calculator.
It is not uncommon for employers to request employees to execute a Severance Agreement in exchange for an ex gratia payment. Generally speaking, a Severance Agreement will prescribe the entire terms of the termination of the employment. A Severance Agreement can be a very useful tool for an employee. It can have the effect of securing a contractual commitment from an employee that he/she will not bring any form of claim against the employer in the future in exchange for a payment (the ex gratia payment). From the employee’s point of view, it is crucially important that independent legal advice on the effect and implication of the Severance Agreement is obtained. The agreement will contain a full waiver in favour of the employer preventing the employee from taking any case whatsoever against the employer.
Here at Amorys we regularly provide both employers and employees with advice in relation to redundancy and Severance Agreements. If you need any information in relation to redundancies or have been provided with a Severance Agreement, Amorys can assist you.
For further information and advice in relation to “Redundancy and the Impact of Severance Agreements”, please contact Brian Kirwan, Partner, Amorys Solicitors firstname.lastname@example.org, telephone 01 213 5940 or your usual contact at Amorys.