Redundancy and the Impact of Severance Agreements

REDUNDANCY AND SEVERANCE AGREEMENTS

Unfortunately, as a result of the COVID-19 pandemic, many employees are being faced with the prospect of redundancy. 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:-

  1. Where an employer has/intends to cease carrying on its business, or at that location i.e. where the business moves to another location.
  2. 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.
  3. Where the employer has decided to carry on the business with fewer or no employees i.e. a reorganisation with fewer staff.
  4. 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.
  5. 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 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:

  1. Last in first out (LIFO).
  2. 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

The redundancy process, in general, should be carried out over at least a two-week period (when it’s not a collective redundancy). Employees who are impacted must be informed that they are ‘at risk’ of being made redundant.

Employees must be informed of:-

  1. The proposed redundancy;
  2. The procedures which will be followed;
  3. The selection criteria that will be used;
  4. 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.

SEVERANCE AGREEMENTS

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. Given the current social distancing guidance in place, Amorys are providing online consultations in order to negate the need to attend at our office.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Redundancy and the Impact of Severance Agreements”, please contact Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

The Employment (Miscellaneous Provisions) Bill 2017 – Far Reaching Implications for Employers

The Employment (Miscellaneous Provisions) Bill 2017 (“the Bill”) which is now at committee stage is expected to be enacted later this year. The Bill if enacted will have wide ranging effects for employers, in particular regarding “low hour” or “zero-hour” contracts. Below, we discuss a number of the more topical aspects of the Bill which we expect to be of concern to employers:-

  1. Terms of employment

If enacted, it will be a requirement for employers to provide employees with a written statement within five days of commencement of employment confirming the following:-

  • The full names of the employer and employee;
  • The address of the employer;
  • The duration of the contract;
  • The method of calculating remuneration;
  • The hours the employee is to be expected to work per week.

From a practical point of view and in an effort to avoid the sanctions under the Bill, it is advisable that employers should include the foregoing information in any offer letter being issued to a new employee. A contract of employment can then be issued inside the 8-week period as provided for in the Terms of Employment (Information) Act 1994.

In the Bill’s current format, where an employer is convicted for failure to comply with the foregoing, they may be liable on summary conviction to a Class A  (ie up to €5,000) fine and or a term of imprisonment not exceeding 12 months.

  1. Banded hours of work

In circumstances where the average hours an employee is working per week is greater than the contracted hours then in such circumstances, the employee on request is entitled to move to a higher band of hours. The reference period to be taken into account is proposed to be 12 months and the bands are as follows:-

Band                                                 From                                   

A                                                          3 to 6 hours

B                                                          6 to11 hours

C                                                          11 to 16 hours

D                                                         16 to 21 hours

E                                                          21 to 26 hours

F                                                          26 to 31 hours

G                                                         31 to 36 hours

H                                                         36 hours plus.

 

The above is of concern to employers and is expected to have a detrimental effect on businesses. In reality, it is widely expected that this new provision will force employers to close during quieter periods so as to avoid employees gaining rights under this provision. The concern is that if employees gain the right to move up in the bands then the employer may not be in a financial position to meet the increased wages over the longer term. The Bill is silent on the reduction of hours when the hours are not available at a later date.

  1. Employers to offer hours to part-time staff

The Employment (Miscellaneous Provisions) Bill 2017 imposes an obligation on employers to offer additional hours that may become available to existing part-time staff. The provision in its current format essentially prevents an employer from offering such additional work to full-time individuals. This measure clearly has an overly burdensome effect on how an employer can run their business. The provision is wide and fails to address issues such as skills and training and puts unreasonable expectation on employers to provide such additional hours to staff that simply may not be trained or qualified to carry out such work. Furthermore, it is likely that the provision will have a serious impact on custom and practice within organisations. For example, in situations where it is customary that overtime is regularly worked by full-time staff, it will not be within the gift of an employer to allow full-time staff to continue in this form. It will be set out in legislation that any such available hours will have to be provided to part-time workers where there are part-time workers employed.

  1. Prohibition on zero-hour contracts

The Employment (Miscellaneous Provisions) Bill 2017 imposes a strict prohibition on zero-hour contracts. If passed zero-hour contracts will only be allowed in circumstances which are genuinely casual in nature and in emergency cover situations. Again, the restriction is overly restrictive and may well result in employers not being able to fill casual or part-time roles for fear of falling foul of the proposed legislation.

  1. Conclusion

It is clear from the foregoing that if passed the Employment (Miscellaneous Provisions) Bill 2017 will have far-reaching implications for employers. Given the overly onerous provisions in the Bill, it is regrettable that there does not appear to have been prior consultation with employers. In the circumstances, you may consider it appropriate to raise the issue with your elected representatives.

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “The Employment (Miscellaneous Provisions) Bill 2017”, please contact Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

Buying or Selling a Business in Ireland

This article provides a summary as to what to expect if you are considering buying or selling a business in Ireland. The primary focus will be on the purchase/disposal, of shares/assets and the different structures and procedures you will need to consider.

Of primary importance in the acquisition/disposal of a business, is to establish which of the two most common structures is the most suitable for the deal, an asset sale agreement or a share sale agreement. The tax implications will often dictate which route is taken.

An Asset Sale Agreement is appropriate when a buyer wishes to purchase assets from a company and leave liabilities both actual and contingent, behind. This may enable a buyer to cherry-pick certain assets which are particularly suitable to the buyer’s business. An asset sale agreement may also allow the buyer some flexibility in regard to the employees of the target company. However, careful legal advice should be obtained as the Protection of Employees on Transfer of Undertakings Regulations (SI 131/2003) (the “TUPE” regulations) may apply, resulting in the buyer inheriting some or possibly all employees of the target company with all their legal and contractual rights.

A Share Sale Agreement may be the appropriate structure where the buyer wishes to acquire shares in the target company. There are many reasons why this might be the case, most importantly however, you should remember that with this structure all assets and liabilities of the target company remain in place, so a comprehensive legal and financial due diligence is essential.

Heads of Terms (“HOT’s”)

The HOT’s is a document which sets out the agreement as between a buyer and seller. It will record the essential elements of the agreement as negotiated. The HOT’s do not compel the parties to conclude the deal and they are usually expressed to be “subject to contract” and not legally binding. HOT’s are used as a record of the main terms of the agreement.

Due Diligence

The due diligence exercise is hugely important in any corporate/commercial transaction. It is usually commenced by sending a detailed pre-contract questionnaire to the seller’s solicitor, and, from a timing point of view, this will very often take place at the same time the asset/share purchase agreement is being drafted. It will cover all aspects of the asset sale/ target business. It is a method of verifying that the buyer is being sold what was agreed in the HOT’s.  Generally, the maxim “Caveat Emptor” is applicable to a transaction, i.e. “Buyer Beware”. This will be diluted by the warranties (see below) however, in a share sale transaction a full investigation into the affairs of the target company is needed. To list but a few, the buyer will need to carry out the following:-

  • A full financial review of the target company’s financial affairs;
  • A review of the corporate structure of the company;
  • A review of the insurance cover and any current claims;
  • An investigation of title to any properties included in the transaction;
  • A review of all employee contracts including a review of the position of the employees under TUPE;
  • Enquiries into areas specific to the individual target company/assets;
  • A tax review will be required to ensure that no unanticipated tax liability issues will arise.

The due diligence process should highlight any issues in the target company/relating to the assets, allowing the buyer to either walk away or protect themselves through the imposition of warranties and indemnities in the contract.

Funding The Purchase

This can take many forms including venture capital funding, private equity funding and/or bank loan transactions. This aspect of the transaction will require additional investment documentation and/or providing security to a bank.

Warranties

A buyer will need to cover off certain risks by the insertion of warranties in the contract to ensure that they have a remedy if it later transpires that certain statements or representations were made which were not in fact true and which result in financial loss to the buyer.  A buyer will be entitled to compensation if the seller is in breach of a warranty.

The Disclosure Letter

The disclosure letter provides the seller with an opportunity to disclose against the warranties provided which reduces the seller’s exposure to post completion damages. The seller may qualify warranties by referring/disclosing specific problems the company may have in relation to insurance, litigation, employees, etc. If the seller does not adequately disclose, it may face an action for breach of warranty claim under the agreement. From the buyer’s perspective, issues disclosed through the disclosure process may result in the buyer seeking a reduction in the purchase price or walking away from the deal altogether.

Completion

On completion, the buyer’s solicitors will look for the following to be handed over:-

  • Executed Share Sale Agreement or Asset Sale Agreement;
  • Executed share transfer forms (where applicable);
  • Disclosure letter;
  • Resignation letters of the directors;
  • Statutory registers and company seal;
  • Release of any mandates;
  • Delivery of assets in an asset sale transaction;
  • Any other documentation that may be required dependant on the circumstances.

A board meeting will take place to allow for the approval of the foregoing and to approve any individual requirements as the transaction may dictate.

What to expect from your solicitor

A solicitor is usually instructed after heads of terms for the sale have been agreed and reduced to writing.  A good solicitor having relevant experience will identify potential areas of dispute between the buyer and seller at an early stage in the transaction so that they can either be legislated for in warranties or indemnities or taken into account in the deal by way of a reduction in the purchase price, if necessary.  Prompt identification is key and will save you time and costs.

What Amorys Can Do?

At Amorys, we will carry out a detailed review of your requirements to ensure a suitable acquisition/disposal agreement is put in place. In collaboration with your accountants and tax advisors we aim to achieve a smooth transaction for you/your business. Our services extend to advising on merger and acquisition transactions for Small to Medium Enterprises (SME’s) including, management buy outs, carrying out due diligence and drafting the required legal documents.

If you would like further information in relation to any of the above please contact Brian Kirwan at brian@amoryssolicitors.com, or telephone: 01 213 59 40 or your usual contact at Amorys.

Please also see our article on the Tax Considerations When Buying a Business https://amoryssolicitors.com/tax-considerations-for-a-buyer-when-buying-a-business/

The content of this article is for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18.

(c) 1st August 2017

Brian Kirwan Amorys Solicitors, suite 10, The Mall, Beacon Court, Sandyford, Dublin   18, Tel: 01 213 59 40, Email: brian@amoryssolicitors.com Website: www.amoryssolicitors.com

Whilst every effort has been made to ensure the accuracy of the information contained in this article, it has been provided for information purposes only and is not intended to constitute legal advice. Amorys Solicitors is a boutique commercial and private client law firm in Sandyford, Dublin 18, Ireland.
For further information and advice in relation to “Buying or Selling a Business in Ireland”, please contact Brian Kirwan, partner, Amorys Solicitors brian@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys.

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