COVID-19 - Potential measures to reduce workforce costs

The COVID-19 pandemic is giving rise to enormous HR challenges for most employers. Many employers are taking steps to reduce operating costs in order to ensure future viability. We have outlined below a number of potential measures to reduce workforce costs, and the legal issues arising.

1.   Lay-off and short-time

An employer may place an employee on lay-off where the employer is unable to provide the work for which the employee was employed to do, and the employer has a reasonable belief that the lay-off will be temporary. The employer must give notice to the employee of the lay-off and that it is expected to be temporary. There is no prescribed notice period but the employer should act reasonably in this regard. While verbal notice is sufficient, it is preferable for the employer to give written notice so that there is clear evidence of the notice of lay-off.

Short-time is where the employee’s hours of work or remuneration is reduced - this is caused by a decrease in the work that is available for the employee to do, and it is reasonable for the employer to believe that this reduction in work will not be permanent. Notice must be given to the employee prior to the reduction in employee’s remuneration, or the employee’s hours of work, and the fact that it is expected to be temporary. Again, there is no prescribed notice period but the employer should act reasonably in this regard. While verbal notice is sufficient, it is preferable for the employer to give written notice so that there is clear evidence of the notice of short-time working. 

1.1    Entitlement to salary during lay-off/short-time working

Where the employee’s contract expressly provides for unpaid lay-off, there is no obligation to pay the employee during lay-off. The employee’s contract may also allow for the employee to be placed on short-time and only to be paid in respect of hours worked. A contractual right to place an employee on unpaid lay-off or on short-time with reduced pay may also arise if there is an implied right due to an established custom and practice in the relevant industry.  If there is no such express or implied contractual right, the employer may face claims for a breach of contract, or under the Payment of Wages Act 1991 for unpaid wages. Given that we are in uncharted territory, it remains to be seen how employment decision makers will deal with such claims. It is possible that some decision makers could take the view that no award of compensation would be just and equitable in all of the circumstances, if the employer acted reasonably in respect of the lay-off or short-time, however this would depend upon the facts of each individual case. 

1.2 Selection for lay-off/short-time 

If an employer is not placing all staff in similar employment on lay-off or short-time, the issue of selection will arise. The employer should adopt selection criteria which are objective and fair in order to avoid claims of discrimination. 

1.3 Entitlement to claim redundancy during lay-off/short-time 

In normal times:

• if an employee has been laid-off;
• or if the employee has been placed on short-time and the employee has received less than half of his or her normal hours of work or half of his or her normal salary; and
• the duration of the lay-off or short-time is at least four consecutive weeks, or six weeks in total in a period of thirteen weeks. 

The employee may give the employer written notice of the employee’s intention to claim a redundancy payment on the expiry of either such period.

An employee can make such a claim even if the period of lay-off or short-time has concluded, provided that the employee was laid-off or kept on short-time for the requisite period of time and the employee serves notice on the employer not later than four weeks after the cessation of the lay-off or short-time.  

If, on the date the notice is received by the employer:

• the employer reasonably expects to be able to provide the employee with the employee’s normal weekly working hours for a period  of 13 weeks or more; and 
• the employer gives notice of this expectation to the employee within seven days of receiving the employee’s notice of claim,

the employer may decline to make the redundancy payment claimed by the employee. 

However, this provision has been suspended for the duration of the COVID-19 emergency in respect of an employee who has been laid off or kept on short-time due to the effects of measures required to be taken by his or her employer in order to comply with, or as a consequence of, government policy to prevent, limit, minimise or slow the spread of infection or COVID-19. The emergency period will continue until 31 May 2020, although this is subject to change.

2. Annual leave

The Organisation of Working Time Act 1997 allows an employer determine when an employee must take statutory annual leave (generally four working weeks per year). However, there are a number of conditions that must be fulfilled before an employer can direct an employee to take annual leave. The employer must have regard to:

• work requirements;
• the need for the employee to reconcile work and any family responsibilities; and
• the opportunities for rest and recreation available to the employee.

The employer must also consult with the employee at least one month before the day on which the annual leave is due to commence. The employee can, however, agree to take their annual leave at the request of the employer even if the one-month consultation period has not occurred.

An employer may have more flexibility in respect of additional contractual annual leave (i.e. leave in excess of the statutory annual leave that may be provided for by the employee’s contract of employment). The circumstances in which such leave can be taken (or in which the employer can direct the employee to take such leave) will be governed by the terms of the contract of employment.

3. Unpaid leave

An employer cannot lawfully compel an employee to take unpaid leave. Such action would expose the employer to a claim for breach of contract or for payment of wages, as outlined above. An employee can, however, agree to take unpaid leave, for example, parental leave to care for a qualifying child. 

4. Pay cuts

A reduction in pay will generally involve a change to the employee’s terms and conditions of employment. Changes to terms and conditions should be introduced with the consent of the employee. If the employee does not consent, then the employer may face claims for breach of contract, or under the Payment of Wages Act 1991 for unpaid wages. It remains to be seen how employment decision makers will deal with such claims. As noted above, some decision makers could take the view that no award of compensation would be just and equitable in all of the circumstances, if the employer acted reasonably in respect of the pay cut, however this would depend upon the facts of each individual case.

5. Redundancy

The various circumstances in which a redundancy may arise are prescribed in legislation (reduction in numbers of employees, reorganisation of work etc). Redundancy must be impersonal, i.e. it is the role that is being made redundant and not the individual. 

5.1 Selection and alternatives

If the circumstances giving rise to the redundancy apply to a number of employees in similar employment, the issue of selection will arise. Selection criteria must be objective - fair and non-discriminatory. If there is an agreed selection procedure within the employer, the employer can only depart from this procedure if there are special reasons for doing so. An employer should engage with the employee before making the decision to make the employee's role redundant. Where relevant the employer should consider alternatives to dismissal (e.g. whether there are any alternative roles, or whether short-time or lay-off may be more appropriate).  

5.2 Redundancy payments

An employee who is made redundant will be entitled to a statutory redundancy payment if the employee has 104 weeks’ consecutive employment with the employer, and if the employee has been insurable for benefits for a sufficient period as provide by social welfare legislation. A statutory payment is comprised of two weeks’ pay for each year of service, plus an additional week’s pay. A week’s pay is capped at €600 for the purposes of this calculation. Employees may also have an entitlement to an ex gratia redundancy payment. The right may be express (e.g. a provision in the employee's contract) or implied (e.g. by an established custom and practice within the employer). 

5.3 Notice

An employee who has 104 weeks’ service will be entitled to two weeks’ notice of redundancy, and may be entitled to a longer period by virtue of the employee’s length of service or any applicable provision in the employee's contract. Where there is a difference between the contractual notice entitlement and the statutory notice entitlement, the longest period of notice applies.  

5.4 Collective redundancy processes

A collective redundancy applies where, in a period of 30 days, the total number of dismissals by reason of redundancy is:

(a) at least five in an establishment normally employing more than 20 and less than 50 employees;
(b) at least 10 in an establishment normally employing at least 50 but less than 100 employees;
(c) at least 10% of the number of employees in an establishment normally employing at least 100 but less than 300 employees; or
(d) at least 30 in an establishment normally employing 300 or more employees.

If collective redundancies arise, the employer is required to comply with prescribed measures to include the provision of information to, and consultation with, employee representatives, at least 30 days before the first notice of dismissal is given. In addition, the Minister of Employment Affairs and Social Protection, Regina Doherty T.D. must be provided with prescribed information at least 30 days before the first dismissal takes effect. There are potential significant penalties for not complying with these measures. 

5.5 Exceptional collective redundancies

Employers will need to be mindful of the legislation concerning exceptional collective redundancies which was introduced against the background of concerns regarding the strategic use of redundancy and outsourcing as a means of job displacement.  Broadly speaking, exceptional collective redundancies are compulsory collective redundancies where the redundant employees are to be replaced within the State, either at the same location or elsewhere by new employees carrying out similar functions with inferior terms and conditions of employment.  New employees may either be directly employed by the employer or provide services to it through some other arrangement.  A prescribed procedure applies in the case of potential exceptional collective redundancies and there are significant penalties and significantly increased awards of compensation in the event of findings of unfair dismissal. 

6. Temporary Wage Subsidy Scheme

Employers should also consider the Irish Government’s Temporary Wage Subsidy Scheme (the “Scheme”). The Scheme provides additional financial support to eligible employers of up to 70% of net pay or €410 per week for certain categories of employees. The Scheme enables qualifying employees who remain on payroll to receive financial support directly from their employer, with the employer receiving a subsidy from the Government. See our separate bulletins on the Temporary Wage Subsidy Scheme and Update on the Temporary Wage Subsidy Scheme here.

For further information, contact Emmet Whelan, Elaine Kelly or Loughlin Deegan from the ByrneWallace Employment Law Team.  

The ByrneWallace Employment team will be hosting a webinar on Navigating the COVID-19 Crisis: Employment Law and Tax Solutions for emerging from the lockdown on Thursday, 30 April 2020. To learn more and to register for the webinar, please click here.

Please note that the content of this summary does not amount to professional advice. Legal and tax advice should be sought in respect of specific queries. The COVID-19 situation is evolving rapidly and this update is provided on the basis of information available as at 29 April 2020.

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