Law & Regulation Employment Law Issues
Employment Law Issues
If you've recently changed employees working conditions Peter
McInnes, McDowell Purcell Solicitors, asks is your business fit to
face the future?
Employment Appeals Tribunal under the Unfair
Dismissals Acts 1977-2007 (the “UD Acts”); or (iii) stay
in employment and sue in the civil courts for breach of
contract. Consequently, this method of restructuring is
inadvisable.
Faced with the recent economic turmoil, employers
have been forced to restructure their overall cost base
with many focusing on the significant cost cutting
opportunities available in relation to work force
expenditure. To this end, employers have implemented
various cost reduction measures including mandatory pay
cuts/freezes, non-payment of discretionary entitlements,
lay-off/short-time, altered pension benefits, outsourcing,
incentivised career breaks and flexible working
arrangements.
If a business is proposing to restructure in this matter,
prior consideration should be given to the legal
implications and consequences of the restructuring in
order to avoid possible claims taken by employees and to
ensure that the business is “fit to face the future”. The
legal considerations are, in general, twofold: is the
company entitled to change the employees’ terms and
conditions of employment; and, is the company obliged
to consult with the employees or unions in the course of
the restructuring?
Can an Employer Change an
Employee’s Terms and Conditions?
The legality, of otherwise, of changing an employee’s
terms and conditions will depend on the manner in
which the change is implemented.
First, changed working conditions could be introduced
unilaterally. Fundamental terms of an employment
contract, such as pay, cannot be varied without the
consent of the employee (Rigby v Ferodo 1987 IRLR). If
a fundamental term is changed without consent, the
employee(s) may: (i) in the event that the change results
in a reduction in wages, bring a claim to a Rights
Commissioner under the Payment of Wages Act 1991;
(ii) resign and claim constructive dismissal in the
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Secondly, an employer may dismiss and re-engage the
employee(s) on revised terms and conditions. While this
approach has not been tested in the Irish courts, it has
been successfully used in the UK. In Hollister v National
Farmers Union (1979) an employer dismissed
employees and re-engaged them on reduced terms and
conditions. The UK Employment Appeals Tribunal held
that the employer had acted reasonably by showing a
business need for the reorganisation and by consulting
with the employee(s). This approach would face a
number of hurdles if tested in Ireland. First, it is likely that
the dismissals would be held to be unfair under the UD
Acts, although an employer could argue under section
6(6) of the UD Acts that there were “substantial grounds
justifying the dismissal” by reason of the fact that the
business simply cannot continue to pay the employee
his/her previous contractual entitlements. If there was
ever a time when this argument would work it would be
in the current climate. Secondly, the “dismiss and reengage” strategy would need to be considered in light of
the legislation governing collective redundancies (a
collective redundancy occurs where, as a rule of thumb,
10% of the workforce are made redundant), and in
particular, the Protection of Employment (Exceptional
Collective Redundancies and Related Matters) Act 2007
(the “2007 Act”). The 2007 Act prohibits employers from
implementing collective redundancies then rehiring the
same or different persons on the same or lesser terms
and conditions of employment. Thirdly, this approach
raises the question as to whether the dismissals would
constitute genuine redundancies and receive approval for
the 60% State rebate.
While there remains a large degree of uncertainty over
the legality of “leave and return” schemes they have
been utilised in recent times as a means of restructuring.
In late 2008, an agreement between Aer Lingus and
SIPTU, brokered by the Labour Relations Commission,
involved a “leave and return” option, under which some
850 workers chose to take a lump sum payment of nine
weeks pay to leave the company before returning on
reduced pay and conditions. This deal raised concerns at
the time as to whether it would receive approval for the
60% rebate. While the State has refused to comment on
the Aer Lingus/SIPTU agreement, it is believed that
approval was forthcoming on the following basis: (i) there
Law & Regulation Employment Law Issues
was a time gap of at least four weeks between the
termination date and the return date; (ii) the jobs that the
employees returned to were “different”; and (iii) the
employees interviewed for the new positions.
Thirdly, an employer may agree the changed working
conditions with the employee(s). This is the legally soundest
method of introducing changed working conditions. Ideally,
employers should notify the employee(s) of the intention to
introduce changed working conditions and engage in
consultation with a view to reaching agreement. Agreement
should be in writing and in exchange for consideration. In
practice, attempts by employers to introduce changed
working conditions have frequently been accompanied by
significant compensatory incentives or threats of job losses.
For example, Independent Newspapers reportedly offered
employees free shares in the company as an incentive to
accept pay reductions.
Is the Employer Obliged to Consult with
Employees?
The duty to consult and inform with employers and/or
trade unions can arise in the course of restructuring in a
number of circumstances:
i
The Protection of Employment Act 1977 (the “1977
Act”) requires employers to inform and consult with
employees or their representatives with a view to
reaching agreement where collective redundancies are
proposed. The information and consultation must
commence as soon as possible and at least 30 days
before the first notice of dismissal is given. Even where
redundancies do not constitute collective redundancies
the employer should take reasonable time to meet
with these employees who are potentially affected in
order to consult with and inform them of the proposed
redundancies.
ii The EC (Protection of Employees on Transfer of
Undertakings) Regulations 2003 (the TUPE
Regulations”) provides that where a transfer of an
undertaking falls within the ambit of the TUPE
Regulations, the transferee and the transferor are
obliged to inform and consult with their respective
employee representatives affected of the date of and
reason for the transfer, the legal implications of the
transfer and a summary of any relevant economic and
social implications of the transfer and the measures
envisaged in relation to the employees with a view to
reaching agreement. The TUPE Regulations do not only
apply to mergers and acquisitions and but may also
apply to out-sourcing and “in-sourcing” arrangements.
iii The Employees (Provision of Information and
Consultation) Act 2006 (the “2006 Act”) places a
general obligation on employers to establish
arrangements for informing and consulting with
employees. The 2006 Act is limited to undertakings
with 50 or more employees. Furthermore, its
provisions do not apply automatically but must be
triggered by a request made by 10% of employees.
The obligations placed on employers are extensive and
include, inter alia, an obligation to inform with and
consult employees or their representatives on
decisions likely to lead to substantial changes in work
organisation or in contractual relations.
Apart from the above, employers are not obliged to
consult with employees and there is no mandatory
entitlement to collective bargaining or trade union
recognition. Trade unions have consistently sought the
introduction of legislation mandating collective bargaining in
successive rounds of social partnership talks. To date, such
efforts have been strongly opposed by the Government on
constitutional grounds and on the basis that the voluntary
nature of industrial relations in Ireland is a significant part of
Ireland’s attractiveness to foreign direct investment.
In 2001, the Government introduced the Industrial
Relations
(Miscellaneous
Provisions)
Act
2001
(subsequently amended in 2004) which gave unions the
power to refer cases about terms and conditions of
employment to the Labour Court to seek a binding ruling
even if the employer refuses to deal with unions. The
procedure effectively facilitated “back door trade union
recognition”. The effectiveness of this procedure was
seriously undermined in 2007 by a decision of the Supreme
Court decision in Ryanair v IMPACT with the result that it has,
in essence, become redundant causing the issue of
mandatory collective bargaining to remain a major issue on
the trade union agenda.
The topic recently resurfaced in the Lisbon Treaty (the
“Treaty”) debate when “Yes” campaigners argued that the
ratification of the Treaty would strengthen workers’
entitlement to collective bargaining. The ratification of the
Treaty gives the Charter of Fundamental Rights (the
“Charter”) the same legal value as the EU Treaties giving its
articles the status of primary law within the EU. This is of
relevance to collective bargaining as a number of European
Court of Justice judgments recognised the right to take
collective action as a fundamental right protected by the
Charter. Notwithstanding this, the ratification of the Treaty
does not alter the position with regard to mandatory
entitlement to collective bargaining or trade union
recognition and employers are not, in general, obliged to
engage with unions.
In 2008, the number of claims taken by employees in the
Employment Appeals Tribunal increased by 71%. Given that
this rate of increase is likely to be repeated, if not exceeded,
in 2009, it is vital that employers give due consideration to
the legal consequences of restructuring to ensure that they
are “fit to face the future” to protect themselves against such
claims.
Peter McInnes - Partner - McDowell
Purcell Solicitors
Peter McInnes heads up McDowell Purcell’s
employment law practice unit. He provides a full range of
legal services to a diverse range of corporate clients and
senior executives on contentious and non-contentious
employment law issues. He is a frequent conference
speaker on employment law issues and is regularly
involved in providing training to clients. Peter is a member
of the Employment and Equality Law Committee of the
Law Society of Ireland. (web: www.mcdowellpurcell.ie).
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