Thematic feature - redundancies and redundancy costs

This article examines the procedures and costs involved in collective redundancies in Ireland, as well as current trends and debate in this area, as at November 2003.

In November 2003, the EIRO national centres in each EU Member State (plus Norway), were asked, in response to a questionnaire, to give a brief overview of: the procedures and costs involved in collective redundancies - ie the dismissal of a number of employees for economic/organisational reasons (rather than reasons related to the individuals concerned); the levels of, and reasons for, redundancies over recent years; and current debate on the issue. The Irish responses are set out below (along with the questions asked).

Redundancy procedures

Please outline briefly the statutory procedures involved in making 'collective redundancies' (please indicate how these are defined) in your country, in terms of: information and consultation of employee representatives/trade unions; notification of (or obtaining permission from) public authorities; notice periods to be given to the redundant employees; rules on the order of priority for redundancy or giving special protection to particular groups of employees; and obligations to mitigate the planned redundancies or provide assistance in the form of redeployment, training, outplacement etc (including provisions on 'social plans'). Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional procedures (with examples).

Employers are obliged to consult any trade unions or worker representatives about collective redundancies and they must notify them in writing. Employers must also notify the Department of Enterprise, Trade and Employment.

Collective redundancies in Ireland come under the umbrella of the Protection of Employment Act 1977, which has been amended by: the Protection of Employment Order 1996 (SI 370); the Protection of Employment Act 1977 (Notification of Proposed Collective Redundancies) Regulations 1977 ( SI 140); and the European Communities (Protection of Employment) Regulations 2000 (SI 488) (IE0102230N).

The Act imposes obligations on employers which are proposing to create collective redundancies to: enter into consultations with the employees' representatives at least 30 days before the proposed collective redundancies; notify the Minister for Enterprise, Trade and Employment at least 30 days before the redundancies commence; and delay the redundancies until 30 days after the Minister has been notified.

In Ireland, a collective redundancy means dismissals effected by an employer for reasons unconnected with the individual employee concerned, where in any period of 30 consecutive days the number of dismissals is: at least five in an establishment normally employing between 20 and 49 employees; at least 10 in an establishment normally employing between 50 and 99 employees; at least 10% of the number of employees in an establishment normally employing between 100 and 299 employees; and at least 30 in an establishment normally employing 300 or more employees.

For the purpose of calculating the number of redundancies where the number of dismissals is at least 10 in an establishment normally employing between 20 and 99 employees, terminations of contracts of employment which affect individual workers must be assimilated to redundancies provided there are at least five redundancies.

Existing consultation procedures on collective redundancies and transfer of undertakings require consultation with worker representatives only after a decision has already been made. This looks set to change when Ireland implements the recent EU Directive (2002/14/EC) on information and consultation (IE0309204F), which states that information and consultation rights must apply in the following situations: information on the recent and probable development of the undertaking or the establishment’s activities and economic situation; information and consultation on the situation, structure and probable development of employment, in particular any threats to employment; consultation with a view to reaching an agreement on decisions likely to lead to substantial changes in work organisation or in contractual relations.

The Protection of Employment Act currently provides that employers that propose to make collective redundancies must, with a view to reaching an agreement, consult the employees’ representatives at the earliest opportunity and at least 30 days before the first dismissal takes effect. These consultations must cover: the possibility of avoiding the proposed redundancies; reducing the numbers affected by them or mitigating their consequences by recourse to accompanying social measures aimed at redeploying or retraining employees made redundant; and the basis for deciding which particular employees will be made redundant. The legislation originally provided for this consultation to occur in through the channel of trade unions. However, new regulations introduced in 2001 added a procedure through which employees in non-union firms can be formally consulted. The regulations state that in the absence of a union or staff association, 'a person or persons chosen (under an arrangement put in place by the employer) by such employees from among their number to represent them in negotiations with the employer' may act as employees' representatives

The employer must give the employees’ representatives all relevant information in writing, including the: reasons for the proposed redundancies; numbers, descriptions or categories of employees whom it is proposed to make redundant; number of employees and descriptions of categories normally employed; period during which it is proposed to effect the proposed redundancies; criteria proposed for the selection of the workers to be made redundant; and method for calculating any redundancy payments other than those set out in the Redundancy Payments Acts, 1967-2001. These notification and consultation procedures apply irrespective of the structure of management or control of the employment concerned.

Further, when notifying the Minister for Enterprise, Trade and Employment the employer must include the following particulars: the name and address of the employer, indicating whether it is a sole trader, partnership or company; the address of the establishment where the collective redundancies are proposed; the total number of persons normally employed at the establishment; the number and description or categories of employees whom it is proposed to make redundant; the period during which the collective redundancies are proposed to be effected; the reasons for the proposed redundancies; the names and addresses of the employees’ representatives consulted about the proposed redundancies; the date on which those consultations commenced; and the progress achieved up to the date of notification.

The notification and consultation procedures also apply to collective redundancies brought about by bankruptcy, liquidation or court order. In such cases, the person responsible need only notify the Minister where the Minister so requests, and the requirement that the collective redundancies not take effect for 30 days after the notification does not apply.

An employee, trade union, staff association or excepted body may present a complaint in writing to a Rights Commissioner that the employer has failed to inform and consult them. The Rights Commissioner will send a copy of the complaint to the employer and, if necessary, arrange a hearing between the parties in private. The Rights Commissioner will issue a written decision that will do one of the following: declare that the complaint was or was not well-founded; require the employer to comply with the Act’s provisions and for that purpose take a specific course of action; or order the employer to pay the employee compensation of a maximum of four weeks' remuneration. Either party may appeal against a Rights Commissioner decision within six weeks to the Employment Appeals Tribunal (EAT). The EAT, if necessary, will hear the parties and issue a written determination that may uphold, overturn or vary the Rights Commissioner decision.

An offence is committed under the Act where an employer fails to: consult the employees' representatives 30 days before the first redundancy or to supply them with the necessary information; give the Minister 30 days' prior notice in writing of the proposed collective redundancies; delay the collective redundancies for 30 days following notification; permit an authorised officer to carry out their inspections; or keep the necessary records. Offences, on conviction by the courts, carry a maximum fine of EUR 1,904.61, except in the case of the failure to delay the redundancies, which carries a maximum fine of EUR 3,809.21.

Redundancy payments

Please outline the statutory rules on compensation for employees affected by collective redundancies, in the form of minimum notice periods, redundancy pay, severance pay etc - ie what is the level of payment, how does it vary with age, service etc. Where collective agreements add to or improve on these statutory provisions, please provide a brief overview of such additional payments (with examples). Overall, please provide any figures or estimates which may be available on the 'average' or 'typical' level of redundancy pay per employee. Where company practice and/or collective agreements provide for accompanying measures (ie set up an recruitment agency, retraining schemes with employer’s contribution, etc) please give an overview of such schemes.

Employers must make at least the statutory minimum redundancy payment to qualifying workers. New legislation on statutory redundancy payments - the Redundancy Payments Act 2003- came into force on 25 May 2003, increasing the statutory severance terms, as well as a number of other important changes. The new rules were based on provisions in Ireland's current national tripartite agreement (IE0304201N).

By far the most important change made by the new Act to the statutory redundancy scheme is an increase in the statutory severance terms to two weeks' pay per year of service. Under the old scheme, the worker’s years of service below the age of 41 counted for 0.5 weeks' pay per year, with years over the age of 41 counted for one week's pay per year. This age restriction has been removed in the new terms, which are two weeks' pay per year of service, regardless of age. The 'bonus' week of pay on top of these terms, which had been part of the old scheme, has been retained in the new provisions. The new terms, therefore, are: two weeks’ pay per year of service, plus one week’s pay (the 'bonus' week).

As with the old terms, a week’s pay is defined as the employee’s normal weekly remuneration, or the gross wages paid (including average regular overtime and benefits in kind), up to a weekly ceiling. The qualification criteria for statutory redundancy pay remains unchanged - the payments apply to those with a contract of employment or apprenticeship, aged between 16 and 66, continuously employed for 104 weeks (ie two years), and dismissed within the statutory definition for redundancy.

The weekly ceiling on the amount of weekly pay to be used for calculating the statutory redundancy payment remains unchanged, at EUR 507.90 per week (this was last updated in April 2001). The whole statutory element of a severance package remains tax-free, in spite of the increase in the size of this statutory element under the new Act. As was the case before the Act came into force, only amounts paid 'ex-gratia', over and above the statutory element, are included for tax purposes and these are still liable to tax above the existing cap of EUR 10,160.

Another change relates to the 'rounding' up or down of payments, if (as in most cases) service is not an exact number of years. Under the old system, 'excess' service over a whole-year amount was counted as zero if less than 182 days (26 weeks), and as an extra full year if the 'excess' service was over 182 days. Due to the clear inequities in this system for those on either side of the 182-day mark, the excess days over a whole year will now be calculated as an exact proportion of a year and credited to the employee. However, this will not come into full operation until the information technology system in the Department of Enterprise, Trade and Employment is updated, which may not be until late 2004. In the meantime, the old rounding system continues.

When the new system does come into effect, a worker with three years and 180 days’ service will get almost 3.5 years' credit for the purposes of calculating redundancy pay entitlement, rather than just three years as under the old system. However, a worker with three years and 183 days’ service will receive just over 3.5 years' credit, rather than four years as under the old system.

A key provision is contained in Section 15 of the Act, which may be of major benefit to employees in insolvent firms who do not receive statutory notice of redundancy. Up to now it has been necessary for these workers to go to the EAT to determine the minimum notice entitlement. About 4,000 workers apply to the EAT each year for this purpose and might have to wait as long as six months in many cases before receiving their entitlements. However, the new legislation allows these employees to submit claims directly through the liquidator or receiver without having to go to the EAT. The aim of this is to divert such cases from the EAT and ensure a better service. Where there is a dispute as to what the level of entitlements is, employees will still be able to apply to the EAT if necessary.

If a worker finds another job during a notice period, the EAT has tended to reduce the total notice entitlement by the number of weeks of the notice period spent in the new job. It is understood that the new legislation will allow for the full notice entitlement to be paid if claims are submitted directly without reference to the EAT. However, this change applies only to employees of insolvent firms.

Workers on 'fixed-purpose' contracts are also to see some improvement in the new legislation. Up to now, workers on such contracts could qualify for statutory redundancy pay along with employees on open-ended contracts, but only if they had two years' continuous service. If they had been employed for over two years, but there had been a break in service in between contracts, with the result that they had less than two years’ continuous service, then there was no entitlement. Section 6 of the new Act changes this situation, so that when a fixed-purpose contract ceases, there is a redundancy situation.

For workers on open-ended contracts, certain breaks in service which had to be subtracted from statutory redundancy pay entitlement in the past can now be included, under Section 12 of the Act. These breaks, known as 'non-reckonable service' (NRS) include periods such as strikes, lay-offs, long sick leave or absence without employer consent. Calculating such periods for workers with long service was a major administrative headache and it was estimated that abolishing NRS altogether would cost just EUR 0.5 million in extra redundancy payments. Rather than abolish it altogether, it was decided to abolish it for all but the most recent three years of service. This change, like the ending of the rounding provisions, only comes into effect in late 2004, when the Department’s computer system is updated.

The above refers to statutory rights only. In trade union-organised workplaces, under collective agreements, ex-gratia payments well above the statutory minima are frequently paid in redundancy situations. For example, substantial redundancy terms, amounting to about eight week's pay per year of service - plus further 'loyalty' bonuses of up to EUR 6,000 - were agreed in May 2003 for up to 180 workers made redundant by the closure of the HB ice cream plant in Dublin. The deal was negotiated between management and Ireland's largest union, the Services Industrial Professional and Industrial Union (SIPTU). The various components of the severance package for the HB plant closure are as follows:

• statutory redundancy payments based on the 'old' entitlement of one or a half-week’s pay per year of service (changed in May 2003 - see above);

• six weeks' pay per year of service, ex gratia;

• a further EUR 508 per year of service, with every seasonal or part-time year counting as a year of service; and

• a further one week’s pay for each year of full service, but subject to a cap of EUR 508 per week (this is the same cap that applies to statutory redundancy entitlements).

When the two separate payments of EUR 508 per year of service are added to the old statutory entitlement of a full week's pay for each year over the age of 41 and a half week for each year below that, it is likely that they will come close to two weeks’ 'uncapped' earnings per year of service - although it may fall a little short of that for some workers who had been earning up to EUR 700 per week. When this is added to the six weeks' pay per year of service in the main ex-gratia component of the package, the total amounts to about eight weeks’ pay per year of service - one of the more substantial redundancy packages agreed in recent years.

Another recent example is a severance deal negotiated by Irish Petroleum and the Manufacturing Science and Finance (MSF) union. This amounts to eight weeks' pay per year of service, including statutory payments, subject to a limit of 2.5 years' pay, plus a special payment of four months' pay (including pay in lieu of statutory notice).

Redundancy levels

Where this is possible, please give statistics on the number of collective redundancies effected in your country each year from 1990 to 2003 (or the latest year for which data are available). If available, please break down by sector, and the jobs, age and gender of the workers affected. Also, please provide any information on the grounds for collective redundancies - eg company restructuring, closure or transfer/relocation. In response to this question, please give an assessment of trends and developments, even where full statistical information is not available.

According to figures from the Department of Enterprise, Trade and Employment, the number of notified redundancies in 2002, at over 25,000, reached a 14-year high, signalling an end to the boom years of the so-called 'celtic tiger' economy. The Department states that there were 25,358 notified redundancies in 2002, the highest figure since 1988, when 23,037 were made redundant. The level of notified redundancies in 2002 was 28% higher than in 2001, and almost double the level recorded in 2000.

More recently, redundancy figures notified to the Department for August 2003 indicate that traditional manufacturing continues to bare the brunt of job losses. Of the 2,138 notified redundancies in August, 821 were in metal manufacturing and engineering and other manufacturing. Other sectors that were badly hit were: distributive trades, with 358 redundancies; banking, finance and insurance, with 308; and information technology and other services, with 278. The August 2003 figures represented a 40% increase on the same month in 2002, when there were 1,520 notified redundancies. On a brighter note, it was the lowest figure since May. In terms of gender breakdown, of the 2,138 redundancies, 1,236 affected male workers and 902 affected female workers. In addition, of the 17,590 redundancies notified to the Department so far in 2003, 7,273 affected manufacturing, followed by 2,552 in banking, finance and insurance, and 2,476 in distributive trades. This nearly corresponds with the same eight-month period in 2002. The redundancy figures notified to the Department relate to proposed redundancies, and not to actual redundancies.

Debate

Please summarise any current debate on the issue of collective redundancies in your country. For example, is this an important topic for trade unions and employers’ organisations and in collective bargaining? Has there been any recent new legislation or proposed legislation on the subject, or the prospect of new legislation - eg to implement EU legislation such as Directive 2002/14/EC on national information and consultation rules (EU0204207F), which requires 'information and consultation on the situation, structure and probable development of employment within the undertaking or establishment and on any anticipatory measures envisaged, in particular where there is a threat to employment'? Has there been any debate on the cost met by the government as a consequence of collective redundancies (ie what is the cost associated with unemployment benefits, training schemes funded by the government etc).

The collective redundancy issue has provoked considerable debate in Ireland in recent times. Influenced by major campaigns and protests by trade unions, the government agreed a major concession in an area that the employer side could also accept was ripe for improvement. The two weeks' redundancy pay per year of service negotiated under the current national agreement, current national agreement, Sustaining Progress (IE0304201N and IE0301209F) - and introduced in the Redundancy Payments Act in spring 2003 - along with the ending of differentiation between service before and after the age of 41, represents a major improvement in the minimum severance terms available to workers made redundant.

At the moment, the social partners are debating the transposition of the EU information and consultation Directive (IE0309204F), which will have major implications for consultation on proposed redundancies or threats to employment. In August 2003, the Irish government published a consultation paper on the national implementation of the Directive, which is likely to have a major impact in Ireland, as the country has no general, permanent and statutory system for employee information and consultation. In the consultation paper, the government seeks views from interested parties on a number of key issues related to transposition. (Tony Dobbins, IRN)