Today's EAT review concerns Aisling O’Neill v O’Brien Textiles Limited (In liquidation) (UD 1793/2009) and discusses the all too frequent combination of compensation where an insolvency situation exists.

Case Name: Aisling O’Neill v O’Brien Textiles Limited (In liquidation) (UD 1793/2009)
Legislation: Unfair Dismissals Acts, 1997 TO 2007 (the “Acts”)
Jurisdictions/Subject Matter: Insolvency and compensation


Facts

The Claimant was owed a substantial amount of commission by the Respondent company. The commission was not paid to her and this led to claimant’s resignation.

The liquidator of the Respondent company was notified of the hearing but did not attend and the case proceeded in his absence. In the form T2, the Respondent agreed that the commission was unpaid.


Determination

The Tribunal held that the Respondent was in breach of a fundamental term of employment – namely to pay the employee. It was stated that failure to pay an employee “entitles” them to treat the employment contract as repudiated and is a classic ground for constructive dismissal.

It was held that the Claimant was constructively dismissed and the dismissal was deemed unfair under the Acts.

In assessing the Claimant’s loss, the Tribunal had regard to the fact that the Claimant’s employment would have ended in March 2010 when the company went into liquidation. Thus the Claimant’s loss was limited to an 8 month period and she was awarded €36,000 under the Acts.


Legal Review

The above case demonstrates a set of circumstances which are unfortunately common in today’s economic climate.

When a company becomes insolvent and a liquidator or receiver is appointed then, subject to the date the debt accrues, any money due and owing to employees is protected and administered under the Insolvency Payments Scheme. Under this Scheme, employees may claim (through the liquidator/receiver) arrears of pay, holiday pay, pay in lieu of statutory notice and various other entitlements that might be owed by an employer to an employee including awards made under employment legislation and certain unpaid pension scheme and PRSA contributions.

When an employee makes a claim against the employer under the Scheme, the debt is transferred to the Minister for Enterprise, Trade and Innovation and any payments made are drawn from the Social Insurance Fund. Any part of a claim that is recovered in the final winding up of the business is paid back into the Social Insurance Fund.

The date of insolvency for the employer is crucial and for the purposes of the Scheme, is set out in Sections 1(3) and 4(1) of the Protection of Employees (Employers’ Insolvency) Act 1984. An employer qualifies as insolvent under the Scheme if:

* the employer’s business is in liquidation or receivership; the date of insolvency is the date of appointment of the liquidator/receiver, or the date on which possession is taken of the property, or in some instances, the date of the passing of the resolution to wind up the company.
* the employer is legally bankrupt; the date of insolvency is the date of the adjudication or on which the petition was filed or the deed executed.
* the employer had died and the estate is being administered under Part 1 of the First Schedule of the Succession Act 1965; the date of insolvency is the date of the death of the employer.
* the employer is insolvent under the legislation of another EU Member State where the relevant employee(s) are habitually employed in insurable employment in Ireland (this applies only to insolvencies occurring on or after 8 October 2005.); the date of insolvency is the date on which the insolvency was established under the legislation of the Member State concerned.

As a word of caution, the Scheme does not apply to employers who are not legally deemed to be insolvent. For example, if a business just shuts down but is not actually insolvent as defined above, the employer remains responsible for the payment of monies owed to employees.

There are some limitations and conditions applicable to payments made under the Scheme. Entitlements related to pay are limited to a maximum weekly rate which is currently €600 per week. There is also a maximum limit of 8 weeks’ pay for arrears of pay, sick pay and holiday pay. Generally, the Scheme applies to entitlements covering a period of 18 months prior to the date of insolvency or the termination of employment. Where an award is made to an employee under the employment legislation, the 18 month period applies from the date of the award. Therefore, if a company refuses to pay an award and the company becomes insolvent within 18 months of the date of the award, the Scheme will pay the award. The Scheme will pay any awards made after the date of insolvency. Payments under the Scheme are generally taxable, with tax and PRSI deductions ordinarily made by the liquidator/receiver.

Employers should be aware that where an employee has submitted a claim for payment of pay, sick pay, holiday pay or outstanding occupational pension scheme or PRSA contributions under the Scheme and such a claim has been refused, there is a right of appeal to the Employment Appeals Tribunal. An appeal may also be made to the EAT where the employee considers that the payment made is less than the amount claimed. The time limit to make an appeal is within 6 weeks of the decision being communicated but this may be extended by the Tribunal in certain circumstances.

Employers should be aware that, although payments under the Scheme are made from the Social Insurance Fund, which also funds the Redundancy Payments Scheme, both schemes are independent of each other and any claims made by an employee under the Insolvency Payments Scheme will not affect their statutory redundancy entitlements.