The current recession has unfortunately seen considerable job losses. In addition, substantial numbers of employees have been asked to take a cut in pay or a reduction in working hours or both, with this option usually presented as an alternative to compulsory redundancies.

While many such employees have decided that this may be the lesser of two evils in the circumstances, others have opposed such alterations to their terms and conditions on the basis that they may amount to a breach of contract or employer/union agreement.

This email focuses on the first opinion delivered by the Labour Court under the Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act, 2007. At the request of the Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan, TD, the Court was asked to consider the question of whether compulsory redundancies carried out by an employer that might follow the refusal of a group of employees to accept a pay cut can be considered to be an exceptional collective redundancy within the meaning of that legislation. If this were to be the case, it could potentially trigger the larger awards of compensation for unfair dismissal provided for under the legislation.


Understanding the Legislative Provisions

By way of background, the Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act, 2007 was the first of the legislative commitments made under the Social Partnership agreement, ‘Towards 2016’, to have been passed into legislation. The impetus for this legislation stemmed originally from the Irish Ferries dispute a few years ago where, effectively, the company reregistered in Cyprus, made the bulk of the existing workforce redundant and replaced them with less costly foreign labour. Despite the controversy that this caused and the fact that these did not appear to be genuine redundancies within the terms of the redundancy payments legislation, the Department of Enterprise, Trade and Employment is said to have eventually paid the 60% rebate from the Social Insurance Fund to Irish Ferries on the statutory portion of the redundancy package received by the employees who had been dismissed.

The 2007 Act was principally designed to prevent the same thing happening again, as well as amending the redundancy payments legislation generally, including the abolition of the upper age limit of 66 for receiving a redundancy lump sum. It provides for the setting up of a Redundancy Panel, composed of three members, to whom proposals for collective redundancies (as defined by the Protection of Employment Act, 1977 but generally speaking at least 10% of the workforce) can be referred at the request of the employer or the employees or their representatives.

This referral must take place within the 30 day notice period and the employer who is proposing the collective redundancy must provide to both the employee representatives and the Department of Enterprise, Trade and Employment. The Panel’s initial function is to give a preliminary view within seven days of the request as to whether it considers an exceptional collective redundancy is being proposed. In effect, an exceptional collective redundancy is a set of dismissals that are not redundancies at all, in that the dismissals are compulsory and the dismissed employees are to be replaced by employees or other service providers on materially inferior terms and conditions.

Where the Panel forms the view that an exceptional collective redundancy exists and where it is satisfied that employee representatives have unsuccessfully sought to resolve the matter through local engagement and have not taken industrial action, it must give notice to the Minister requesting the Minister to seek the Labour Court’s further opinion on the matter. The Minister also has the power on his or her initiative to seek the Labour Court’s opinion in the public interest. The Court must hold a hearing into the matter and issue its opinion to the Minister within 16 days of such a request. The employer concerned must not follow through with the proposed dismissals until the Labour Court gives its view.


Consequences for Employers

Where the Court confirms that what is proposed is indeed an exceptional collective redundancy, but the employer nonetheless proceeds with the dismissals, potential consequences follow for the employer concerned. Firstly, the State may refuse to pay the normal 60% statutory rebate to the employer in question or may decide to pay a reduced rebate.

In addition, the potential compensation that an employee might be awarded under the Unfair Dismissals Acts where the dismissal is found to result from an exceptional collective redundancy is potentially increased to a maximum of 208 weeks (or four years) in the case of an employee with less than 20 years service or a maximum of 260 weeks (or five years) in the case of an employee with over 20 years service. These levels of compensation are substantially higher than the normal maximum of two years under the unfair dismissals legislation.

These higher compensation thresholds were clearly introduced to act as a disincentive to cosmetic collective redundancies in the future and it is notable that it has taken two years for the first reference under the legislation to be made.


The Case Before the Labour Court

RE: Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act, 2007 - Section 8(1)

Peel Ports (Marine Terminals Ltd) and SIPTU (Labour Court - Issued June 22nd 2009).

In this case, Peel Ports, the second largest group of ports in the UK, took over ownership of Marine Terminals Ltd, a company providing stevedoring services at Dublin Port and employing 77 staff. As part of a restructuring programme, Peel Ports proposed to carry out both voluntary and compulsory redundancies and alterations in terms and conditions including pay cuts for remaining staff. Nineteen redundancies were notified to the Minister pursuant to the notification requirements for collective redundancies under the Protection of Employment Act 1977 (as amended), of which 13 were compulsory and 6 voluntary.

All remaining port operatives were informed by way of letter to their trade union, SIPTU, that it proposed to offer new terms and conditions of employment and that if these were not accepted within ten days, they would be made redundant - a clear ‘gun to the head’ scenario. A further letter to each individual employee subsequently provided a further five days for acceptance of the proposed new terms.

In response, SIPTU referred the matter to the Redundancy Panel as provided for under the legislation for its preliminary view as to whether this was an exceptional collective redundancy. Peel Ports subsequently withdrew the proposed changes to terms and conditions and notified a further nine redundancies. However, all proposed redundancies including the original ones were put on hold, pending the Panel’s view. The Panel gave its view that an exceptional collective redundancy might exist and in turn, the Minister referred the matter to the Labour Court for an opinion.


The Labour Court Decision

In a brief opinion, the Court determined that the original compulsory and voluntary redundancies that were part of the restructuring programme were for the overall purpose of reducing the number of employees employed. As there was no evidence that these employees would be replaced, it did not consider them to amount to an exceptional collective redundancy. In the case of the employees who had refused new terms and conditions, the Court noted that the employer had withdrawn those proposals since.

However, the Court stated its view that if the dismissals of these employees had gone ahead, it would be operationally necessary to replace some or all of them. If that occurred, it said that an exceptional collective redundancy in relation to those dismissals could arise. On a technical point, the Court declined to offer an opinion on the nine further redundancies that were notified after the initial reference to the Redundancy Panel as that proposal had not been considered by the Panel. However, it noted that no further action had been taken to advance that proposal.


Significance for Employers

The significance of this opinion should not be underestimated by employers embarking on rationalisation programmes. Clearly, employees together with their union representatives may accept a voluntary cut in pay in order to preserve jobs rather than face the compulsory redundancies that might otherwise result. However, if the employer in question imposes pay cuts and other detrimental changes to terms and conditions of employment, then subsequently dismisses employees who refuse to accept such changes, and follows that by hiring new employees to replace those dismissed, the Labour Court’s view is that the higher compensation thresholds under the 2007 Act may apply. As outlined above, these thresholds run to four or six years wages per employee affected depending on length of service, rather than the two year maximum generally available under the unfair dismissals legislation. The employer may also have to face a criminal prosecution under the Act and of course the 60% rebate on the statutory redundancy lump sum from the Social Insurance Fund is likely to be withheld.

A postscript to this particular case was that the Labour Court’s opinion failed to resolve the industrial relations disputes that were looming in this case. SIPTU argued that there was a clear agenda on the part of Peel Ports to replace unionised staff and as the company failed to engage with the Labour Relations Commission and the Labour Court, it had no option to take strike action. Peel Ports responded by obtaining an injunction in the High Court to restrain picketing and allegedly importing foreign labour to take the place of the striking workers. Following a 16 week strike, a subsequent lengthy arbitration process resulted in an arbitrator’s ruling on January 6th last. At the time of writing, it would appear that Peel Ports has yet to accept the Arbitrator’s findings.