In the current economic climate, employers are looking at various cost-cutting options. The October bulletin referred to a recent Employment Appeals Tribunal decision, which shows the importance of considering all reasonable alternatives before making an employee redundant. This month, we examine some of those alternatives.
1. Reduction in Salary
This alternative brings its own difficulties. If salary reductions are implemented without the prior agreement of the employee, the employer runs the risk of being sued for breach of contract, for making an unlawful deduction from wages, or of a claim under the Industrial Relations legislation. However, if the contract of employment allows for an annual salary review, a reduction in salary could form part of this review. An argument that it is custom and practice to increase salaries at every annual review is unlikely to be upheld in this economic climate.
2. Reduction in hours
Most contracts of employment provide for variation of the working hours, however there may be no provision for a pro-rata reduction in salary if working hours are reduced. Again, without the prior agreement of the employee, a reduction in working hours and, correspondingly, pay could be deemed to be a breach of contract. Furthermore, it may not ultimately solve the problem. If the reduced hours are less than one-half of the weekly working hours for four or more consecutive weeks or, within a period of thirteen weeks for a series of six or more weeks, of which not more than three were consecutive, the employee can claim for a statutory redundancy payment, if eligible. An agreement for reduced hours will however show that the employer has tried to avoid a redundancy.
3. Career Break
Employers could use this measure as a means of reducing costs, but with a view to retaining valuable employees over the long term. An agreement is reached between employer and employee that the employee will return to the same or similar job after his/her career break. However, the employee will not receive any salary or benefits during the leave and the period of leave does not count as service. Permanent TSB is reported to have recently offered an upfront payment to its employees to take a two or three year career break, subject to them not entering employment with a competitor during the break period.
If it is reasonable for the employer to believe that the lack of work for the employee is not permanent, it may be more appropriate to put the employee on lay-off. There is no requirement to pay employees during lay-off, however they may claim social welfare. As with a reduction in hours, if the period of lay-off persists, employees may claim for a statutory redundancy payment, and employers should note that the period of lay-off does count as service for the purpose of calculating a statutory redundancy payment.