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IRELAND - Temporary Wage Subsidy Scheme – planning an exit strategy

06 May 2020

The government’s Temporary Covid-19 Wage Subsidy Scheme is currently due to end on 17 June 2020. It has provided employers with some important breathing space and there is no question it has saved jobs. But as the end of the scheme draws closer, it is important for employers to start considering their exit plans.

The Temporary Wage Subsidy Scheme may be extended by a further period or the government could look at transitional measures. The Minister for Finance, Paschal Donohoe, had indicated that the scheme will continue “in a form”. However, we may not know exactly in what form this will be for a few weeks yet. 

Most employers have already taken the obvious steps to reduce operating costs. In terms of staff costs, recruitment freezes are already in place, discretionary benefits (e.g. bonuses) have been cut back, planned pay increases have been paused, temporary staff have been let go, and fixed-term contracts have not been extended. This makes the prospect of reabsorbing the wage costs covered by the subsidy scheme even more challenging. 

In this guidance, we assume that employees have agreed to a pay cut and potentially reduced working hours.  

We consider below the possible exit strategies. 

Return to business as normal 

Continue employment on previous terms and conditions 

Who is likely to use this? 

This is easiest but most expensive option. It is likely to be used by employers who anticipate that they can get back to near-normal trading conditions in the relatively short-term. 

How do you do this? 

If employees’ hours have been reduced, we would anticipate giving no less than 48 hours’ written notice. Regardless of whether hours have been reduced or not, it is best practice to communicate the proposal to return to normal pay (and hours) as soon as possible to give employees certainty and confidence.  

In practice, most employers are likely to communicate their plans to employees no later than early June depending on whether the Government confirm their intentions in respect of the scheme before then. 

Reduce payroll costs without making redundancies 

Continue employment on reduced hours and pay 

Who is likely to you use this? 

This approach will help employers who wish to retain trained employees and avoid the cash-flow challenges of redundancy costs. It is likely to be considered where: 

  • restrictions have eased a little to allow trading conditions to improve but a full-time commitment is not required 
  • a return to normal trading conditions is likely in the medium to long term 

How do you do this? 

A reduction in hours and pay is a change to terms and conditions and requires employees’ agreement. Employees may have agreed a pay-cut in exchange for reduced hours as part of the subsidy scheme. Employees may therefore anticipate that this is what will be expected of them and may be willing continue with the same pay cut or to agree to a further pay cut.   

If the employer recognises a trade union for collective bargaining purposes, it may be able to agree the change with the union and that can help facilitate individual agreement. If no union is recognised, individual consent should be obtained and evidenced in writing.   

Where an employer has a contractual right to impose short-time working, this could be used. A provision of this kind is subject to the implied term of trust and confidence, so the employer should consult with employees first and give reasonable notice to avoid being in breach of contract. The statutory lay-off provisions mentioned above also entitle employees who have been kept on short time for four or more consecutive weeks or six weeks in any 13-week period to resign and claim a statutory redundancy payment in certain circumstances. But again, employees might be unwilling to terminate their employment in order to receive a redundancy payment. Legislation was introduced to suspend this right until 31 May 2020 (although this period may be extended). 

Continue employment on reduced pay but the same hours 

Who is likely to you use this? 

Employers are likely to use this where they anticipate being able to return to near normal trading conditions soon, but the restricted period has created cash-flow challenges making it difficult to pay employees their full pay without risking the financial security of the business. 

How do you do this? 

The position is essentially the same as for an employer seeking to reduce both hours and pay (see above). Employees may have agreed a pay-cut as part of the subsidy scheme. Employees may therefore anticipate that this is what will be expected of them and may be willing to continue with the same pay cut or agree to a further pay cut.   

A reduction in pay is a change to terms and conditions and requires agreement. If the employer recognises a trade union for collective bargaining purposes, it may be able to agree the change with the union and that can help facilitate individual agreement. If no union is recognised, individual consent should be obtained and evidenced in writing.   

For employees on lay-off - continue employment (on the same or revised terms)  

Who is likely to use this? 

Employers can lawfully place employees on unpaid lay-off (which is temporary unpaid leave until there is more work available) if there is an express contractual right or if employees’ consent.  

The scheme provided wage subsidies so that employers could avoid making employees redundant or place employees on unpaid lay-off. Where employers didn’t have a contractual right, many employers sought consent. Employers who unilaterally impose unpaid lay-off without a lawful basis could face potential claims for unlawful deduction from wages, breach of contract and constructive dismissal.  

Depending on the terms of the consent to the lay-off, it may be possible to continue lay-off for a further period. Employers could operate some form of rotation so that employees on lay-off do not become isolated or deskilled.   

This is likely to be considered by employers who do not have enough work for everyone, but want to: 

  • retain trained and valued employees for when business conditions return to normal 
  • avoid significant redundancy costs. 

How do you do this? 

For many employers, it is likely to be too expensive to continue the same pay terms without the benefit of the government subsidy, but employees may agree to reduced pay terms or unpaid lay-off for a further temporary period if there is the possibility that work is likely to be available for employees soon. 

Assuming employees agree to an extended period of lay-off, this would require either a new or extended agreement. (This will depend on how the terms of the existing agreement consenting to the change have been framed.) If the employer recognises a trade union for collective bargaining purposes, it may be able to agree the change with the union and that can help facilitate individual agreement. If no union is recognised, individual consent should be obtained and evidenced in writing.   

Where an employer has a contractual right to lay off without pay, this could be used. Lay-off provisions are subject to the implied term of trust and confidence which means, for example, that the employer should consult with employees first and give reasonable notice of any lay off to avoid being in breach of contract.  

There are specific statutory provisions which provide a right for employees who have been laid off for four or more consecutive weeks, or six weeks in any 13-week period, to claim a statutory redundancy payment in certain circumstances. The scheme requires employees to resign in order to receive their redundancy payment, which employees might be unwilling to do. Legislation was introduced to suspend this right until 31 May 2020 (although this period may be extended). 

Offer unpaid (or part-paid) leave or sabbaticals 

Who is likely to you use this? 

This is likely to be considered by employers who want to retain all their employees (e.g. because they are highly skilled or trained) but need to “buy some time” to allow the business return to normal trading conditions. From an employee perspective, this option might be particularly appealing to those with school-age children (assuming schools do not return before September) or those with caring responsibilities. 

How do you do this? 

Normally a sabbatical will be agreed on a purely voluntary basis. The employer will make it known that it will consider applications for sabbaticals and reserve the right to decline requests (for example, if someone is in a business-critical role).   

If a sabbatical is agreed, its terms and the employee’s consent to them should be recorded in writing. 

Make redundancies/headcount reductions 

There are unfortunately likely to be many employers who, in the absence of any continuation of the wage subsidy scheme on the same or similar terms to those currently applying, will see no other option but to reduce headcount by implementing redundancies. This will trigger individual and possibly collective consultation obligations.  

How do you do this? 

Collective consultation is required if during any consecutive 30 day period, the employees being made redundant at one establishment are:

  • 5 employees where 21-49 are employed
  • 10 employees where 50-99 are employed
  • 10% of the employees where 100-299 are employed
  • 30 employees where 300 or more are employed

If fewer redundancies are anticipated, only individual consultation is required. 

Collective consultation requires an employer to consult with employee representatives about various matters, including ways of: 

  • avoiding the dismissals 
  • reducing the number of dismissals 
  • mitigating their consequences. 

Consultation must start “at the earliest opportunity” and at least 30 days before the first notice of dismissal by reason of redundancy is given. Two weeks’ notice of redundancy must be given in writing before employment can be terminated.  

Collective consultation must take place with employees’ representatives. If the employer recognises a trade union or employee association in respect of the affected employees, it must normally consult with representatives from the union or association. Otherwise, employers must arrange for the nomination or election of representatives specifically for the purposes of the consultation. 

The employer must give the representatives certain information, including:

  • the reasons for the proposals
  • the numbers and descriptions of employees the employer is proposing to dismiss
  • the total number of such employees at the workplace 
  • the proposed selection criteria
  • the proposed period during which the proposed redundancies will be effected
  • the proposed method of calculating any enhanced redundancy payment
  • certain information regarding the use of agency workers. 

Consultation must take place “with a view to reaching agreement”, although there is no obligation on the parties to reach an agreement. The employer should explain the business case for the proposed redundancies and listen to the representatives’ views. The representatives may accept the business rationale, in which case consultation can quickly move on to other issues, such as alternative employment and any redundancy package on offer.  

The current circumstances present various logistical challenges in terms of the consultation process, particularly where large numbers of the workforce are not attending work. Employers will need to think about the impact on timescales and potential creative solutions to these challenges (e.g. digital election of representatives, videocall briefings). 

Notification of certain information must also be provided to the Minister for Employment Affairs and Social Protection at least 30 days before the first notice of dismissal by reason of redundancy is provided.  

Getting the collective consultation obligations and notifications wrong can expose the employer to significant financial liabilities, including a “protective award” of up to 4 weeks’ pay per affected employee as well as possible criminal sanctions and significant fines of up to €250,000. 

At the end of collective consultation, individual consultation is also required. In order to avoid a successful claim for unfair dismissal arising out of a redundancy situation, there must be: 

  • a genuine redundancy situation (most likely to be satisfied in these circumstances)
  • adequate consultation with affected employees
  • a fair “pooling” and selection process
  • consideration of alternative employment a fair procedure. 

An employee must have one year’s service in order to claim unfair dismissal, although no period of service is needed if they assert, for example, that their selection was discriminatory.

Employees who leave at the end of such a process will be entitled to notice and if employees have at least 2 years’ service, they are entitled to statutory redundancy pay and whatever enhanced redundancy pay the employer may provide.

Multi-jurisdictional redundancy exercises

As coronavirus is a global pandemic, it is important that employers take a coordinated international approach to redundancies where relevant and obtain the necessary advice to ensure that more draconian sanctions in some other European countries are avoided. As a minimum, the involvement of European Works Councils (EWCs) will be required, which may mean that the Ireland collective consultation periods identified above become longer.   

How we can help 

With the wage subsidy scheme currently set to end on 17 June, employers need to start planning their next steps quickly. The options described above might give employers some additional time to allow normal trading conditions to return but, if there is a long-term economic downturn, many will find it difficult to avoid making job cuts or even exploring some form of insolvency proceedings. 

We can help by:

  • working with you to forecast future staffing requirements against your cost base
  • helping identify options to reduce or defer staffing costs in the short, medium or longer term
  • identifying the legal and other risks attaching to each option
  • advising on EWCs and providing international support
  • assisting with implementation and providing you with the required documentation
  • supporting you if you need to consider insolvency proceedings. 

We can also help with your non-legal needs, for example by providing HR consultants to support meetings and assisting with negotiation with trade unions and worker representative bodies. 

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