Key Employment, Equality and Industrial Relations Law Issues
Key issues relating to employment, equality and industrial relations law are heavily impacted by the current economic climate. Organisations seeking to implement changes to cope with the financial downturn will need to be aware of employment rights and issues that will influence their decision making.
Emergency Cost Cutting Measures in Employment
The extent of the recession has caused many employers to achieve very significant cost savings by cutting down on all their resources, including human resources. As a consequence, every aspect of remuneration has been reviewed including pay, bonuses and incentive payments, expenses and benefits including pension benefits. In addition to direct cost cutting measures, organisations have also considered paid and unpaid periods of leave as well as part-time work, short time and lay-offs of employees for periods of time. Employers should be aware that if employees are laid off or put on short-time for four or more consecutive weeks, or for six or more weeks within a period of thirteen consecutive weeks, they may be entitled to a redundancy payment. Because of the exceptional economic circumstances and against a backdrop of possible redundancy, employees have, in general, agreed to or have not objected to the announced measures including reductions in elements of pay and/or benefits.
However, there are a number of legal and practical considerations facing an employer when seeking to implement unilateral variations in contract terms. Failure to take account of such considerations can give rise to a breach of contract claim, a possible claim for constructive dismissal, a claim under the Payment of Wages Act 1991 (the “1991 Act”) or even industrial action.
Unilateral Pay Cuts
Within the last year the Rights Commissioner Service has recorded an unprecedented number of claims under the 1991 Act. Section 5(1)(c) of the 1991 Act states that “An employer shall not make a deduction from wages of an employee unless the employee has given his prior consent in writing to it”. Until recently, employees have been relatively successful at Rights Commissioner level in arguing that a unilateral pay cut is an unlawful deduction from wages under the 1991 Act. However, in a recent High Court case1 concerning the Permanent Defence Forces Representative Body (PDFORRA) Mr Justice Edwards held that a 25% reduction in a travel and subsistence allowance was a “reduction” in pay as distinct from a “deduction” and therefore not covered by the 1991 Act. Recent decisions of Rights Commissioners indicate that some cognisance is being taken of the financial position of employers. In Tony O Neill v James McMahon Ltd2 a breach of the 1991 Act was accepted to have occurred but no compensation was awarded due the financial circumstances of the employer. It is difficult to see a basis for this decision in that the 1991 Act does not provide that the economic circumstances of the employer should be taken into account.
Changing Pension Benefits
There have been a significant amount of cases before the Labour Court dealing with issues around the restructuring of pension schemes, meeting funding shortfalls, or moving employees between defined benefit and defined contribution schemes. In the case of Schering Plough and SIPTU3 a company proposal to change the existing defined benefit pension scheme to a career average defined pension was challenged by SIPTU on behalf of the workers on the basis that the proposals diminished benefits for workers. The Labour Court rejected the union’s assertions and recommended the introduction of the scheme on the proviso that it would be reviewed within five years to determine whether the assumptions on which the new scheme was predicated were met. It has been reported that there will be a significant increase in the restructuring of pension schemes as a result of the new pension fund levy.
Regulation of Remuneration Practices in the Financial Sector
Against the backdrop of the global economic crisis and controversy over remuneration paid in the financial sector, legislation was introduced to regulate the remuneration practices of defined financial institutions. The Credit Institutions (Financial Support) Act 2008 introduced the Credit Institutions (Financial Support) Scheme 2008 which expressly identified the credit institutions and subsidiaries that constitute “covered institutions” for the purposes of the 2008 Scheme. The Covered Institutions Remuneration Oversight Committee was established to oversee all remuneration plans of senior executives of the covered institutions. The 2008 Scheme provides that a “covered institution” shall not enter into any contractual arrangement that provides for termination compensation or equivalent to be payable to any director or executive for the duration of the scheme. This places significant restrictions on those institutions in the context of resolving disputes that may arise on the termination of executives’ employment.
Under the Credit Institutions (Stabilisation) Act 2010 the Minister can impose such terms and conditions on the payment of bonus payments to employees and officers of institutions in receipt of financial support from the State, as he deems desirable in the public interest.
CRD III Rules
Stringent new rules imposed by amendments to the EU Capital Requirements Directive, commonly known as CRD III, which limit the way in which remuneration packages for staff within credit institutions and investment firms are structured were introduced with effect from 1 January 2011.
The CRD III rules set out the principles with which institutions’ remuneration policies should comply, including:
- compulsory deferral of at least 40% of any bonus over a period of not less than three to five years (60% should be deferred in the case of particularly high amounts);
- a requirement that at least 50% of the total bonus (both the deferred and nondeferred portion) is paid in shares or other qualifying instruments subject to an appropriate retention period; and
- limitations on guaranteed bonuses and severance payments.
These rules may be applied in different ways depending on the size, internal organisation and the nature, scope and complexity of the activities of different institutions and firms covered (referred to as the proportionality principle). The rationale for any departure from applying these rules must be set out in an institution’s report to the Central Bank.
It should be noted that the Central Bank will have power under the new Fitness and Probity Regime4 to require financial services institutions to remove individuals from senior positions where concerns arise about their fitness and probity.
Public Sector - Croke Park Agreement
The government introduced a range of emergency measures in the light of the worst economic crisis in the history of the State. The crisis in public funding necessitated emergency legislation having a direct and immediate impact on public sector employees with significant pension levy and pay cuts. In addition the public sector moratorium halted almost all recruitment across the public sector in a very radical and immediate way. It is against this backdrop that the Croke Park Agreement was entered into. The objective of reorganising the public service with a view to achieving even greater efficiencies necessitated a root and branch review by all bodies and government departments of their resources and expenditures. Those bodies are required to carry on that process in order to identify the economies and savings to be achieved in a measurable way which will be verified by a new body known as the Implementation Body.
The Implementation Body at this stage has been in a position to verify cost savings achieved. There are now 16,000 fewer staff across the public service. The four main areas of focus under the reform process include cash savings, the avoidance of cost, improvements in service to public and internal efficiencies through the use of shared services. The review and report of the Implementation Body is due to be presented to Cabinet shortly.
It is likely that progress on redeployment of staff to cover posts vacated and unfulfilled will also be reported. Examples so far include the reallocation of staff to cover essential posts vacated by the exit of 2,000 health workers through the HSE’s voluntary redundancy and early retirement plan late last year; the secondment of over 1,000 community welfare officers and support staff from the HSE to the Department of Social Protection and the transfer of 500 civil servants to the Department of Social Protection from other parts of the Civil Service to deal with increased demand. This is still very much a work in progress but there appears to be commitment from all sides to continued and measurable cost savings and efficiencies in the Public Sector.
Although the number of redundancies in the economy has decreased substantially from its peak in 2009, figures from the Department of Social Protection show that 17,151 jobs were lost under the Department’s redundancy scheme during the first quarter of 2011. The range of ex gratia severance settlements, in addition to statutory entitlements, vary from sector to sector ranging from the minimum statutory only to four to six weeks per year of service with caps sometimes applying a maximum of one to two years remuneration. Notwithstanding the current economic climate we have not seen a reduction in this range.
Strategic decisions need to be made for all employers in evaluating their requirement to achieve costs savings whilst at the same time retaining the vital necessary skill set necessary for their business. Part of such a strategy involves developing elements of a voluntary severance programme followed, if necessary, by a compulsory severance programme. However, it may be necessary to move immediately to a compulsory scheme on the basis that identifiable elements of the business activity are particularly and directly impacted.
As a result of the deteriorating economic circumstances and a significant increase in challenges to redundancies before the Employment Appeals Tribunal (“EAT”), the Tribunal has very carefully scrutinised the employer’s redundancy process of selection and in particular tested the legitimacy of the redundancy process and sought evidence of efforts to seek alternatives to redundancy. In January of this year the EAT awarded €21,000 compensation to an employee after it concluded that she was unfairly selected for redundancy5. In its decision the EAT made reference to a failure to advise the claimant of the criteria to be applied for redundancy; a failure to give the claimant the opportunity to make representations in respect of those criteria; a failure to consider redeployment; and a failure to provide an appeal mechanism for the claimant.
Joint Labour Committees and Registered Employment Agreements
Joint Labour Committees (“JLCs”), and the Employment Regulation Orders (“EROs”) which result from them, exist to “regulate conditions of employment” in certain sectors. Their ongoing relevance is arguably diminished as a consequence of the National Minimum Wage. Registered Employment Agreements (“REAs”) are a similar concept to EROs but arise by way of a collective agreement which is registered at the Labour Court. It is estimated that 23% of private sector employees are protected by an EROs or REAs.
There are currently five challenges to the validity of EROs before the High Court. The scope to challenge the terms of EROs and REAs outside the Labour Court is limited. The High Court has generally deferred to the Labour Court in determining whether these arrangements can be avoided due to the economic climate. However, an alliance of fast food retailers has argued before the High Court that the JLC system involves an unconstitutional transfer from the legislature of the right to decide policy. We await with interest the judgment in this case.
The recent Duffy-Walsh Review was greeted favourably by trade unions as being broadly supportive of the current system of wage agreements. The Review stated that the lowering of JLC rates to the National Minimum Wage would have little effect on employment. The Review also contained some good news for employers by recommending that employers in economic distress be allowed to temporarily derogate from the terms of such agreements.
Following the Review, Minister Bruton put forward 15 reform proposals including confining EROs to dealing with matters other than conditions of employment which are governed by universally applicable standards (such as rest breaks, Sunday working and leave entitlements). However, SIPTU has indicated that it may take industrial action if the proposals result in reduced incomes for its members.
Equality Law – The Test-Achats Case
From 21 December 2012 insurance companies will no longer be permitted to take a person’s gender into account as a risk factor when determining general and life insurance premiums. This is the result of a recent decision of the European Court of Justice6 (the “ECJ”) which decided that relating insurance premiums to a person’s gender constitutes discrimination and is not compatible with the EU’s Charter of Fundamental Rights.
A Belgian consumer organisation, Test- Achats together with two individuals, brought an action before the Belgian Constitutional Court for annulment of the legislation, which transposed into Belgian law, the European Directive which implements the principle of nondiscrimination between men and women in the provision of goods and services.7 The Belgian Court asked the ECJ to consider whether the derogation provided for in Article 5(2) of the Directive is compatible with the principle of equality and nondiscrimination enshrined in EU law. Article 5(2) of the Directive contains a derogation which permits Member States to use a person’s gender as a determining factor in the assessment of risk where it is based on relevant and accurate actuarial and statistical data. This derogation is reflected in section 5(2)(d) of the Irish Equal Status Acts 2000 to 2004.
The ECJ decided that the derogation should not be permitted to continue beyond 21 December 2012 (the five year review date set out in the Directive) because it is incompatible with the principle of equal treatment between men and women. There is no right of appeal against a judgement of the ECJ.
The effect of this decision is that the Equal Status Acts will have to be amended by 21 December 2012. This is extremely significant for insurers in Ireland. They must now carefully consider how they will price risk as they will no longer be permitted to do so using gender-based evidence in general and life insurance policies.
Industrial Relations Issues
There has been a significant increase in industrial relations unrest including traditional picketing and sit-ins and this level of industrial unrest is set to continue. Overall the need for partnership between employer and employee groups will continue to be essential particularly during current recessionary times.
Third Party Industrial Action
Recent industrial action involving the electrical contracting industry has spilled over into many businesses that were not a party to the dispute but had electrical contractors working on contract in their businesses. In the Pickerings case8 Ms Justice Laffoy held that pickets can continue at a location once the employer involved in the dispute worked or carried on business there at the beginning of the dispute, irrespective of the fact that the employer is working at a third party’s premises who has no connection with the dispute. This has potentially serious consequences for employers as the reality of modern business is that a multitude of services are carried out in a variety of different locations. Therefore, a relatively minor dispute with a contractor employer can ground to a halt the country’s business in a disproportionate way as happened in respect of an industrial dispute at Dublin Airport in July 2010.
Temporary Agency Workers Directive
The Temporary Agency Workers Directive9 is required to be implemented into Irish law by 5 December 2011. To date we do not have any guidance or draft legislation showing how the Directive will be implemented.
The principal aim as stated in Directive is that agency workers should be provided with at least the same basic working and employment conditions which would apply to such workers if they were recruited directly by the user undertaking to occupy the same job.
The Directive allows for a number of derogations or exceptions. Article 5(4) provides that, in certain circumstances, Member States may allow for a “qualifying period” before equal treatment must commence. This derogation differs from the others in that Member States may implement this derogation only after consulting the social partners at national level and on the basis of an agreement concluded by them. We understand that there is no such agreement in place yet. Of note is the fact that, if agreement is not reached by the social partners, the default position of the Directive is that the equal treatment provisions commence from “day one” of a temporary agency worker’s placement. This would create a huge administrative burden for end-users and employment agencies as even the shortest placement would require significant extra evaluation to ensure the Directive/national law was being complied with. In the UK this qualifying period was agreed at 12 weeks and therefore the various rights to equal treatment do not commence until after a 12 week period.
Over the past year there has been a significant increase in claims before the EAT, particularly in respect of redundancy challenges. However, we have observed a decrease in the number of equality law discrimination cases over the same period. There is a continuing trend of senior employees seeking High Court injunctions restraining the termination of their employment and seeking to be maintained on full pay pending trial of the action. However, in a High Court challenge to redundancy, Ms Justice Laffoy, in the case of Nolan v EMO Oil10, considered that a challenge to a redundancy was inappropriately brought before the courts and that the appropriate forum for such challenges was the EAT.
Employers should always be aware of the risk of facing multiple potential claims. For example, an employee claiming bullying, harassment and stress may bring a claim for:
- unfair/constructive dismissal before the EAT under the Unfair Dismissals Acts; or
- discrimination dismissal under the Employment Equality Acts, as well as
- personal injury stress induced illness case in the High Court
- Safety, Health & Welfare at Work Act 2005 claim to the Rights Commissioner for victimisation raising a bullying and harassment/health and safety issue.
An employee can also make a data request under the Data Protection legislation and/or under FOI if applicable. Such requests can result in considerable costs to employers.