In the first opinion issued by the Labour Court under the Protection of Employment (Exceptional Collective Redundancies) and related Matters Act 2007, the Court has decided that notified redundancies could amount to exceptional collective redundancies, if they were implemented following a refusal by the relevant employees to accept proposed changes to their terms and conditions of employment, and if the employer subsequently replaces the redundant employees with other employees on less favourable terms and conditions.

Marine Terminals Limited (MTL) carried out a restructuring, including both compulsory and voluntary redundancies, and paycuts. The new terms and conditions were notified to the employees by way of letter, stating that if they were not accepted within five days, that the posts would be made redundant. None of the employees accepted the new terms and conditions. On the 28th May 2009, SIPTU referred the matter to the Redundancy Panel, subsequent to which MTL withdrew the proposed new terms and conditions, and proceeded to notify employees that there would be a further 9 redundancies. No further action was taken in relation to those redundancies, pending the outcome of the referral to the Redundancy panel.

The Panel was asked to consider whether the dismissals proposed by the company, of which notice was given on 15th May 2009, and the proposed dismissal of employees who did not accept new terms and conditions of employment, together constitute an exceptional collective redundancy. The Labour Court considered that the dismissals notified on 15th May, to take effect on the 29th May were for the purpose of reducing the overall number of persons employed. As there was no evidence that those employees will be replaced by other persons either directly or indirectly, the Labour Court concluded that these are not exceptional collective redundancies.

The Labour Court then considered the apprehended dismissals of those employees who failed to agree to new terms and conditions. Whilst the Labour Court accepted that the employer had retracted the proposed new terms and conditions since the initial referral under the 2007 Act, it went on to say, "for the sake of completeness, that the Court was of the opinion that were those dismissals to take effect, it would, as a matter of probability be operationally necessary for the employer to replace some or all of them. In that event...an exceptional collective redundancy in relation to those dismissals could arise."

Business implications

Implementing paycuts can be frought with difficulty in the absence of employee consent. Many employers who have successfully implemented paycuts to date, have relied on communications strategies which involved explaining to employees that the proposed paycuts were the best means of avoiding redundancies. In circumstances where proposed paycuts are met with resistance, an employer may be left with no alternative but to consider redundancies as an alternative means of achieving the necessary savings. The opinion of the Labour Court in the MTL case serves as a reminder that in such circumstances, any subsequent new hires in comparable roles on lower salaries than the employees they have replaced, may lead to a potential exposure to unfair dismissals claims on the basis that the redundancies were not genuine, and increased awards of up to four or six years pay, as provided for in the 2007 Act. Furthermore, such a finding may lead to a prosecution and an inability to claim the tax rebate on any redundancy payments made to departing employees. The recent restructuring programme carried out at Aer Lingus, where employees were invited to volunteer for redundancy and were subsequently entitled to reapply for employment on less favourable terms and conditions, avoided falling foul of the 2007 Act, which provides that for redundancies to come within the definition of Exceptional Collective Redundancies, they must be compulsory.