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Changes to the collective redundancy legislation and clarity on employers’ consultation obligations in recent Labour Court decision

16 May 2024

Several high-profile cases, including those involving Clerys and Debenhams, brought inadequacies of the existing collective redundancy legislation into focus in recent years. The legislation designed to address those gaps has now passed all stages of the legislative process and is expected to become law shortly. We look at what these changes are, and what they will mean for employers in a collective redundancy process. We also look at the recent decision of the Labour Court in the Debenhams appeal which brings further clarity to employers’ consultation obligations.

The Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Bill 2023 delivers on commitments made by the Irish government, as part of its 2021 Action Plan, to draft legislation enhancing protections and ensuring transparency for employees in insolvency situations. This Bill has now passed all stages of the legislative process and is expected to become law soon. The changes will enhance the protections for employers in a collective redundancy, particularly where such redundancies result from the insolvency of the employer.

What are the changes to the existing collective redundancy legislation?

Some of the key changes being introduced once the Bill is enacted include:

  • Inserting a new definition of a “responsible person” which will include a liquidator, a provisional liquidator, a receiver or any other person appointed by the court where they assume the full control of the business.
  • Going forward, existing employers’ obligations will also need to be complied with by a “responsible person”. This means that where collective redundancies are being proposed in an insolvency situation, the responsible person will be required to initiate consultations with employees’ representatives with a view to reaching an agreement. Where a consultation process has already been commenced by an employer, the responsible person will be required to continue that process.
  • Removing the current exemption for notification to the Minister when the employer is insolvent, meaning insolvent businesses will also be subject to the restriction that redundancies cannot be effected until 30 days have elapsed since the date of notification to the Minister.
  • Employees will be able to bring a claim to the WRC where the employer makes them redundant before the 30-day notification period finishes (this will apply in any situation not just an insolvency situation). At present, this only results in a potential fine of €250,000 in a non-insolvency situation. The maximum award of compensation that can be awarded to an employee will be four weeks’ remuneration. Therefore, if the employer fails to comply with its information and obligations requirements, in addition to effecting redundancies before the 30 days have elapsed, it could be required to pay 12 weeks’ pay in compensation per employee.

Changes to the Companies Act

In addition to the changes outlined above, the Bill also aims to further improve the quality and circulation of information to employees as creditors in a corporate insolvency situation by amending the Companies Act 2014 as follows:

  • Directors of an insolvent company will have an obligation to notify all employees and employees’ representatives of a winding up petition “at the time that petition is presented or as soon as reasonably practicable after such presentation”.
  • Provisional liquidators will be required to provide considerable information to employees, (and where practicable, the employees’ representatives), regarding their appointment, the date they were appointed, the liquidation process, that employees’ representatives can provide the provisional liquidator with information, and any other matter the provisional liquidators consider might be relevant.
  • The courts can direct a related company to contribute to the debts of an insolvent company.

What are the employers’ obligations to consult with employees?

This is an area that has been brought under scrutiny in recent years following the much-publicised Debenhams case heard by the WRC last year. In that case, Jane Crowe v Debenhams Retail (Ireland) & Debenhams Retail (Ireland) Limited (in Liquidation), which was a test case for between 750-800 former Debenhams employees who referred complaints following a collective redundancy process in 2010, we were provided with valuable insight into how the WRC views employers' collective redundancy obligations under the Protection of Employment Act 1977 (the Act).

In a previous article about that decision, we outlined how the WRC illustrated a higher standard for employers in terms of their information and consultation obligations. The WRC stressed the importance of consultations commencing at the earliest opportunity and that the consultation process must begin when a strategic or economic decision is made that means it is intended or contemplated that collective redundancies will take place (regardless of whether the decision is made by a parent company.)

The Labour Court has upheld the WRC’s decision regarding the employers’ obligation to consult, finding that Debenhams did not engage in consultations with affected employees on the redundancies “in good time” with the relevant trade union and that, in waiting until the liquidator was appointed, the available options had narrowed significantly. This further reinforces the higher standard expected of employers in insolvency situations.

Employers’ obligation to provide information

However, unlike in the WRC, the Labour Court found that Debenhams did satisfy their information obligations under the Act and that they provided the relevant information when requested.

Amongst other things, the union had sought details in relation to profit/ loss making stores, information around the ownership of the stock and contact details for landlords. The Labour Court was satisfied that these matters had been sufficiently addressed by the liquidator in correspondence with the union at the time. The Labour Court noted that the requirement of the Act is that all relevant information be provided. It took the view that the issues raised by the union were responded to, and the up-to-date position in respect of each element was set out.

The union had sought copies of the liquidator’s legal advice in respect of a number of those issues but were unable to satisfy the Labour Court that they were entitled to this. The Labour Court noted that no caselaw was opened to it to support such a contention.

It has been reported that KPMG, acting for the liquidators, intends to appeal the Labour Court decision to the High Court on a point of law. We will continue to watch this for further developments.

What does this mean for employers

Certainly, the bar remains high, and employers need to be very aware of their information and consultation obligations and the changes being introduced by the Bill, particularly in an insolvency situation.

It remains clear from the Labour Court’s decision that the process for consultation must be more than a box-ticking exercise, and it may not always sufficient for the consultation to have commenced 30 days prior to the first notice of redundancy issuing, if the decision by the employer to make redundancies was, in fact, made some time before that date. Instead, consultation will need to begin as soon as possible after a decision is made which means when collective redundancies are contemplated.

Although the Labour Court did not agree with the WRC’s finding that Debenhams failed to meet its information requirements, it remains clear that what is “relevant” information is still something that will be carefully scrutinised by any adjudicating body or court in the event of a dispute and will depend on the circumstances of each case. The key consideration for employers when determining what is relevant is whether the information supplied enables the employees to fully consider and put forward alternative options.

For further information on this, please contact one of our team.

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