Employment Law Update: Clerys Report – Key Proposals on Laws Protecting Employees
27 June 2016
In early 2016, the Government commissioned an examination into laws protecting employees following the overnight closure of the historic Clerys department store in Dublin in June 2015, with the immediate loss of 460 jobs. We review the recently published report which sets out six key proposals for legislative reform.
The Clerys report by Kevin Duffy, Labour Court Chair and Neasa Cahill BL, looked at how the legitimate interests of employees could be more effectively safeguarded where collective redundancies arise from the liquidation of an employer following corporate restructuring in which valuable assets are separated from the employing entity.
The report was commissioned amid concerns at the circumstances surrounding the redundancy of employees at Clerys. Employees were made redundant when their employer became insolvent and placed in liquidation. The employees were dismissed without notice, prior consultation or payment of outstanding monies owing or any redundancy payments.
As a result, the State will now be obliged to pay debts owing to the employees out of the Social Insurance Fund ("SIF") under the Insolvency Payments Scheme.
Six proposals for legislative reform were made in the report as follows:
1. Remove insolvency exception
Currently insolvent companies are not required to wait 30 days following notification to the Minister for Jobs, Enterprise and Innovation of proposed collective redundancies before giving effect to the redundancies.
The report proposes that this exception be removed, the net effect of which would be to give employees an entitlement to payment of their normal wages and an opportunity to consult with their employer during the 30 day period.
2. Decisions by related persons
If a person/company connected with the employer is contemplating a decision in relation to an asset of significant value, that the person knows, or ought to know, will lead to collective redundancies in the employer, there will be an obligation on the related person to notify the employer. The employer must then commence the 30 day consultation period with employees.
3. Increased sanctions
The current compensation limit for failure to inform and consult with employees during a 30 day consultation period should be increased from 4 weeks' pay to a maximum of 2 years’ pay. It was felt the current amount allowed for “may not provide adequate redress... nor can it have a sufficient deterrent effect in all cases.” The proposal does not limit this proposed increase to insolvent employers.
4. Mechanism for recovering assets
The report proposes a mechanism for recovering an employer’s asset, or proceeds of such an asset, where the transfer to another person or company had the effect of perpetrating a fraud on the employees.
The Minister for Social Protection would make the application, once payments had been made to employees from the SIF.
5. Injunction Option
A statutory injunction provision could be considered allowing an application to the Courts to prevent the reduction of a company’s assets below the level necessary to discharge accrued liabilities to employees.
6. Negotiation of enhanced redundancy package
Employees in Ireland who are made redundant often have an expectation that they will receive an enhanced redundancy payment in addition to any monies they are entitled to under statute.
This expectation can be based on the existence of collective agreements or an established custom and practice within the employer organisation or sector.
It recommended a legislative amendment to allow for the recovery of enhanced redundancy payments as compensation if the payment can be proven to be an express or implied term of a worker’s contract by the Workplace Relations Commission and/or Labour Court. The payment would be treated as a preferential payment of an insolvent company.
The report accepted that identifying a mechanism by which such expectations could give rise to a legally enforceable right is problematic and noted it “is not desirable to create a special class of redundant worker with legal rights that go beyond those of the generality of workers” made redundant.
The practicality of the six key proposals will need to be examined in further detail as it is clear that there is currently inconsistency between employment law and insolvency practice.
While the corporate restructuring involved in the Clerys case was lawful, the events led to a significant cost to the taxpayer by way of the SFI. The Government therefore has an interest in avoiding a similar occurrence arising in the future.
Responses to the report have been invited from stakeholders including business and employer bodies, trade unions and other interested parties, following which a response from the Government will be published.
Our Employment Law and Benefits team will keep you updated on any legislative developments as they arise.
For more information, please contact a member of our Employment Law and Benefits team.