A cumulative award of nearly €120,000 has been made by the Workplace Relations Commission (the “WRC”) to 61 former Clerys workers. The award was made in respect of a breach by the company of the Protection of Employment Act 1977 which provides that an employer has a duty to consult staff representatives and provide them with certain information in collective redundancy situations in advance of any decision on redundancy is formalised.
The Duty to Consult with Staff in Collective Redundancy Situations
The 1977 Act provides that consultation must take place at the earliest opportunity and at least 30 days before the notice of redundancy is given. Breach of the legislation can result in awards of up to 4 weeks’ pay being made or a fine of €5,000 on summary conviction.
The WRC Decision
In short, the WRC found in this case that the company acted in breach of the 1997 Act by failing to consult with staff in advance of making them redundant.
Background to the Case
OCS Operations Limited which had run Clerys since 2012 was sold to Natrium on 12 June 2015 and a provisional liquidator appointed later the same day. The provisional liquidator informed employees that the store was closing with immediate effect and that their roles were redundant. P45s were issued to staff on 18 June and the company’s liquidation was confirmed by the High Court on 6 July 2015.
The employees claimed that OCS Operations was required to consult with them in accordance with the legislation notwithstanding the fact that a liquidator was appointed. As is often the case in insolvency situations, OSC Operations did not make any submissions at the hearing. However, they subsequently wrote to the WRC stating that that the powers of the provisional liquidator, as granted by the High Court, did not include a power to enter into consultation with the employees in accordance with legislation.
This argument was rejected by the WRC which found that OSC Operations had breached the legislation. The WRC relied on the decision of the Court of Justice of the European Union (the “CJEU”) in Claes (C-225/10) which held that the EU Directive 89/59 on the approximation of the laws of the Member States relating to collective redundancies:
“must be interpreted as applying to a termination of the activities of an establishment that is an employer as a result of a judicial decision ordering its dissolution and winding up on grounds of insolvency, even though, in the event of such a termination, national legislation provides for the termination of employment contracts with immediate effect.”
The WRC held that the EU Directive applies in insolvency situations even where national legislation provides that employment contracts terminate automatically when a company is wound up.
The CJEU judgment went on to find that:
“the employer’s obligations pursuant to those provisions must be carried out by the management of the establishment in question, where it is still in place, even with limited powers of management over that establishment, or by its liquidator, where that establishment’s management has been taken over in its entirety by the liquidator.”
Relying on the Claes decision, the WRC made awards ranging from €394 to €3,408. It is likely that the awards in this case will need to be to be paid from the Social Insurance Fund.
What it means for liquidators
- The literal implication of the decision
It appears that liquidators may be required to give employees 30 days’ notice of the termination of their employment. It is difficult to see how this decision can be compatible with insolvency law, practice and procedure in this jurisdiction.
Section 589 of the Companies Acts 2014 provides that “the winding up of a company by the court shall be deemed to commence at the time of the presentation of the winding-up petition in respect of the company”. This arguably means that the Company’s corporate existence ceases and the employees automatically become redundant before the liquidator is even appointed.
- The commercial reality
The reality of the situation is that liquidators are unlikely to change the way in which they deal with employees as, if an employee has a claim which is ultimately successful before the WRC (or any other judicial authority), the award is usually paid from the Social Insurance Fund. The Social Insurance Fund then becomes a preferential creditor in the liquidation and is paid in accordance with the normal order of priority from whatever assets are available to meet such a claim.
While the awards in this case are relatively small on an individual basis, ultimately it is the State who picks up the larger bill at the end of the day, a bill which could easily be avoided if the employer or liquidator complied with the 30 day consultation requirement.
Following the closure of the store in June 2015, Kevin Duffy, Labour Court Chair, and Neasa Cahill, BL, have been appointed to prepare a report examining the interface between employment law and company law to establish whether the legal protections for employees and unsecured creditors are sufficient. The report is expected to be finalised shortly.
Remember that this article is for information purposes only and does not constitute legal advice. Specific advice should always be taken in given situations.
If you have any queries in relation to the this case please contact a member of our Employment or Insolvency units.
Julie Austin, Associate, Employment Unit
Mark Woodcock, Partner, Insolvency Unit