What is a 'sham' redundancy?

“Sham”

Noun: a thing that is not what it is purported to be.

Adjective: bogus; false.

Verb: falsely present something as the truth.

Introduction

Very recently, a number of cases have arisen before the Workplace Relations Commission (WRC) wherein accusations were made against employers that a redundancy was little more than a ‘sham’, designed to remove an employee from the workforce, under the pretence of change in operational or commercial requirements.

In Philip Hanley v PBR Restaurants Limited Fish Shack Café (ADJ-00031598), the Adjudication Officer (AO) described the process leading to the termination of an employee as “nothing more than a sham redundancy carried out in a ruthless and dishonest manner without a single thought for the personal damage the company inflicted on the complainant."

In Patrick Troy v Flynn Management & Contractors Limited (ADJ-00028488), counsel for the complainant argued that the selection of the complainant for redundancy was a sham and amounted to a procedural, “box-ticking” exercise in circumstances where the pre-determined selection process meant that nothing could have been done by the complainant to overturn his selection.

In Gerard Buston v Duggan Systems Limited (ADJ-00030023), the AO, finding on behalf of the employee, noted that “in the circumstances, I find that the redundancy of the Complainant was a sham redundancy and the Complainant was treated in an unreasonable manner. I find the Complainant was unfairly dismissed."

This office recently took a case on behalf of a Quantity Surveyor (the Complainant) against their former employer, a Contracting Firm (the Respondent). A complaint was made to the WRC under section 8 of the Unfair Dismissals Act, 1977. The AO found in favour of our client, noting that he had been subjected to a ‘sham redundancy’.

However, what does a ‘sham redundancy’ look like?

Background

The Complainant commenced employment with the Respondent on 01 January 2016. The Complainant was mainly involved in the restoration work undertaken by the company.

During 2020, the business began to struggle as a result of the Covid-19 pandemic.

In May 2020, the Complainant was diagnosed with cancer. The diagnosis and subsequent treatment were extremely traumatic for the Complainant and his partner. The Complainant married his partner during this time. When asked in cross examination where he had gone on honeymoon, the Complainant stated “I went to chemotherapy”.

The Complainant was certified as being unfit to work. However, during his cancer treatment, the Complainant asked if he could be given some work for his mental health. The Respondent gave him some work and made ex gratia payments to the Complainant. The Complainant also was paid for holidays which he had accrued over a few years due to his wife’s bipolar disorder.

On 26 May 2021, the Complainant received an email from the Respondent stating “I hope you can appreciate from 01 June 2021, no further payments will be made”.

In June 2021, the Respondent and the Complainant met for a coffee in order to discuss the Complainant’s future with the company. Both parties gave completely different evidence under oath as to what had happened at this meeting.

The Complainant gave evidence that it was clear from the email on 26 May 2021, that the Company no longer had any work for him. He stated that this had not come as a huge shock as he had notices that the restoration work which he was being asked to cost had dramatically increased.

The Complainant testified that at this meeting it was agreed that when the Complainant was fit to return to work, they would meet again to finalise his statutory redundancy. The Complainant was aware from inquiries that he had made, that he would be entitled to approximately €9000. The Complainant stated that “the dogs on the street knew he was being made redundant”.

The Respondent’s version of what happened at this meeting was completely different. He testified that he meeting had occurred at the request of the Complainant who had asked that be made redundant. The Respondent strongly contended that there was a position in the company for the Complainant, but that he had wanted to leave with a payment.  

On 12 October 2021, the Respondent received a medical certificate stating that the Complainant would be fit to work for a period of one week. On foot of this medical certificate, the Complainant and the Respondent met again on 19 October 2021.

At this meeting, the Complainant was extremely taken aback to discover that in calculating his statutory redundancy, the Respondent had factored in the ex-gratia payments that he had received for work done during his cancer treatment. At this meeting, the Complainant was also told that if he wished to stay in the company, he would have to start bringing in more business in order to alleviate pressures on the company. This increase in work would have put significant pressure on the Complainant.

The Complainant came away from this meeting feeling as though the Respondent was trying to push him out of the company and was offering him approximately €5000 less than he was entitled to. The only other option given to the Complainant was to return to his role, the nature of which had fundamentally changed.

The Complainant rejected the offer of the €4000. As was pointed out by Cillian McGovern BL, counsel for the Complainant, how could you ever trust an employer who had given you a gift in your darkest hour and was now seeking it to hold it against you? The relationship of trust and confidence between employer and employee had been irrevocably broken down.

On foot of this, the Respondent asked the Complainant to provide them with a sick certificate and a date when he would be returning to work. The Complainant did not comply with this request and so a disciplinary process was commenced in December 2021.

The Complainant still failed to communicate with the Respondent and on 15 March 2022 he was dismissed for gross misconduct.

The Complainant strongly contended that this disciplinary process, as well as the original redundancy process, was a sham. The Respondent knew that the Complainant was not a salesperson. They also knew that he was recovering from cancer and was not able to be put under additional stress and pressure.

This office strongly argued before the WRC that the Respondent’s decision to factor in ex gratia payments, which had been given to the Complainant during a life threatening illness, into the statutory redundancy was absolutely deplorable.

Findings and Conclusions

AO Brian Dalton delivered this decision remarkably quickly.

He found that the Complainant’s evidence was more credible and consistent with the emails shown at the hearing. He found that discussions relating to redundancy had in fact taken place. In his decision, Brian Dalton stated:

“The payment was classed as a gift. The credibility of a Company that then takes that into account when calculating statutory redundancy is diminished. A gift cannot be described as so and then becomes reckonable in calculating statutory entitlements”.

He went on to comment that the employment of the Complainant was then terminated under the cloak of not engaging in a shambolic disciplinary process. Brian Dalton stated:

“The Complainant was presented with Hobson’s choice. It was a take it or leave it, which was take the €4000 or you take this role which you cannot succeed in. That is no choice. The actions of the company thereafter were poisoned as they were not genuine.”

The AO also placed significant weigh on the fact that the Complainant’s role had not in fact been eliminated. His work is contracted out when it is needed.

He quoted from the decision in AG Bracey Ltd v IIes where it was said that “the law is that it is the duty of a dismissed employee to act reasonably in order to mitigate his loss”. The test as to whether or not an employee has in fact acted reasonable is determined on the basis of an objective test.

Brian Dalton stated that he had assessed the financial loss to be 9 months salary having regard to the time required to seek an alternative role and loss of statutory rights. However, he reduced this to 6 months salary due to the Complainant’s failure to engage with the company. On this basis €18,000 was awarded.

Takeaways

There are numerous lessons that both employees and employers can take away from this case.

Employers

If employers want to make somebody redundant, it must be genuine. You cannot simply dispose of an employee by way of redundancy because you no longer want to work with them. You must be able to show that their role is genuinely gone. In this case it is clear that the role of the complainant was not gone. It was contracted out by the employer on a need be basis.

We highlight the Employment Appeals Tribunal (EAT) case of John Edwards and Aerials and Electronics Ireland Ltd, UD236/85, where, by majority, the EAT concluded that the complainant had “raised major doubts “as to whether the redundancy was genuine. The EAT found they were faced with the following dilemma:

"We recognise that the function of a full time MD no longer exists, but we must direct our minds to the cause-and-effect relationship between redundancy and dismissal. The issue is whether he was dismissed because the employer had decided to re-organise the structure of the company, or whether a decision was taken to dismiss him for some other reason? In other words. Was the reorganisation a cause or a consequence? On balance, we are inclined to the latter view."

In this case, the EAT determined that they would need to examine the facts of a redundancy against the following test:

1 was there a genuine redundancy?

2 was selection fair?

3 was the manner in which the redundancy conducted fair and reasonable?

The EAT found an unfair dismissal on that occasion.

Recently, in the case of Tracey Ring v Student Facilities & Services (UCC) Designated Activity Company (DAC) T/A Unisalon (ADJ-00037197), the AO gave a very useful summary of expectations with respect to a proper redundancy process:

“An employer does not have a free hand to act as it pleases. An employer is bound to act within the requirements of the law, irrespective of the circumstances the employer is navigating. It is not in dispute that there was a global pandemic. However, there is a well-trodden path in respect of dismissing an employee lawfully, by reason of redundancy. Specifically, it requires the employee to be put on formal notice that his/her role is at risk of redundancy. It requires a genuine consultation process being entered into, with the employee, by the employer. Often, an employer will implement a selection matrix (and a points system) to determine which roles in the organisation are to be made redundant, in a bid to be as fair to employees as possible, as redundancy is ‘impersonal’ – it is the role and not the person that is being made redundant. A lawful redundancy process requires the genuine consideration of suitable alternative employment within the organisation, including any suggestions the employee brings to the table. It requires the employee to be afforded a right of appeal.”

Another takeaway for employers is that if you give employees a gift you cannot then use it against them. An ex-gratia payment is an ex-gratia payment. An employer is not entitled to give with one hand and then take it away with the other.

Finally, the WRC will not be fooled by a shambolic disciplinary process. AO’s are well trained in their field – it will not be easy to pull the wool over their eyes. If you are conducting a disciplinary process, you must do it properly. You cannot have decided the outcome before it has already begun.

Employees

This point applies to any employee who wishes to take a claim to the WRC for an employment law issue. The compensation awarded to you will be reduced if the AO finds that you have contributed to your own dismissal in any way. In this case, the compensation awarded to the Complainant was reduced by 3 months because he had failed to engage with the Respondent.

Therefore, a key takeaway for employees is to cooperate with every stage of the process even if you believe that your employer is acting in an unreasonable, or even a shambolic, way. It will stand to you later.