July 12, 2024

The Chief Mag

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Increased Protection for Employees in Insolvency Situations Signed into Law

5 min read

The Employment (Collective Redundancies and Miscellaneous Provisions) Act 2024 has been signed into law. The Act, once commenced, will amend the existing collective redundancy regime in insolvency situations and will deliver on key Programme for Government commitments detailed in the Plan of Action – Collective Redundancies following Insolvency.

Background

In June 2020, the coalition parties committed in the Programme for Government to review whether the legal provisions surrounding collective redundancies and the liquidation of companies effectively protect the rights of workers.

As a result, a Plan of Action was published in May 2021 outlining the following decisions that had been taken:

  • To amend legislation in the areas of employment law and company law dealing with matters relating to collective redundancies following company insolvency;
  • To develop a Guidance Document for employees facing a collective redundancy situation following a company insolvency;
  • To establish a statutory expert Employment Law Review Group (“ELRG”).

In December 2021, the Department of Enterprise, Trade and Employment published an Information Handbook – Rights and Remedies Available to Employees Facing a Collective Redundancy Situation which is available here. The Act reflects the changes to employment law and company law, and the establishment of the ELRG, as set out in the Plan of Action.

At A Glance

Proposed Changes to Collective Redundancy Legislation

Collective redundancies are redundancies that are effected by an employer where in any period of 30 consecutive days the number of dismissals falls within certain thresholds set out in the Protection of Employment Acts 1977 – 2014 (the “Acts”).

Once commenced, the Employment (Collective Redundancies and Miscellaneous Provisions) and Companies (Amendment) Act 2024 (the “2024 Act”) will introduce the changes outlined below to the Acts to enhance employee protections.

Criminal Offences

Failure to comply with the consultation, information and notification obligations will be a criminal offence, and the responsible person will be liable on summary conviction to a fine up to €5,000. Failure to comply with the obligation not to effect redundancies prior to the expiry of 30 days following notification to the Minister will be a criminal offence, and the responsible person will be liable on indictment to a fine up to €250,000. Under the 2024 Act, the outlined obligations on the responsible person, and the corresponding penalties, will be similar to those of an employer proposing and/or effecting collective redundancies.

Proposed Changes to Company Law Provisions

The 2024 Act will amend the Companies Act 2014 to improve the dissemination of information to employees as creditors in a corporate insolvency situation.

The Companies Act 2014 will be amended to introduce an obligation on company directors 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.” In deciding whether to grant the winding-up order, the court will be obliged to have regard to whether this notification was made.

Further, a provisional liquidator will be ordered by the court to inform employees (and, where applicable, employees’ representatives) of their appointment, the date of their appointment, the liquidation process (so far as it is applicable to employees), the fact that employees or their representatives can provide the provisional liquidator with information, and any other matter the provisional liquidator considers relevant. A liquidator or provisional liquidator will also be obliged, where a copy of a statement of affairs is served on them, to notify the employees and their representatives of this, and to send such a person a copy of this statement if requested to do so.

It is also worth noting that the Companies (Rescue Process for Small and Micro Companies) Act 2021 amended the Companies Act 2014 in December 2021 to reflect a number of proposals in the Government’s Plan of Action. These changes included:

  1. providing a liquidator with the power to bring or defend legal proceedings on behalf of a company before the Workplace Relations Commission and Labour Court;
  2. obliging the liquidator and director to ensure creditors are made aware they have the right to form and participate in a Committee of Inspection; and,
  3. where a Committee of Inspection is appointed it must include at least one employee creditor member.

The 2024 Act will also strengthen certain ancillary sanctions in the Companies Act 2014 that may apply in the context of a winding-up.

Firstly, it will no longer be a prerequisite to making a contribution order (against a company related to one being wound up) that the court would be satisfied that the circumstances that give rise to the winding-up are attributable to acts or omissions of the related company; rather, this will just be a factor to which the court shall have regard.

Secondly, in deciding whether a creditor has been given an unfair preference, the court will be permitted to look back further than the 6-month period currently specified, where it considers it just and equitable to do so.

Finally, the test for reckless trading shall become an objective one, in that where a person is a party to the carrying on of business in a reckless manner, it will no longer be a requirement that they “knowingly” did so. Moreover, it will no longer be a defence in this regard that the person acted honestly and responsibly; instead, they will need to show that they took all reasonably practicable steps with a view to minimising loss.

In lowering the threshold for such sanctions to be applied, it is anticipated that this will result in a greater focus on compliance in advance of winding-up.

Establishment of the ELRG

The 2024 Act provides for the establishment of a statutory expert Employment Law Review Group (the “ELRG”) to assess on an ongoing basis, all aspects of employment and redundancy law to ensure it is fit for purpose. It will be similar to the existing Company Law Review Group.

The ELRG would act independently, with the Chair appointed by the Minister. It is anticipated that its members will have expertise and an interest in the development of employment law, including legal practitioners, businesses and unions, implementation and enforcement bodies (Workplace Relations Commission, Labour Court) and representatives from government departments as well as the Revenue Commissioners and the Office of the Attorney General. Terms of Reference and an annual work programme will be agreed with the Minister for Enterprise, Trade and Employment. The forum will act as an independent advisory expert group to help with formulation of policy and legislation impacting employees.

What Next?

The 2024 Act has not yet been commenced. We will provide a further update once the commencement order has been signed by the Minister.

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