Recent Changes to Employment Law

There have been significant changes to employment law over the last couple of years with more change still to come. We discuss recent changes that are proving to be tricky for some employers.

Trial periods

In order to be able to dismiss an employee under a 90-day trial period clause, every employer must comply with certain specific requirements:

• First, a trial period may only be used for a new employee.  An employee who has previously worked for that employer cannot be made subject to a trial period. 

• Second, the employee must be given a copy of the intended employment agreement a sufficient time before the commencement of their employment to be able to read the agreement and seek advice, particularly on the trial period clause.

• Third, the employee must sign the agreement before they commence work.  An employee who signs an agreement on the day they start work is in fact an existing employee (even if they have only been an employee for a few minutes) and therefore cannot be made subject to a trial period. 

Failure to comply will mean that the dismissal is unjustified, and the employee will be entitled to compensation and, possibly, reinstatement.

Provision of information

A couple of years ago, the Employment Court held that in any dismissal situation,  employees were entitled to be provided with far more extensive information in relation to the possible dismissal (in that case, a proposed redundancy) than anyone - including employment lawyers - had ever previously thought. 

The basis for that decision was section 4(1A)(c) of the Employment Relations Act, which sets out an employer's obligations when the employer is proposing to make a decision that will, or is likely to, adversely affect the employee's continuing employment. 

This places an increased onus on employers to provide employees with all information relevant to the continuation of that employee's employment, as part of the decision-making process.  This duty applies even where that information would ordinarily be considered confidential or commercially sensitive. 

The rationale for requiring employers to provide relevant information to employees is to allow them to challenge or change the employer's view:  "Fully informed employees may have ideas of equal or greater merit than those of their employers".  In a disciplinary process, it is well-established that an employer must disclose to the employee all information the employer relies upon as part of the disciplinary process, so that the employee has a full opportunity to respond before a decision is made.

In practice this has resulted in increased requests for information from employees.  Employers will have to consider each request and determine whether the information sought is relevant, or whether there is a good reason to withhold it.  However, once all relevant information has been provided, the employer can proceed to make a decision.

Redundancy

Until recently justifying a dismissal due to redundancy was relatively simple - an employee could be dismissed if the business could be run more efficiently without him or her.  Provided the employer could show a genuine basis for redundancy, the Employment Relations Authority and Employment Court would not examine the employer's commercial reasons.

However, the Employment Court has now held that where an employer relies on financial hardship to justify redundancy, it must to provide financial information to the employee.  This is because under section 103A of the Employment Relations Act the Court must consider all the circumstances in determining whether the employer's actions were fair and reasonable. An employer's finances and commercial position are part of the circumstances leading to dismissal.

As a result, employees are now much better equipped to challenge the "business case" for redundancies, as two recent cases have shown.

In Totara Hills Farm v Davidson the Employment Court held that it can examine an employer's business reasons for a redundancy. In particular, the Court signalled that employers need to be prepared to demonstrate accurate and timely financial analysis, if seeking to justify a redundancy on the basis of cost savings.

In Brake v Grace Team Accounting Ltd, the employer disestablished Ms Brake's position shortly after hiring her.  It claimed that it made the decision due to its poor financial position. The Employment Court found that there was no convincing evidence that the company's position had deteriorated significantly over the six months Ms Brake was employed, and held that her dismissal was not justified.

Accordingly, before an employer commences a restructure on the basis of a need to make savings, they should undertake accurate financial analysis and forecasts in order to justify that position, and produce that evidence to employees.  The employer will then of course need to follow a proper procedure before making any decision.