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Labour Court Holds That Payment In Lieu Of Notice Prevented The Employee From Being Entitled To Bring A Claim Under The Unfair Dismissals Legislation

Once an employee has one year’s continuous service with the same employer, that employee is protected by the Unfair Dismissals Acts 1977-2015 (“the Unfair Dismissals Acts”). A question that frequently arises is whether paying an employee in lieu of notice can prevent the employee from accruing a year’s service for this purpose. 

A recent Labour Court Determination in Action Health Enterprises Ltd –v- Michael D’Arcy, Determination No. UDD2019 discusses this question in detail and sets out important guidance on this point.  

Before discussing the facts of this case, it is important to point out that an employer is only entitled to pay an employee in lieu of notice if the employee has consented to it or if the employer has specifically retained the right to do so in the employee’s written contract of employment. 

Facts:

Mr. D’Arcy (“the Complainant”) commenced employment with Action Health Enterprises Ltd (“the Respondent”) as a Business Development Manager on 31st January 2017. Ten months later on 30th November, 2017 the Respondent terminated the Complainant’s employment on a “no-fault” basis. The Complainant had a three month contractual notice entitlement and the Respondent had included a provision in the Complainant’s contract of employment allowing the Respondent to pay the Complainant in lieu of his three month notice entitlement.

The Respondent issued the Complainant with a letter on 30th November, 2017 informing him that his employment was terminating effective immediately and that he would be paid in lieu of notice. The letter stated that he would receive the payment in lieu of notice within 14 days.

The Complainant received the payment in lieu of notice on 17th December, 2017. However, the payment was prompted by a letter from the Complainant’s solicitor requesting the payment.

The Complainant successfully sued the Respondent for unfair dismissal before the Workplace Relations Commission (“WRC”) and was awarded €45,000.00 in compensation under the Unfair Dismissals Acts.

The Respondent appealed that decision to the Labour Court on the sole point that the WRC did not have jurisdiction to hear the claim as the Complainant did not have one year’s service.

The Respondent argued that the correct “date of dismissal” for the purpose of assessing whether the Complainant had the protection of the Unfair Dismissals Acts (“Date of Dismissal”) was 30th November, 2017.

The Respondent argued in the alternative that the latest date the Labour Court should consider entertaining as the Date of Dismissal was the date on which the Complainant’s statutory minimum notice period prescribed by the Minimum Notice and Terms of Employment Act 1973 (“the Minimum Notice Legislation”)  would have expired had the Complainant not been paid in lieu of notice. Since that date would only be one week later, the Respondent argued that either way the Complainant did not have the requisite one year’s service to avail of the protection of the Unfair Dismissals Acts.  

The Complainant on the other hand argued that the Date of Dismissal should be the date on which his three month notice period would have expired had he not been paid in lieu of notice. Since that date would have been the end of February, 2018, this would have brought him to over a year’s service.

Decision and Takeaways:

While ultimately the Labour Court overturned the WRC Adjudicator’s decision and upheld the Respondent’s appeal, it examined some important technical legal points that, depending on the facts of any given case, could have a big impact on the question of whether payment in lieu of notice will bring the employee over one year’s service.

The following is a summary of the main points an employer should be aware of arising from this Labour Court’s Determination:

  1. While including a payment in lieu of notice provision in the contract of employment entitles an employer to pay an employee in lieu of their contractual notice period, the view of the Labour Court appears to be that the employee will nonetheless still have a right to receive and (if they chose to do so) to work out their minimum statutory period of notice provided for under the Minimum Notice Legislation. Where an employee has less than one year’s service, that minimum statutory notice period will be one week. This means, for example, that if an employer leaves it until an employee has 51 weeks service before terminating the employment relationship and exercising a contractual right to pay the employee in lieu of notice, that employer risks a finding that the statutory minimum one week’s notice period operates to take the employee over a year’s service so that the employee becomes entitled to take a claim under the Unfair Dismissals Acts.
  1. The Labour Court determination acknowledges, however, that the Minimum Notice Legislation does allow the employee to waive their minimum statutory notice entitlement or accept payment in lieu of that entitlement. Having said that, it appears from the Labour Court determination that for this to be valid the employer may have to make an “offer” of payment in lieu of notice and the employee may need to “accept” that offer. Where such “offer” and “acceptance” occurs, the effect of this would appear to be that the Date of Dismissal would then be deemed to be whatever date the employer notifies the employee that he/she is being dismissed with immediate effect and is being paid in lieu of notice. It seems that in the case at hand, the fact that the Complainant’s solicitor followed up on the payment in lieu of notice was interpreted by the Labour Court as a form of acceptance or approval of the Respondent’s contractual right to pay the employee lieu of notice. While it is not explicitly stated in the determination, it would appear that it was on this basis and in light of an acknowledgement by both sides at the hearing that “the parties to a contract are free to provide that payment can be made as an alternative to notice”, that the Labour Court determined the Date of Dismissal was 30th November, 2017 as opposed to one week later when the minimum statutory notice period would have expired. While that particular point was not of any huge consequence in the Complainant’s case as neither of those dates would have brought him to a year’s service, it is a point that could become more relevant in other cases depending on the facts. However, the key point in so far as the Complainant was concerned was that the Labour Court did not allow him to count the balance of his three month contractual notice entitlement (which was paid in lieu) towards his service. This meant he could not demonstrate a year’s service which in turn meant he was not entitled to bring a claim under the Unfair Dismissals Acts.    
  1. Another issue the Labour Court determination in this case raised is the potential importance of the date on which the employer makes the payment in lieu of notice to the employee. Based on technical legal reasons outlined in the determination, where an employee’s notice period could potentially bring them over a year’s service, it may be advisable for the employer to ensure that the payment in lieu of notice is made on the same date as the employer gives the employee the notice of dismissal .

The fact that the employee in this case did not succeed in claiming that his contractual notice period (which had been paid in lieu) took him over one year’s service is a helpful precedent for employers.  

Having said that, the case very much demonstrates the number of complex and technical legal considerations that can come into play when trying to calculate whether an employee has accrued a year’s service.

Employers should, therefore, bear in mind that the closer an employee gets to accruing a year’s service, the harder it can be to successfully terminate the employment relationship before the employee accrues the protection of the Unfair Dismissals Acts.

In light of this, if an employer is considering terminating an employment relationship they should take legal advice as to how best to do so at the earliest possible stage and well in advance of the employee getting near the one year’s service mark.

Link

Authors – Anne O’Connell, Laura Reid

Date: 23rd June, 2020

Anne O’Connell Solicitors

Fitzwilliam Hall

Fitzwilliam Place

Dublin 2

www.aocsolicitors.ie

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