UD201/2012

EMPLOYMENT APPEALS TRIBUNAL

CLAIM OF:                                                                                                                CASE NO.

                                                                                                                                   UD201/2012

Employee        -           claimant

against

Employer         -           respondent

under

UNFAIR DISMISSALS ACTS, 1977 TO 2007

I certify that the Tribunal

(Division of Tribunal)

Chairman:       Mr. P. O'Leary B. L.

Members:        Mr M. Carr

                        Mr O. Nulty

heard this claim at Monaghan on 14th October 2013

                                               and 17th January 2014

Representation:

_______________

Claimant:         Morgan McManus, Solicitors, The Diamond, Clones, Co. Monaghan

Respondent:    Mr Bart O'Donnell B.L. instructed by,

                        O'Shea Legal, Solicitors, 3 Chancery Place, Dublin 7

Respondent’s Case

JS, the Managing Director gave evidence of the firm being a large quantity surveying business employing up to 134 at its height. At the time of the claimant’s departure the firm was down to 10 employees. JS is a 92% shareholder and he gave a 4% share to the claimant and another colleague (thereby making them directors) because he wanted to retain their expertise and reward them for their good work. Turnover went from 2.5million in 2007 to 360k in losses in 2012.

Redundancies were inevitable but directors were not considered in first instance as JS wanted to retain their skills. All avenues to save monies were looked at, including admin costs, part time work, unpaid leave and director’s pay cuts. All three working directors and the chairman of the board were involved in making decisions and some voluntary and involuntary redundancies occurred.      

The chairman BMcG is a non-executive Director. He identified the issue of too many directors, the business was top heavy. The claimant didn’t want to go and wouldn’t agree terms. JS even considered leaving himself as he was nearing retirement age. He wanted the company to survive and its only chance was if some directors were made redundant.

The respondent’s case continued on the second day of hearing with evidence from the Chairman of the respondent Board of Directors (BmcG). BmcG is an accountant, a member of the Institute of Directors and a non-executive director of the respondent. The redundancy process started within the respondent in 2008. Severely reduced income and fees as a result of the economic downturn necessitated this process. During the period there were three waves of redundancies. The executive management team were excluded from the redundancy process to ensure continuity of the business. BmcG had suggested as early as 2009 that the executive directors should be considered in a redundancy context but this was not acted on until 2011. The claimant had previously accepted one pay cut of 19.5% but when asked to take a further reduction, he refused. The managing director’s son (a surveyor) took a pay cut and was later given a pay rise, resulting in a net pay cut of 21%.

In 2011 BmcG was asked to provide 2 options for the company going forward in relation to the executive directors. He proposed firstly that the claimant and the other executive director should be made redundant and their shares bought back by the company meaning the managing director would resume full ownership. Secondly that the claimant and the other executive director buy the managing director’s shares and he be made redundant. BmcG had no preference either way; his only concern was with the health and future viability of the company. These options were proposed to the Board for consideration in May 2011. The minutes of that meeting state, ‘It was recognised by all that the current position was not sustainable and that there were too many directors and time for action was upon the board.’ The claimant was present at this meeting.

Redundancy procedures as per the employee handbook were followed throughout the redundancy process. In the context of the executive directors/managing directors proposed redundancy being referred to the Board for consideration, the employee handbook stipulates that,

     ‘It must, however, be recognised that where the needs of the company so dictate, the procedure will be adapted to the particular circumstances which prevail.’

As there was the purchase of shares involved this decision had to go the Board. They passed the resolution to make the claimant and the other executive director redundant at the June 2011 Board meeting, the managing director made that recommendation. The claimant abstained from the vote.

After the resolution was passed by the board, consultation with the claimant commenced. A number of meetings were held with a view to making the claimant redundant in September 2011. There were issues around the value of the claimant’s shares; these were ultimately resolved. The claimant could have proposed a credible alternative to redundancy. The claimant did not appeal this decision.

BmcG was not aware of any issues the claimant had with the managing director or his son; nothing was ever reported to him as Chairman of the Board. In 2009, the managing director’s son would have been selected for redundancy based on his scores in the selection matrix but eventually the redundancies were achieved on a voluntary basis. BmcG does not agree that the claimant was selected for redundancy as he voiced concern over the redundancy process that the MD’s son was involved in.

The other executive director informed BmcG that he was not interested in buying the managing directors shares and taking over the company with the claimant.

Claimant’s Case

The claimant had been employed with the respondent since 1993. In 2000 he became director of both the north and south of Ireland companies. In 2005 he became a shareholder in the respondent; previous to this the MD was the sole owner of the respondent. The claimant and the other executive director’s shareholding was implemented as it was planned that they would take over the company when the MD retired. The ‘succession plan’ was always on the agenda. The claimant maintains that from 2008 to 2011, due to the cost saving measures implemented, the company was breaking even or had marginal profits.

In 2009 there was a redundancy process for surveyors and intermediate surveyors. Based on the selection criteria scoring, the MD’s son would be made redundant. The MD approached the claimant and the other executive director and asked ‘could they live with’ the MD’s son remaining in employment. The claimant felt that he had no choice in the matter but made sure that the redundancies were then carried out on voluntary basis; this resulted in a huge cost to the company. The MD’s son was then given a pay rise without the consent of the Board; it is in this context that the claimant refused to take a further pay reduction.

Prior to May 2011 redundancy at executive level had never been proposed. The previous week to this the claimant was informed by the MD that he had instructed ‘succession papers’ to be drawn up. The claimant was concerned about the money requested for buying out the shares so presented an alternative proposal. At all times the other executive director was on board with the option to buy the MD’s shares and take over the company.  On the other hand the claimant would have been happy to sell his shares and revert to being an employee director. The claimant and MD entered into talks to come to a compromise agreement but these talks broke down before conclusion.

The claimant’s redundancy was presented and agreed by the Board in June 2011. The MD told the claimant that he was seeking a consensus to make the claimant redundant at the Board meeting; the claimant could not agree to this so declined to attend and vote. The claimant consistently queried the business rational for his redundancy but only received vague answers that it was cost related. The MD did tell him that the company needed ‘to be re-sized and re-shaped’; the claimant accepts this as rational for other redundancies but not for his selection. The claimant wasn’t afforded any of the normal fair procedures associated with redundancy; he was taking advice and was clear on what the proper process should have been.

The claimant gave evidence of his loss and his attempts to mitigate his loss.

Determination

The Tribunal, having carefully considered the evidence in this case determine that the claimant’s dismissal was fair in all the circumstances. It is clear that the company was in a difficult financial position and that the major costs in the company were being sustained by the presence of excessive executive directors. The claimant had indicated that he was not prepared to take any further reductions in salary, so no other option was open save a reduction in the number of executive directors. In the circumstances two out of three executive directors were dismissed by reason of redundancy and the sole remaining executive director was the managing director and founder of the company. It follows that the dismissal of the claimant in such circumstances was the only option for the survival of the company.

The claim under the Unfair Dismissals Acts, 1977 to 2007 fails.  

Sealed with the Seal of the

Employment Appeals Tribunal

This   ________________________

(Sgd.) ________________________

     (CHAIRMAN)