Complainant

Respondent

Parties

Ian Martyniak

XS Direct Insurance Brokers Limited

Representatives

Not represented

Mason Hayes & Curran Solicitors

Act

Complaint Reference No.

Date of Receipt

Complaint seeking adjudication by the Workplace Relations Commission under section 6 of the Payment of Wages Act, 1991

CA-00043982-001

10/05/2021

The complainant was employed as a claims handler in the respondent’s insurance brokers from June 26th 2015.  He earned an annual salary of €33,000 plus a commission-based bonus.  In January 2021, he applied for voluntary redundancy and he left the company on March 31st.  This complaint concerns the respondent’s decision in April 2020 to reduce the complainant’s wages and commission by 15% due to the impact of the Covid-19 pandemic.

For 11 months from April 28th 2020, until his employment was terminated on March 31st 2021, the complainant’s pay and bonus earnings were reduced by 15%.  He claims that he suffered a deduction in his wages of €450 per month, equivalent to a total of €4,950 and a deduction in his bonus of €1,280.66.  Employees were notified about the changes in an email from the chief executive officer (CEO) on April 15th 2020.  The CEO explained that the reason for the deduction was because Covid-19 had “a material impact on our business with significant reduction in revenue and claims notified in both the United Kingdom and Ireland.”

The complainant submitted a copy of the email from the CEO dated April 15th 2020.  In this email, the CEO informed the employees that their agreement was required to implement the pay cuts which would last for six months.  On April 23rd however, a fact sheet was sent to employees in which they were informed that the pay cuts would go ahead at the end of the month without their agreement.  On July 7th 2020, the CEO wrote again to the employees, explaining that, due to a rise in reinsurance costs, the pay cuts would last for another six months, until January 2021.  In that month, applications were invited for a voluntary redundancy programme.  The complainant submitted an application and he left the company at the end of March.

The complainant did not agree to the deduction in his wages and bonus and he argues that the respondent’s action is in breach of section 5 of the Payment of Wages Act 1991 (“the Act”).    

This complaint was submitted to the WRC on May 10th 2021.  On behalf of the respondent, Ms O’Neill argued that the relevant period for investigating a breach of the Act is the six months from November 10th 2020 to May 10th 2021.  The complaint’s employment ended on March 31st 2021 and Ms O’Neill submitted that the time frame for which I can consider a complaint is the 20 weeks from November 10th 2020 until March 31st 2021. 

In April 2020, for employees earning an annual salary of more than €25,000, the respondent reduced wages and bonuses by 15%.  This action was taken to avoid redundancies at the height of the Covid-19 pandemic.  When his job was made redundant in March 2021, the complainant received a statutory redundancy payment of €7,524 and an “ex gratia” lump sum of €8,976, resulting in a total payment of €16,500.  As the redundancy lump sum paid to the complainant was in excess of his statutory entitlement, Ms O’Neill proposed that I use the discretion afforded to me under section 6(1) of the Act and make no award of compensation.  In this regard, Ms O’Neill referred to the decision of the Rights Commission in Tony O’Neill v James McMahon Limited[1].  The Rights Commission concluded that the employer was in breach of the Payment of Wages Act, but that the financial circumstances of the company were such that the reduction in wages was justified. 

Ms O’Neill referred to a similar conclusion of a Rights Commissioner in the case of a Community Development Worker and a Community Development Organisation[2] where the wages of the employees on FÁS-supported programmes were unilaterally reduced.  This decision was upheld by the Employment Appeals Tribunal[3].

Ms O’Neill referred to a third precedent, the decision of the Employment Appeals Tribunal in the case of O’Byrne and Others v South West Doctors on Call Limited[4].  In this case, finding that the reduction in wages was lawful and that the employees had consented, the Tribunal also found that, given the drop in funding of the employer’s business by the Health Services Executive, the reduction in wages was proper and reasonable and no compensation was awarded.

Due to Covid-19, in April 2020, there was a significant reduction in revenue and insurance claims notified to the respondent in Ireland and the UK.  As the insurance business was considered to be an essential service, it was not possible to lay people off, and rather than implement redundancies, the respondent decided to reduce the salaries of the 95 employees who were paid more than €25,000. Following the CEO’s announcement on April 15th 2020, a number of conference calls took place and a Frequently Asked Questions (FAQ) document was circulated on April 23rd.  Ms O’Neill said that the respondent accepts that a full, formal consultation process did not take place, but that employees had an opportunity to raise concerns about the decision.  The complainant didn’t raise an issue or a complaint about the reduction in his wages at any time before he submitted this complaint to the WRC.

A copy of a 2020 financial statement was provided by the respondent in evidence at the hearing.  This shows that the company returned a loss of €3.4m in that year, compared to a profit of €2.4m in 2019.  In early 2021, 24 jobs were made redundant, leaving 96 employees remaining in the business.

The Relevant Law

Section 5(1) of the Payment of Wages Act 1991 sets out the parameters according to which deductions may be made from an employee’s wages:

“(1) An employer shall not make a deduction from the wages of an employee (or receive any payment from an employee) unless—

(a) the deduction (or payment) is required or authorised to be made by virtue of any statute or any instrument made under statute,

(b) the deduction (or payment) is required or authorised to be made by virtue of a term of the employee's contract of employment included in the contract before, and in force at the time of, the deduction or payment, or

(c) in the case of a deduction, the employee has given his prior consent in writing to it.”

It is clear from this section that, apart from statutory deductions of tax, PRSI and USC, before any other deduction is made from an employee’s wages, they must provide their written consent.

Section 5(6) addresses the circumstances in which wages which are properly payable are not paid:

“(6) Where—

(a) the total amount of any wages that are paid on any occasion by an employer to an employee is less than the total amount of wages that is properly payable by him to the employee on that occasion (after making any deductions therefrom that fall to be made and are in accordance with this Act), or

(b) none of the wages that are properly payable to an employee by an employer on any occasion (after making any such deductions as aforesaid) are paid to the employee,

then, except in so far as the deficiency or non-payment is attributable to an error of computation, the amount of the deficiency or non-payment shall be treated as a deduction made by the employer from the wages of the employee on the occasion.”

We know from section 5(1) above that, apart from tax, PRSI and USC, unless there is a provision in an employee’s contract of employment to deduct wages, an employer may not make a deduction from an employee’s wages, unless consent has been given in advance. 

Findings

On April 15th 2020, the complainant was informed in writing by the CEO that his wages and bonus would be reduced by 15% with effect from that month.  He didn’t object to the CEO’s decision, but he didn’t consent either.  For the remainder of his employment with the company, until March 31st 2021, he didn’t raise a grievance regarding the reduction in his wages and there is no evidence that he expressed a concern about it to anyone in management.  At the hearing, the complainant said that he was afraid to complain because he wanted to keep his job; however, it appears that he willingly agreed to leave his job because he applied for redundancy in January 2021.  Between the date that he applied for redundancy, and the date that he left the company, he didn’t raise a grievance regarding the pay cut.

Like many businesses in Ireland and across the world, 2020 was an extremely difficult year from a trading perspective.  Having returned a profit in 2019, the company was in loss-making territory for the whole of 2020.  It appears that when the pay reductions were first proposed, the management intended to ask the affected employees for their written consent.  By April 23rd however, there was a change of mind about this and the cuts were imposed without seeking consent. 

From the onset of the Covid-19 pandemic, significant supports were put in place by the government to support employers facing challenges in their businesses.  The FAQ of April 23rd 2020 shows that the respondent availed of the Temporary Wage Subsidy Scheme (TWSS) for eight weeks from March 26th 2020.  At the hearing, the CEO said that the Revenue rules for qualifying for the Scheme changed from a very low base and, after the changes, the company no longer qualified.  From this, I must conclude that the company’s financial circumstances were not sufficiently dire to qualify for the government support on an ongoing basis.

When I asked him why the company paid in excess of statutory redundancy to the 24 employees who applied to leave voluntarily, the CEO said that he wanted to do the right thing for those who were leaving.  It is my view that it was unreasonable to pay departing employees more than their legal entitlements while at the same time, deducting 15% from wages which were properly payable.

I have considered the legal precedents submitted by Ms O’Neill in support of the respondent’s case which show that, even when an employer imposes a wage deduction without consent, no compensation may be awarded.  While I acknowledge the outcome of these precedents, the case under consideration here was in the unique context of the Covid-19 pandemic, and thousands of employers in very similar circumstances did not impose compulsory pay cuts. 

Conclusion

I accept that the respondent’s business was in financial difficulties in 2020, and that it returned a deficit at year-end  It is my view however, that, while it may have been reasonable to reduce the wages of employees, it was not reasonable or lawful to do so without their consent.

From the complainant’s perspective, he provided no explanation for the delay submitting this complaint immediately after he left the company in March 2021.  His explanation for not raising a grievance while he was in employment, that he was afraid of losing his job, does not stand up to scrutiny.

In accordance with section 41(6) of the Workplace Relations Act 2015, I intend to consider the unlawful deductions during the six months prior to the submission of this complaint on May 10th 2021.  Therefore, the relevant period for consideration of the redress to be awarded is the 20 weeks from November 11th 2020 until May 10th 2021.  Based on the deduction of €450.00 per month in wages and an average of €128.10 per month in bonus earnings, I calculate the gross amount of the complainant’s loss during that period to be €2,312.40.

I decide that this complaint is well-founded.  In accordance with section 6 of the Payment of Wages Act, as amended, I am required to direct the respondent to pay compensation as a net amount.  I decide therefore, that the respondent is to pay the complainant compensation of  €1,734.30. 

Covid-19, unlawful deduction from pay