Originally published August 2010
Despite some more positive economic forecasts, companies are still looking to make cut-backs where they can. Understandably the provision of perks and non-essential benefits may be in the firing line.
Non-essential benefits can be anything from a bonus, medical coverage or car allowance to things as small as a daily newspaper, lunch-vouchers, tea and coffee. It is also worth noting that employee entitlements to a bonus or benefit payments are referred to under the Payment of Wages Act 1991. The definition of "wages" under the Act includes "any fee, bonus or commission referable to that employment whether payable under his contract of employment or otherwise". It could be argued that a broad spectrum of discretionary benefits may be encompassed by this definition.
The first thing to be considered is whether the benefits sought to be removed are expressly provided for in the contract of employment. Another point which must be looked at is whether the benefit is discretionary as per the contract i.e. is it up to the employer to decide whether the benefit will be given to the employee? If the benefit is provided as a term or condition in the contract then an employer is not entitled to unilaterally change such a fundamental term or condition of the employment without the employee's consent. Employees' contractual entitlements cannot be unilaterally removed by the employer without giving rise to potential claims for constructive dismissal, unlawful deductions under the Payment of Wages Act, 1991 or a trade dispute under the Industrial Relations Acts 1946 - 2004.
However, employers must be careful to examine an employee's contract before any cut-backs are made and even where a benefit may be appear discretionary, the custom and practice of the organisation in the past should be taken into account as the employee might have reasonable expectations regarding such benefits or perks. A balance will also need to be struck between the cost benefit of withdrawing such benefits and the effect it will have on employees in terms of morale and their incentive to perform for the business.
If a perk is not contained expressly in a contract it may be implied into the contract of employment by taking into account the custom and practice of the industry. In the case of O' Conaill v Gaelic Echo it was held that because it was the custom and practice for journalists in Dublin to receive holiday pay it was an implied term of the applicant's contract that he would receive holiday pay. It should be noted however that in order for custom and practice to imply such a benefit into the contract, the custom must be obvious to all concerned.
While it clear that an employer cannot unilaterally alter the core terms of the contract of employment, it may change work practices that may have developed through custom, but not to the extent that they would be deemed to have contractual status. It is important in considering such changes to understand the distinction between employees' terms and conditions of employment on the one hand and working practices on the other hand. In the case of Kenny v An Post the employer sought to remove a 15-minute paid rest break that had previously been agreed. As the long-standing agreement had never been the subject of a written agreement between the employer and the employees (or their representatives) and notice of the arrangement never went higher than the supervisor who has agreed it, the Court held that it was a work practice that did not have contractual effect and could be terminated by the employer at any time.
Where the employee's entitlement to a benefit, such as a bonus payment, is clearly provided for in the employment contract, the consent to any slight variation of this core term must be given by the employee even if the contractual benefit remains the same but the employee's entitlement to it is deferred by the employer. In the case of Finnegan v. J & E Davy the plaintiff claimed that he was owed over €260,000 arising from several years of deferred bonus payment schemes. The plaintiff had been simply informed by his employer that he was no longer to be paid his bonus at the end of the year to which it referred and some of it was deferred over a two year period, which meant that the plaintiff would be obliged to work two further years before he would receive his entitlements. The plaintiff was also informed that if he left his employer to work for a competitor that he would not receive his bonus entitlements. The Court rejected the employer's arguments and held that this new provision related to payment of the bonus had not been agreed upon, that it was a unilateral attempt by the employer to alter the terms of the employment contract, which was not accepted by the plaintiff and was therefore ineffective and that it was in breach of the employment contract. The Court also criticised the employer's failure to engage with the employee and involve him in decision-making relating to the contractual agreement between the parties.
Before an employer decides to implement any cutbacks - whether they are implied or not - it is important to note that consultation and collaboration with employees is often the best route to be followed if any dispute is to be avoided. By keeping employees appraised of the company's financial situation and fully informed, very often the level of resistance from employees can be reduced. By engaging with employees at the earliest opportunity in relation to such proposals, an employer is more likely to obtain the informed consent of employees to such proposals, particularly if such steps are taken by the employer in an attempt to prevent further redundancies or pay cuts.
LK Shields Solicitors is one of the leading law firms in Ireland. Founded in 1988, today we number some 23 Partners, 70+ fee earners and 130 staff. Our principal areas of practice include corporate, litigation and dispute resolution, commercial property, intellectual property and technology, financial services, employment, pensions and employee benefits.
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