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07. Termination of Employment Contracts

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07. Termination of Employment Contracts

Grounds for Termination

In Ireland, an employer can, at common law, terminate an employment contract without cause, provided that it is done in accordance with the terms of the contract.  However, if a term of the contract is breached (e.g. failure to comply with the notice provisions), this can give rise to a claim before the civil courts for wrongful dismissal and damages at common law, or a claim for injunctive relief in certain circumstances.

Notwithstanding any express contractual right to terminate, employees are afforded statutory protection against unfair dismissal under the Unfair Dismissals Acts 1977-2015 (“UDA”), discriminatory dismissal under the Employment Equality Acts and dismissal by reason of having made a ‘protected disclosure’ under the Protected Disclosures Act (see Whistle-blower Laws).

The UDA provides that the dismissal of an employee shall be deemed unfair unless, having regard to all the circumstances, there was substantial grounds justifying it.  To bring a claim under the UDA, an employee is usually required to have one year’s continuous service, but there are limited exceptions to this requirement.

It is essential for an employer to be able to establish that fair procedures have been followed before making a decision to dismiss.

A dismissal is automatically deemed unfair under the UDA if an employee can show that their dismissal was wholly or mainly attributable to:

  • membership (or proposed membership) of a trade union or engaging in trade union activities;
  • religious or political opinion;
  • legal proceedings against an employer in which an employee is a party or a witness;
  • age, race, colour, sexual orientation or membership of the Traveller community;
  • pregnancy, giving birth, breastfeeding or any other matters connected with pregnancy or birth;
  • making a protected disclosure under the Protected Disclosures Act; or
  • exercising (or proposing to exercise) their right to parental leave, force majeure leave, carer’s leave, maternity leave, adoptive leave, paternity leave or parent’s leave.

The following grounds are specifically listed in the UDA as fair grounds/reasons justifying dismissal:

  • The capability, competence or qualifications of the employee for performing work of the kind he was employed to do;
  • The conduct of the employee;
  • The redundancy of the employee;
  • The employee’s continued employment would be in contravention of any statute; and/or
  • Some other substantial ground justifying the dismissal.

Collective Dismissals

In Ireland, a ‘collective redundancy’ is where, in a period of 30 consecutive days, an employer dismisses:

  • at least 5 employees in an ‘establishment’ normally employing 21-49 employees;
  • at least 10 employees in an ‘establishment’ normally employing 50-99 employees;
  • 10% of employees in an ‘establishment’ normally employing 100-299 employees; or
  • at least 30 employees in an ‘establishment’ normally employing 300+ employees.

When calculating the number of employees normally employed in the establishment, the average of the number employed shall be taken in each of the 12 months preceding the date on which the first dismissal takes effect.

An ‘establishment’ is defined as “an employer or a company or a subsidiary company or a company within a group of companies, which can independently effect redundancies.” 

Where a genuine redundancy situation exists and collective redundancies are proposed:

  1. the Minister for Enterprise, Trade and Employment must be notified in writing of the collective redundancy proposals and other information prescribed by law at the earliest opportunity and in any event at least 30 days before the first dismissal takes effect.
  2. a statutory information and consultation process with ‘employee representatives’ must take place at the earliest opportunity and in any event at least 30 days before the first notice of dismissal is given. ‘Employee representatives’ include a trade union, staff association or excepted body with which it has been the practice of the employer to conduct collective bargaining negotiations.  In the absence of a trade union, staff association or excepted body, a person(s) chosen (under an arrangement put in place by the employer) by such employees from amongst their number to represent them in negotiations with the employer.

    The employer must meaningfully engage in the statutory information and consultation process with employee representatives.  In addition to providing employee representatives with certain information prescribed by law, the process should include a consultation on the possibility of avoiding the proposed redundancies, reducing the number of employees potentially affected by them, considering alternatives to redundancy and the basis upon which employees will be selected for redundancy.

Fines and penalties may be imposed on an employer for failure to comply with the statutory information and consultation obligations, for failure to notify the Minister as required by  law or for failure to maintain records showing compliance with the statutory requirements.  Fines may also be imposed where the collective redundancies take effect in advance of the expiration of 30 days from the date of notification to the Minister.

Individual Dismissals

As outlined in Grounds for Termination, the UDA provides that the dismissal of an employee shall be deemed unfair unless, having regard to all the circumstances, there was substantial grounds justifying it.  To bring a claim under the UDA, an employee is usually required to have one year’s continuous service, but there are limited exceptions to this requirement.

The ‘fair grounds’ capable of justifying a dismissal under the UDA are outlined in Grounds for Termination above.  Even where there is a fair reason for the dismissal per the UDA (e.g. conduct, redundancy, etc.), the employer must show that it followed a fair and reasonable process/procedure prior to implementing the dismissal (e.g. warnings given, the employee’s side of the matter being heard, and conducting a fair and proper investigation into the matter).

By way of practical example, redundancy is a potentially fair reason for dismissal under the UDA and can therefore offer a defence to an unfair dismissal claim.  However, in order to succeed with this defence, the employer must be able to demonstrate that it followed a full and fair redundancy process prior to implementing the dismissal and that a genuine redundancy situation (i.e. it falls within the definition of a ‘redundancy’ under the Redundancy Payments Acts 1967-2015) arose in the business.  While the concept of a full and fair redundancy process is not prescribed in statute, it has been developed in case law and typically involves placing the employee ‘at risk’ of redundancy and engaging in a series of consultation meetings with the employee to identify any alternatives to redundancy prior to making the decision to dismiss on the grounds of redundancy.  A selection process may also be required where the potentially impacted roles are interchangeable.

Where an employee is dismissed on the grounds of redundancy, the termination/redundancy payments typically include:

  • Notice;
  • Contractual and statutory entitlements accrued up to termination;
  • Statutory redundancy payment (if applicable); and
  • Enhanced/ex gratia payment.

The above payments are calculated as follows:

Notice

The relevant employees’ contracts of employment should be reviewed to determine the appropriate amount of notice that needs to be provided.  The company will need to decide whether it wishes the employee(s) to work out their notice period or be paid in lieu of notice (assuming it is permitted in the contract).

Statutory and/or contractual entitlements accrued up to termination

On termination by reason of redundancy, an employee will be entitled to be paid in lieu of any accrued but untaken holidays. In addition, the employee may be entitled to other payments or entitlements that would normally have accrued by the date of termination of their employment – i.e. pay, pension entitlements, expenses, etc.

Statutory Redundancy Payments

The Redundancy Payments Acts, 1967-2015 oblige employers by law to pay employees whose positions are made redundant a statutory lump sum which is calculated as follows:

  • one weeks’ pay, plus;
  • two weeks’ pay for every year of service by the employee, irrespective of age.

In calculating the above, a weeks’ pay is capped at €600 per week.

This statutory redundancy payment is a tax-free payment.

Enhanced Severance Payments

In addition to the above payments, it is also open to an employer in Ireland to provide an enhanced or ex-gratia severance payments to employees in a redundancy scenario.  Alternatively, the employer may be legally obliged to make additional enhanced termination payments on the basis of custom and practice.

Is Severance Pay Required?

Except in a redundancy scenario (where, as above, an employee may have sufficient service to be entitlement to a statutory redundancy payment), there is no statutory requirement to pay an ex-gratia severance payment to an employee on termination of employment (howsoever caused).  An employer may however be legally obliged to pay an enhanced redundancy/severance package where there is a contractual entitlement or an established custom and practice of making such a payment within the organisation.

Separation Agreements

Is a Separation Agreement required or considered best practice?

A settlement/separation agreement is typically entered into by an employer and an employee to settle a dispute and/or to waive any claims that an employee could potentially bring against the employer.  In exchange for settling the dispute and/or waiving the right to bring claims, the employee receives consideration (e.g. an ex-gratia severance payment).

There is no statutory requirement for parties to enter into a separation agreement in the circumstances outlined above, but employers can and do offer ex-gratia payments from time to time on termination of employment in exchange for the employee signing a compromise/separation agreement.

What are the standard provisions of a Separation Agreement? 

A separation agreement will normally:

  • reference the circumstances giving rise to the termination of employment (e.g. mutual agreement or redundancy) and the termination date;
  • outline any payments and/or other benefits being provided to the employee, subject to their signature of the separation agreement;
  • list the relevant statutes (under which the employee is waiving their right to bring claims by signing the separation agreement);
  • state that the employee fully understands the terms of the agreement and has taken independent legal advice on the meaning and effect of the agreement / was given an opportunity to do so;
  • contain various boilerplate provisions (e.g. governing law, that the agreement reflects the entire/whole agreement, that the agreement may be executed in counterparts, and, if applicable, that the parties’ consent to the use of electronic signatures).

Other provisions that generally appear in separation agreements are:

  • a requirement that the employee does not disparage or make any adverse remarks about the employer.
  • a provision relating to the taxation of the relevant payments and a tax indemnity in favour of the employer.
  • a provision relating to an employee’s obligations on or before the termination date e.g. in relation to returning company property.
  • a requirement on the employee to maintain confidentiality of any confidential information obtained during the course of employment and maintain confidentiality of the separation agreement, its terms, etc.
  • a statement of employment/reference and/or an announcement regarding the employee’s departure from the company.

Does the age of the employee make a difference?

In general, employers should avoid directly or indirectly discriminating against an employee on grounds of age.  That said, the Employment Equality Acts provide that it shall not constitute discrimination on the age ground for an employer to provide different rates of severance payment (i.e. any voluntary payment to an employee on termination of employment) for different employees (or groups or categories of employees), being rates based or taking into account the period between the age of an employee on leaving the employment and their compulsory retirement age (provided that it does not constitute discrimination on the gender ground).

An employee who has at least 2 years’ service with an employer will usually qualify for a statutory redundancy payment provided he/she is over the age of 16.

Are there additional provisions to consider?

An employee should be advised to seek independent legal advice on the terms of a settlement agreement and afforded a reasonable opportunity to do so, but there is no legal requirement that the employee must in fact take such advice.

‘Without prejudice’ conversations can only take place in Ireland on a lawyer-to-lawyer basis.  As such, any conversations, negotiations, etc. between an employer and employee regarding a settlement package offer, settlement agreement, etc. are not ‘without prejudice’ and may therefore be disclosed in any subsequent legal proceedings.

Termination/severance payments are taxable but certain tax reliefs are applicable, depending on the circumstances.  Tax advice should be obtained on case-by-case basis.

Remedies for Employee Seeking to Challenge Wrongful Termination

If an employee believes that they have been wrongfully dismissed, they may bring a claim for breach of contract before the civil courts and seek an award of damages.

 

If an employee believes that they have been unfairly dismissed, they may bring a claim for unfair dismissal to the WRC provided the employee has the requisite service with the employer (see Grounds for Termination).  The WRC can award redress in the form of compensation (subject to a maximum of 2 years’ gross remuneration), reinstatement or re-engagement.

 

If an employee alleges that they have been dismissed in a discriminatory manner (i.e. on any of the nine protected grounds/characteristics under the Employment Equality Acts (see Anti-discrimination Laws)), they may bring a claim before the WRC.  The WRC can award redress in the form of compensation (subject to a maximum of 2 years’ gross remuneration), reinstatement or re-engagement.  There is no minimum service required for an employee to bring this type of claim.  In gender discrimination cases, a claim may be made directly to the Circuit Court which can, in theory, award unlimited compensation.

If an employee alleges that they have been dismissed by reason of having made a ‘protected disclosure’ under the Protected Disclosures Act (see Whistle-blower Laws), they may bring a claim before the WRC.  The WRC can award redress in the form of compensation (subject to a maximum of 5 years’ gross remuneration) and/or require an employer to take a specified course of action. There is no minimum service required for an employee to bring this type of claim.

Whistleblower Laws

Ireland has an extensive statutory protected disclosures/whistleblowing framework which is set out in the Protected Disclosures Act 2014 (as amended) and the Protected Disclosures (Amendment) Act 2022 (together, the “Protected Disclosures Acts”).

Where an employee makes a disclosure of relevant information that came to their attention in a work-related context, they can avail of the protections under the Protected Disclosures Acts (i.e. protection from dismissal by reason of having made a protected disclosure and protection from penalisation (actual or threatened) (e.g. suspension, discrimination, demotion, transfer of duties, withholding a promotion and conducting a negative performance assessment) provided they have a reasonable belief that they are disclosing relevant information that tends to show a ‘relevant wrongdoing’.

A ‘relevant wrongdoing’ under the Protected Disclosures Acts includes, but is not limited to:

  • an offence being committed;
  • a person failing to comply with any legal obligation (other than one arising under the employment contract or other contract whereby the worker undertakes to do or perform work or services);
  • endangering the health or safety of an individual;
  • breaches of certain EU law; or
  • damaging the environment.

While the employee must have a reasonable belief that the information conveyed tends to show a relevant wrongdoing, he/she is not required to establish facts with certainty.  There is no good faith requirement in Ireland.  Notably, a matter is not a ‘relevant wrongdoing’ where it is the function of the employee or the employer to detect, investigate or prosecute and does not consist of or involve an act or omission on the employer’s part.

Disclosure under the Protected Disclosures Acts is encouraged on a stepped basis, i.e. to the employer directly in the first instance, but disclosures do not necessarily have to be made to the employer to constitute a valid disclosure affording protection under the legislation.  Disclosures can be made to other authorities, for example to a Minister or a legal advisor, as well as to third parties, such as the media or An Garda Síochána (the Irish police service), if certain requirements are satisfied.

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