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Review of Severance Settlements for the 1st half of 2012 – Private and Public Sector

2012 kicked off with a change to the employer rebate from 60% down to 15% on statutory redundancy payments. Generally there has been a downward pressure on severance settlements in both private and public sectors.

The establishment of key markers for the public service, commercial semi-states and state-supported banking sector was a major feature of severance negotiations in 2012 so far.

Meanwhile, in the private sector the employee ‘sit-in’ returned as a feature of the industrial landscape, spearheaded by the union-backed Vita Cortex dispute, but also with short sit-ins in non-union companies like Target Express.

REBATE CUT

The Government’s reduction in the employer’s rebate on statutory redundancy, from 60% to 15% was intended to provide employers with an incentive to seek alternatives to redundancy, as the portion of the cost borne by the employer has increased significantly, especially where statutory redundancy only was being paid.

  • overall number of redundancies dropped by 31% (comparison of 1st half of 2011 and 2012) 
  • however 2010 saw a drop of 23% from 2009 (peak of recession)
  • with a drop of 15% in 2011 compared to 2010 figures.

How the extra cost on employers is affecting ex-gratia severance formulae is less certain at this stage. IBEC made it clear in the wake of the Budget decision that it would seek to reduce ex-gratia severance packages to reflect the lower employer rebate – by as much as one week’s pay per year of service. But it is possible that the ex-gratia settlements were already decreasing by the time of the budget change to the rebate.

PUBLIC SECTOR

In the public sector, the early part of the 2012 was the period in which several trends in limiting severance payments came together. The HSE package of three weeks’ pay per year of service, plus statutory – first offered in late 2010 – became close to a standard across the State-owned and state supported sector.

In the public service itself, while compulsory redundancies are barred by the Croke Park agreement, the possibility of further voluntary redundancies is on the cards, if the Government’s overall job reduction targets are not met. For these situations, a collective agreement was reached with the public service unions, which stipulates that terms similar to the HSE formula will be applied in any such situations that emerge.

In the banks, an ongoing standoff between the Department of Finance on the one hand – and unions and management in the banking sector on the other – had emerged in 2011, as the Department baulked at paying high precedent packages of up to eight weeks’ pay per year of service, given the scale of public financial support to the sector – and the potential precedent it could set for the public sector itself. This standoff was eventually resolved around May, as both AIB and Bank of Ireland agreed voluntary packages that mirrored the HSE terms.

For the commercial semi-state sector, the downward trend in severance packages was also clearly visible, albeit with several exceptions. While at least one semi-state firm – Coillte – offered a package very close to the HSE formula, others were not bound by that formula, although they did have lower packages on offer than in recent years.