Constructive Dismissal Upheld for Non Payment of Commission to Worker Despite Employer Going Into Liquidation

Wednesday 30 March 2011, 10am

A recent EAT cased heard that a worker was owed a substantial amount of commission by a company that had gone into liquidation. The commission was not paid to her and this led to the worker's resignation.

The company liquidator was notified of the hearing but did not attend and the case proceeded in his absence. In the form T2, the Respondent agreed that the commission was unpaid.

The Tribunal held that the employer was in breach of a fundamental term of employment – namely to pay the employee. It was stated that failure to pay an employee “entitles” them to treat the employment contract as repudiated and is a classic ground for constructive dismissal.

It was held that the worker was constructively dismissed and the dismissal was deemed unfair under the Unfair Dismissal Acts.

In assessing the worker's loss, the Tribunal had regard to the fact that the worker's employment would have ended in March 2010 when the employer went into liquidation. Thus the worker's loss was limited to an 8 month period and she was awarded €36,000 under the Acts.

The above case demonstrates a set of circumstances which are unfortunately common in today’s economic climate.

When an employer becomes insolvent and a liquidator or receiver is appointed then, subject to the date the debt accrues, any money due and owing to employees is protected and administered under the Insolvency Payments Scheme. Under this Scheme, employees may claim (through the liquidator/receiver) arrears of pay, holiday pay, pay in lieu of statutory notice and various other entitlements that might be owed by an employer to an employee including awards made under employment legislation and certain unpaid pension scheme and PRSA contributions.

When an employee makes a claim against the employer under the Scheme, the debt is transferred to the Minister for Enterprise, Trade and Innovation and any payments made are drawn from the Social Insurance Fund. Any part of a claim that is recovered in the final winding up of the business is paid back into the Social Insurance Fund.

There are some limitations and conditions applicable to payments made under the Scheme. Entitlements related to pay are limited to a maximum weekly rate which is currently €600 per week. There is also a maximum limit of 8 weeks’ pay for arrears of pay, sick pay and holiday pay. Generally, the Scheme applies to entitlements covering a period of 18 months prior to the date of insolvency or the termination of employment. Where an award is made to an employee under the employment legislation, the 18 month period applies from the date of the award. Therefore, if a company refuses to pay an award and the company becomes insolvent within 18 months of the date of the award, the Scheme will pay the award. The Scheme will pay any awards made after the date of insolvency. Payments under the Scheme are generally taxable, with tax and PRSI deductions ordinarily made by the liquidator/receiver.

Further where an employee has submitted a claim for payment of pay, sick pay, holiday pay or outstanding occupational pension scheme or PRSA contributions under the Scheme and such a claim has been refused, there is a right of appeal to the Employment Appeals Tribunal. An appeal may also be made to the EAT where the employee considers that the payment made is less than the amount claimed. The time limit to make an appeal is within 6 weeks of the decision being communicated but this may be extended by the Tribunal in certain circumstances. 

It should also be noted that although payments under the Scheme are made from the Social Insurance Fund, which also funds the Redundancy Payments Scheme, both schemes are independent of each other and any claims made by an employee under the Insolvency Payments Scheme will not affect their statutory redundancy entitlements.

debt is transferred to the Minister for Enterprise, Trade and Innovation and any payments made are drawn from the Social Insurance Fund. Any part of a claim that is recovered in the final winding up of the business is paid back into the Social Insurance Fund.

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