Covid-19 effect on Redundancies due to a reduction in the volume of work or business
This article examines the lawfulness of termination of employment for redundancy under article 18(c)(viii) of Law 25/67, which expressly stipulates that reduction in the volume of work or business constitutes a reason for termination of employment, in light of the impact of the pandemic Covid-19 on volume of work or business. The authors assess relevant jurisprudence and conclude that termination of employment on the above basis is not justified at this stage. It is noted at the outset that the authors do not examine in this article any other basis for termination of employment in light of the pandemic effects.
Article 5 of Termination of Employment Law 1967 (N. 24/67), as amended (the “Law”), sets out the grounds and circumstances where an employer may terminate the employment of an employee without compensation. One of these grounds is, according to paragraph (b) of article 5 of the Law, redundancy. Article 18 of the Law sets out the grounds on which an employer may rely on to render an employee redundant.
According to article 6 of the Law, termination of an employment contract is deemed, until proven otherwise, unlawful. Therefore, in the event of a redundancy, the employer bears the burden of rebutting the presumption established by the Law in order to demonstrate that the termination of employment was effected in circumstances of genuine redundancy, as these are defined by article 18 of the Law (see also Soteris A. Chrysanthou a.o. v. Petros Pitsillis (Glass Market) Ltd a.o. (2001) 1 ΑΑΔ 383 (“Chrysanthou”)). If the employer fails to rebut the presumption of unlawfulness, the termination of employment is deemed unlawful and entitles the employee to compensation.
Article 18 sets out three grounds for redundancy. The first is that the employer ceased or intends to cease the activity of the business in which the employee was employed. The second is that the employer ceases or intends to cease the activity of the business at the location where the employee was employed. The third ground establishes the following sub-grounds for redundancy, all of which relate to operational matters of the business:
- Modernization, mechanisation or any other amendment in the production or organisation methods, leading to a reduction in the number of required employees;
- Changes in the products or in the production methods or in the employees’ required specialisations;
- Closure of departments;
- Difficulties in placement of products in the market or credit difficulties;
- lack of orders or raw materials;
- rarity in the means of production; or
- reduction in the volume of work or business activity.
This article focuses on the last sub-ground of Article 18(c)(viii) of the Law, that is, the reduction of the volume of work or business activity in light of the current circumstances and effects of the pandemic.
REDUCTION IN THE VOLUME OF WORK OR BUSINESS ACTIVITY
It must be noted at the outset that no definition exists in the Law for “reduction in the volume of work or business activity”. Accordingly, guidance must be drawn from the relevant case law.
According to the relevant case law, for the purpose of defining “reduction in the volume of work or business activity”, one must take into account the usual volume of business over the period of the last years prior to the termination of employment. This is subject to an objective analysis by the court. The Court will consider the relevant factors which the employer relies on in order to allege actual reduction of the usual business volume at the relevant time, to the extent that it reasonably justifies the termination of employment for redundancy.
In the case of A. Iasonos Ltd v. Charalambou Christou and ors (1994) 1 AAΔ 703 (“Iasonos”), the Supreme Court examined whether the seasonal or periodic reduction in the volume of work, justified dismissal due to a redundancy and decided that:
“…Seasonal or periodic reduction in the volume of work which, when compared with the usual level of business activity, leaves the volume of work unaffected, does not constitute a ground for temination of employment for redundancy. The volume of work may vary and fluctuate not only on a seasonal but on a daily basis. Should the position of the appellants be accepted, this would jeopardise the foundation of the Law which renders redundancy dependent on the objective factors of the business. The volume of work is determined in accordance with a fixed parameter reflecting the volume of the employer’s work in the course of his usual business activity“
Each case is decided on its own merits but in order for a redundancy to be deemed legal, the employer must demonstrate that the reasons for the redundancy will not be eliminated in the short term but that they will at least extend to the relatively unforseeable future (see the decision of Panayiota Stylianou v Polynikis Tourist Enterprises Ltd Case 185/83). In any event, the reduction in the volume of work for a period of 2 months is not sufficient to justify redundancy. If that were the case, any employer who experiences a reduction in the volume of work for a single day, would be able to invoke the redundancy provisions as a reason for termination of employment (see first instance decision of Maria Eleftheriou v. Suzukoyoto Ltd Case No. 226/2014, Decision Date 19.7.2016)
Each case is decided on its own merits but in order for a redundancy to be deemed legal, the employer must demonstrate that the reasons for the redundancy will not be eliminated in the short term but that they will at least extend to the relatively unforseeable future.
CAN COVID-19 JUSTIFY A REDUNDANCY
It is indisputable that the effects of the pandemic led to unprecedented turmoil in many businesses, which, in turn, wish to take immediate action to ensure their viability. It is also likely that the reduction in the workload caused by the pandemic will remain ongoing for the relatively unforeseeable future, but on the other hand, the financial records that an employer maintains in order to be able to prove a redundancy are for a relatively short period.
In fact, it has been decided by the courts that according to the requirement of good faith that characterises the employer-employee relationship, the employer must take less radical steps before resorting to termination of the employment contract (see Rodi v. Zevlaris and ors Case No. 129/96). The clear incentives provided by the Minister of Labour, Welfare and Social Security to employers for, among other things, non-dismissal of any employee also aim towards this direction. We are referring to the two Government Business Support Plans which provide for special allowance to an employer whose operations have been completely or partially suspended.
According to the requirement of good faith that characterises the employer-employee relationship, the employer must take less radical steps before resorting to termination of the employment contract. The clear incentives provided by the Minister of Labour, Welfare and Social Security to employers for, among other things, non-dismissal of any employee also aim towards this direction.
Therefore, it is possible that termination at this stage is premature and cannot be justified on the grounds of redundancy based on the reduction in the volume of work or business. This is because (1) a very short time has elapsed from the outbreak of the pandemic in Cyprus so as to be able to draw safe conclusions as to whether or not there is an actual reduction of the employer’s volume of work or business, in light of the above case law and (2) there is for the employer the possibility of adopting a less radical alternative i.e. the participation in the Government Business Support Plan for as long as it remains available. Participation would also extend the time for which the employer can draw safer conclusions before proceeding with the more radical measure – which is the termination of an employment contract.
We conclude that apart from the fact that termination under Article 18(c)(viii) of the Law seems to be unlawful at this stage, it could also be reasonably stated that the existence of Government Business Support Plans renders the termination of employment on this basis premature.
We note that in the present article we do not consider how the pandemic may affect other reasons for termination of employment or redundancy included in the Law.
Nataly Papandreou & Evripides Hadjinestoros
This article is given for information purposes only and it does not constitute legal advice. For further information and advice please contact Mr. Evripides Hadjinestoros at email@example.com.