COVID-19 : Key Questions for HR, Pensions and Benefits Managers

by the A&L Goodbody Employment Pensions & Incentives teams

COVID-19 is presenting unique and unprecedented challenges for employers, who have to quickly react to workforce related issues in an ever-evolving situation. Employers now need to make difficult decisions to ensure that their businesses can navigate their way out of this crisis. A key area of focus at this time is payroll cost reduction. Our Employment Pensions & Incentives teams have been advising employers on various COVID-19 issues related to pensions, share schemes and employment law for a number of weeks and have put together responses to a number of frequently asked questions to help employers to develop a COVID-19 action plan.



1. Can we place employees on lay-off if there is no right to do so in the employment contracts?

Yes, the right to place employees on lay-off in certain circumstances is provided for in the Redundancy Payments Acts. An employer can impose mandatory lay-off where the employer is unable to provide work for the employee. There are two important conditions (a) it must be reasonable in the circumstances for the employer to believe its inability to provide work for the employee will be temporary; and (b) the employer gives notice to that effect to the employee in advance.

The amount of notice to which an employee is entitled is not provided for in statute, therefore reasonable notice should be given. What would be considered reasonable would depend on how far in advance the cause and the date of the interruption to normal working patterns are known. In the case of COVID-19, notice of a relatively short duration is likely to be considered reasonable notice.

2. Do we have to pay employees while on lay-off?

In order to lay-off employees without pay, there must be an express or implied contractual right to do so. If there is no express right in the contract of employment or incorporated into the contract by collective agreement, the employer may have an implied right to do so. In this regard, an employer might be in a position to show that there is an established custom and practice within the employment or sector of laying employees off without pay in circumstances of economic downturn or other periods of financial hardship.

Up until now, lay-off would usually have been without pay and employers could rely on the widespread custom and practice in Ireland of laying employees off without pay in this regard. However, with the introduction of the Temporary Wage Subsidy Scheme (TWSS), many employers who are laying employees off will be availing of the scheme and paying those employees the wage subsidy they receive from Revenue for the duration of the TWSS. As a result, employers in a sector where the majority of other employers are availing of the TWSS need to be aware of the risk that if they are not also doing so, there is a greater risk of non-payment of wages claims being brought in respect of the lay-off period. Also, there is an increased likelihood that employees will seek to rely on the fact that other employers in a sector are paying wage subsidies to employees on lay-off to undermine their employers’ argument that there is an established custom and practice within the sector of laying employees off without pay. In our briefing on the TWSS, we address employer FAQs.

3. Can we withhold bonus payments due in the next few weeks?

This will depend on the nature of the bonus payable and any relevant provisions of the contract of employment and/or published bonus scheme. Where a bonus is purely discretionary, it may be possible to withhold the bonus provided the discretion to withhold is reasonably exercised. Case law confirms that it can however be difficult to justify the withholding of a bonus that has been earned in accordance with the terms of a bonus scheme even if that scheme provides that bonus payments are discretionary. For example, if the rules of a bonus scheme are that a discretionary bonus is calculated by reference to company profit in 2019 and is payable in 2020, an employee would likely enjoy a contractual right to this bonus. It is far easier to withdraw a bonus scheme on a prospective rather than a retrospective basis. Failure to pay a bonus that is contractually due and owing may result in a statutory claim for non-payment of wages and/or a claim for breach of contract.


4. Can we stop contributing to our defined contribution pension scheme or reduce the amount we are contributing?

Yes, so long as the employee gives their fully informed consent to this or the pension scheme is amended, usually by agreement with the trustees. It’s important to check scheme rules and be very clear in any agreement with employees about exactly what will happen in relation to their pension scheme.

If employees do not agree, it may be possible to achieve the same result by agreement with the pension scheme trustees only or by the exercise of a unilateral power under the scheme to suspend or reduce contributions. This will depend on your scheme rules.

Practical issues around securing and documenting employee or trustee agreement may be difficult because of public health restrictions on social contact, although there may be electronic ways to deal with such difficulties. However, in order to validly reduce or stop paying contributions, short of terminating a scheme entirely, an employer should be satisfied that the consent that they get from employees and trustees is valid before ceasing or reducing contributions.

In some sectors (for example, construction) minimum contributions are required to be paid.

Failure to pay an employer pension contribution to a scheme when it’s due is an offence under the Pensions Act.  It is therefore imperative, both from a contractual perspective and a statutory perspective, that any stopping or reducing contributions is validly effected in accordance with the terms of employee contracts and scheme rules.

The Pensions Authority has said it is considering this matter in light of the COVID-19 crisis and will issue an announcement shortly.

5. Can we stop or reduce contributions to our defined benefit pension scheme?

This will depend on the rules of the scheme, any contractual funding commitments, and the basis on which contributions are being made. In the context of a defined benefit scheme, stopping or reducing contributions will not be straightforward and will elicit detailed questions from the trustees (if the trustees have not already opened this dialogue). In general, employers should only take this step after taking legal and actuarial advice on the consequences for them and their scheme of doing so. Acting unilaterally to reduce or cease contributions may be a breach of trust, trigger a scheme wind-up, breach of a funding proposal (which may be contractually binding), or a default under banking or scheme security arrangements. It may also create a real risk that the trustees of the scheme would try to accelerate deficit contributions to the scheme by making a demand for contributions, potentially calculated on a very expensive basis.

In most cases, the better approach will be to seek to try to agree with the trustees on how contributions and potentially benefits might be restructured. However, each case will turn on its own facts. This could involve a combination of measures, such as liability reduction exercises, contribution holidays, parent company guarantees, contingent assets, section 50 orders to reduce accrued benefits, funding proposals, funding agreements, investment de-risking plans and amendments to reduce benefits. Alternatively or in addition, employers might look to change the timing (but not the overall amount) of their contributions to help with short term liquidity concerns.

The Pensions Authority has said it is considering this matter in light of the COVID-19 crisis and will issue an announcement shortly.

6. What impact does a temporary lay-off, short-time or pay cut have on pension and life assurance entitlements of employees?

This will depend on the nature of the changed work practice and pay cut (for example, was employee agreement required or obtained) and the rules of the pension scheme and terms of the life assurance policy. In general, changes to working practices should flow through to reduce benefits and accrual under pension and life assurance arrangements. It will be necessary to consider the scheme rules to avoid unintended consequences. It may also be necessary to make amendments to the arrangements themselves to properly document what is intended to happen and, if amendments to scheme rules are required, any practical difficulties in making amendments will need to be worked through.


7. Cash consolidation is a significant issue for our business right now – how could equity incentives be of assistance?

Keeping employees and executive teams motivated and engaged as they work hard through challenging times has never been more important. However the need for cash preservation will mean that many companies are restricted in their ability to make increases to short-term compensation, e.g. in the form of retention payments or increased annual bonuses. An award of an equity-based incentive is an alternative mechanism to remunerate your employees which can offer benefits for both the company and the employee.

Numerous studies have proven that companies which have an element of employee share ownership are not only more profitable, but are more resilient in times of economic recession. Share based remuneration can also be paid to employees free of employer PRSI which is a significant saving in comparison to cash-based remuneration. Also, if awards can be structured in the form of a ‘clog’ or restricted share award, there may be significant income tax savings for employees – up to 60% saving on the taxable value of the award, if the shares are clogged for the maximum period allowed.

8. What should we do in respect of equity awards which are outstanding?

For current ‘in-flight’ or outstanding awards, it may make sense to defer revising goals or targets until there is more stability, or to rely upon discretion to create flexibility. Reserving the right to make adjustments for unexpected events and expenses related to COVID-19 should be considered. For publicly listed companies, the Remuneration Committee needs to be cautious in the use of any such discretion and review the terms of the share plan carefully. Private companies will generally have more flexibility but many, particularly PE backed companies, may be under pressure to revise or reconsider targets and thresholds. Many companies will most likely simply want to wait and see and anecdotally this seems to be the favoured approach for the moment. By the end of the current financial year there will be a better overview of the impact of the current volatility on equity awards and on the business as a whole.

Not all businesses will be affected in the same way by COVID-19 so there is no “one size fits all” approach. In general, how companies approach equity arrangements very much depends on the performance of the business, the terms of the equity plans and whether the business is publicly listed or privately held.

9. We have an all-employee share plan – what issues should we be thinking of?

In respect of all-employee plans, companies should be mindful of the broader employee base becoming nervous of contributing funds to buy shares given market volatility and potentially looking to exit share plan participation. Companies cannot give any investment advice but could consider freezing plans or allowing contribution holidays, provided that the plan terms allow for this. Communication to the broader employee cohort will be key.

Also there may be operational issues arising in the administration of share plans in the context of remote working arrangements. Companies should make an assessment of whether additional time is required in respect of commitments to deliver shares or whether there are additional data protection security measures required.

The situation with regard to COVID-19 is evolving rapidly and we will continue to publish articles and information on a regular basis with a view to assisting employers and the wider community during this challenging time.

About the authors

Duncan Inverarity ; Michael Doyle ;  David MainDavid Francis, Chris Comerford, Keavy Ryan.