Johnston Lawrence

Side Effect of an Economic Recession

23 December 2008. by Angela O'Meara , tagged with Business Law | Employment Law

We find ourselves in an economic recession. Economic recession inevitably means job losses, which in turn creates debt servicing issues. This article provides general guidelines on a redundancy process in the workplace, and in the event of loss of employment, advice as to what options may be available to individuals to renegotiate loan repayments with your bank or finance company.

Redundancy: a general guide

The first step in any potential redundancy or other loss of employment situation is to check the terms of the employment contract. Unless there is a term in the employment contract entitling an employee to payment of compensation for a redundancy, then the employee is not entitled to such compensation. In addition to the terms of the employment agreement, there are a number of principles established by the Courts that apply in most redundancy situations. An employer needs to be able to establish that a redundancy is genuine, and the employer must conduct the process in a procedurally fair manner. Consultation is usually required as part of the process, unless it would serve no useful purpose. The consultation process requires that employees be provided with information about the redundancy proposal and be given a genuine opportunity to state their views before any final decision is made by the employer. It is often appropriate for alternatives to redundancy to be considered, such as redeployment. If the employment agreement does not specify a notice period for redundancy, a period of reasonable notice is likely to be required. An employer that does not carry out a redundancy process in a procedurally fair manner exposes itself to a personal grievance claim by an employee, in which the employee might be awarded a compensation payment for humiliation, loss of dignity or injury to his or her feelings resulting from the flawed process.

We recommend that employers obtain legal advice before commencing a redundancy process as it will be difficult to cure a defective process part way through. Employees should ensure they obtain legal advice if they believe they are being treated unfairly.

Renegotiating loan repayments in circumstances of hardship

In the stressful event of a loss of employment, you may be entitled to apply to any bank or finance company to which you owe money to renegotiate your loan repayments pursuant to the hardship provisions of the Credit Contracts and Consumer Finance Act 2003, provided that certain circumstances exist.

If you as an individual entered into a contract to borrow money after 1 April 2005 primarily for personal, domestic, or household purposes (such as a mortgage for the purpose of buying your home or a loan for your personal car), or if the lender has voluntarily opted into the provisions of the Credit Contracts and Consumer Finance Act 2003, speak to your lender at the earliest opportunity about making an application under the hardship provisions of the Act.

The Act provides that when a debtor, being a natural person, suffers an unforeseen hardship such as loss of employment, the debtor can apply to the lender to extend the term of the contract, therefore reducing the amount of each payment due, postponing payments due for a period, or both. Any change must be fair and reasonable to both parties. However, there are circumstances where you may not be entitled to make an application under the hardship provisions, such as if you have defaulted in payment or exceeded your credit limit and not remedied the situation, or if it was reasonably foreseeable at the time the contract was made that you would be unlikely to meet your obligations under the contract because of the loss of your employment.

Please contact us for further advice.

Angela O’Meara
Associate, Business & Property Team

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