Workers have rights when their employer becomes insolvent

March 2nd, 2018

If you think it is tough as a business owner or director facing corporate insolvency, spare a thought for the workers whose jobs are on the line. These employees, however, have valuable rights – and not all company directors or even their accountants fully understand what they are. So let’s take a brief look at them. (I apologise for the technical nature of this blog, but we are dealing with employment law here..!)

The first thing to understand is that not all insolvencies are the same. In almost every case, though, employees are owed money and they can claim for it through the insolvency practitioner appointed to manage their employer’s insolvency. Someone like me. I have handled literally thousands of cases and it is important to know who is entitled to what, depending on the nature of the insolvency.

Sometimes an Administrator is appointed to try and keep a company going (while trying to find a buyer, for example). If workers are asked to keep working in these circumstances it does not affect their rights to redundancy pay and other wage-related claims if the business closes down later. And if the business is sold to someone else, their employment rights are also protected – including any pay that is owed to them. These rights usually transfer with the employee to the purchaser who becomes their new employer (TUPE regulations apply ^{Note 1}) although there can be exceptions.

If, however, the factory gates are shut and the offices locked employees can make a claim for all the money they are owed. In many cases, the Government will foot the bill up to statutory limits (which are updated each year). There is no guarantee that workers will get every single penny they are owed but they can claim against the Government for:

• Arrears of wages up to 8 weeks’ wages. This includes a payment for a protective award ^{Note 2} if the company has failed to consult collectively with staff – something that often occurs when insolvencies happen quickly;
• Holiday pay (up to 6 weeks) due in the 12 months
• preceding the insolvency;
• Statutory notice pay;
• Redundancy of up to 20 weeks’ equivalent of pay;
• Unpaid pension contributions (claimed by the insolvencypreceding the insolvency; and
• practitioner on employees’ behalf) due in the 12 months
• A basic award for unfair dismissal ^{Note 2}.

These payments can be quite significant. Employees who have been made redundant can get up to £489 a week for each claim (the statutory limit valid at 6 April 2017). For example, those claiming for redundancy and loss of notice can get payments for both. Tax and National Insurance will be deducted from arrears of wages and holiday pay, but not redundancy or notice pay.These following payments are worth looking at a little more closely.

Statutory notice payments can be a little complex. These are payments made to employees who worked their statutory notice period but have not been paid by their employer. The statutory notice period (the minimum legal notice period an employer has to give before terminating employment) is detailed in the reference table at the end of this article.Statutory notice pay also applies to workers who were dismissed without notice or who did not work their full notice period. However, for those employees who receive any other income during their notice period, the government will deduct this from their notice pay. This can include wages from another job or benefits such as the Jobseeker’s Allowance.

Statutory redundancy pay applies to people who have been made redundant and if they have been continuously employed for two or more years. Claimants can apply in writing for up to 20 weeks’ pay to their employer or to an employment tribunal within six months of their job ending.

All claims are also subject to any contract of employment. If your contract enhances your rights (e.g. you earn more than £489 per week or your contractual notice period is higher than the statutory period) you can still claim for the extra amounts but the Government will only pay out up to the statutory limits. Anything you may be entitled to above those limits must be claimed against the insolvent company/employer directly and there is no guarantee that you would be paid anything for these excess amounts.

But look, it’s a complex business particularly when you are trying to handle all the other fallout from a corporate insolvency. So, don’t take chances – call in a qualified and experienced insolvency practitioner to put you on the right path.

With more than 30,000 companies affected by the collapse of Carillion there may sadly be many more workers exercising their rights under these rules.

A useful reference table for statutory limits:

Notes:

1. TUPE refers to the “Transfer of Undertakings (Protection of Employment) Regulations 2006” as amended by the “Collective Redundancies and Transfer of Undertakings (Protection of Employment) (Amendment) Regulations 2014”.

2. Protective awards and unfair dismissal claims are adjudicated separately by the Employment Tribunal process and do not form part of the more common statutory claims.

3. If you are under 18 years old you will not qualify for redundancy entitlements.