When your employer becomes insolvent

We are hearing a lot in the run-up to the election about the improvement in the UK economy. Whatever our thoughts on the strength of the economy, businesses will never be immune to making decisions which over-stretch their cash-flow.  Nor will they be immune to other third-party pressures on cash-flow, such as customers withholding remittances.

So what happens when your employer succumbs to those cash-flow difficulties and ends up having to hand over the keys of the business to the insolvency practitioners? You may think there’s little you can do – after all a claim for unpaid wages cannot be satisfied by an employer who doesn’t have any money and may not even exist anymore.  However, there is some respite on offer from the state (in the guise of the National Insurance Fund).  In certain circumstances (and assuming your employer has not already paid you the same) you can apply for:

1. A statutory redundancy payment;
2. Up to 8 weeks’ arrears of pay (the 8 week cap to include any right to a “protective award” for any failure to collectively consult with you, when 20 or more have been made redundant;
3. Statutory notice;
4. Up to 6 weeks’ holiday pay;
5. A “basic award” for unfair dismissal (calculated on the same basis as a statutory redundancy payment);
6. Certain pension scheme contributions.

Other than the pension payments, all the above payments are calculated according to multiples of “a week’s pay”.  That pay is currently capped at £464 per week.

There are complications: for example, the definition of insolvency would need to be satisfied and claims for a “protective award” and/or a “basic award” would have to be established by an employment tribunal.  Also, in certain circumstances, employment may be automatically transferred to a new business entity under TUPE.  Overall, the message is that there is help at hand, but when employees are at their most vulnerable they may be the last to know about it.

For more information on this please contact a member of our Employment Law Team on 0161 930 5117