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When an employer runs into serious financial trouble the options
for its employees are usually limited, with restrictions on the
amount of financial compensation available. However, the different
kinds of insolvency bring different consequences for employees and
sometimes all is not lost. Below, the Withers LLP Employment Group
sets out brief answers to some of the questions you may have if
this situation affects you – bearing in mind that your
own particular contract and relationship with your employer will
play a vital role in determining how you are affected.
If I am a UK citizen employed in the UK what rights will I
have?
This depends on the kind of insolvency proceedings. In the UK,
compulsory liquidation and most instances of company voluntary
liquidation mean that all employment contracts are automatically
brought to an end.
That is not the case in any other kind of insolvency, such as
administration, administrative receivership or company voluntary
arrangement, where at least some contracts of employment will be
continued, at least in the short term.
What are my rights if my contract has been brought to an end
automatically?
If your contract has ended automatically you may have a claim
for your notice pay but you will have no claim for unfair
dismissal. However the liquidator or receiver may decide to retain
some employees in the business and, if this applies to you, you
will be offered reengagement on a new contract.
What is the position if my contract does not end
automatically?
If your contract does not end automatically (because, for
example, your employer is in administration rather than
liquidation) you will continue to be employed by the company and
the administrator or other insolvency practitioner will take
decisions on behalf of the company. That may include retaining your
services, or it may mean making you redundant. If you are made
redundant you have a right to be consulted beforehand.
What about money the company owes me?
Employees who are owed money by the company in respect of unpaid
salary, holiday pay, benefits, or compensation awarded by
employment tribunals or courts, are considered to be creditors of
the company. However, they have to take their place in the order of
creditors. The best placed creditors are those who have secured
their debts over the company's assets, such as banks and
mortgage lenders and there is often very little to divide up
between remaining creditors once these debts have been paid.
A very limited amount of money (£800 per employee) is
guaranteed to employees of an insolvent company. However, this is
also subject to there being sufficient funds left over once secured
creditors have been paid.
Usually the best prospect for an employee of an insolvent
company who is dismissed is to make a claim to the National
Insurance Fund. The Fund guarantees certain payments to employees
of insolvent companies including up to eight weeks' arrears of
pay, up to six weeks' holiday pay, statutory notice pay, unpaid
pension contributions, and statutory redundancy payments. Weekly
pay is, however, subject to a statutory maximum of £330 per
week. You will need to make a claim for this payment, by sending
Form RP1 to the appropriate Redundancy Payments Office (part of the
Insolvency Service). There is no time limit for claims other than
claims for redundancy payments, where the time limit is six months
from the redundancy.
What if I have a claim against the employer, for example
for discrimination or unfair dismissal?
You will need to take advice if you are in this situation, as
your position will depend on the stage your claim has reached and
what steps the insolvency practitioner dealing with the
company's affairs is taking in relation to claims against the
company.
Does it matter whether I am working in London or, for
example, New York?
Where you work may have a bearing on which company is actually
employing you. However, the starting point will be your actual
contract of employment. The rules about which laws apply to a
contract are complex. If you are a US citizen working in London or
a UK citizen working in the US, various factors will have to be
taken into account in working out what rights you may have.
If a US Company is filing for bankruptcy how does that
affect me if I work in the UK?
The important questions are which company actually employs you
and where you carry out your work. Different companies in a group
will be treated differently when there is a crisis and different
rules will apply to US and UK companies and to different groups of
employees according to where they are actually employed. If you are
in this position you will need to take legal advice.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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