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Legal Protections for Employees During Corporate Restructuring and Insolvency

Legal Protections for Employees During Corporate Restructuring and Insolvency

Insolvency means that your employer cannot pay its debt when they fall due and/or their liabilities exceed their assets. When a company becomes insolvent, there are several types of insolvency proceedings that could take place.

When Business is Being Restructured

If your employer decides to continue to trade, but with an insolvency practitioner appointed to supervise (commonly under a Company Voluntary Arrangement (“CVA”)), then they may decide to carry out a restructure of the workforce to reduce costs and this could potentially lead to redundancies.

Restructure Without Redundancies

Your employer may decide to restructure the business but to save costs, seek to reduce pay, reduce hours, reduce pension contributions or something similar. Your employer may decide to:

1.      Ask employees to agree to the changes and dismiss anyone who refuses. This could be a potential claim for unfair dismissal.

2.      Impose the changes and leave it to you to decide how to respond. In this scenario, an employee could resign and claim constructive unfair dismissal or continue to work ‘under protest’ and pursue a claim in the employment tribunal for either a breach of contract, unlawful deduction from wages, or even, unfair dismissal.

3.      Terminate your existing contract of employment and offer you re-engagement on the new terms, commonly known as ‘fire and rehire’ practice.

If you remain employed for 14 days after the business enters insolvency, but later the business decides to close, you will be ranked higher in the priority list of monies owed by the company.


When There Are Less Than 20 Employees

Where there are less than 20 employees being affected by redundancies, there is no fixed time period or a specific number of consultation meetings that should be held. However, your employer must carry out a genuine and meaningful consultation.

These consultation meetings should be an open discussion that allows employees the opportunity to put forward suggestions to avoid or reduce the redundancy, and any issues with the process that you may have.

When There Are More Than 20 Employees

If there are 20 or more redundancies (in one establishment) within 90 days, then the employer must hold ‘collective consultations’ with all the individuals that will be affected.

These consultations must:

1.      Be with trade union representatives, or if there is no recognised trade union, then representatives that are directly elected by the affected employees.

2.      Be carried on for a minimum of 30 days. However, for over 100 employees affected, the consultation period must take a minimum of 45 days.

If your employer has failed to hold collective consultations, then you can make a claim in the employment tribunal for their failing and obtain an award up to 90 days’ pay.

Furthermore, if at the end of the consultation period your employer has not been able to find alternatives to the redundancy, then you could be terminated with notice. You should be paid your accrued but untaken holiday entitlement at the time of dismissal. 

If you feel your employer did not carry out a meaningful consultation, then you could make a claim for unfair dismissal.

Selling of the business

If your employer decides to sell their business, then a transfer of undertakings (‘TUPE’) may apply to your employment. This effectively means that your employment may transfer to the new business (‘transferee’).

Where an employer is insolvent, then there is no guarantee that you will be transferred. Any salary or money owed to you from your employer will remain with your employer and not transfer to the transferee. This can be claimed from the National Insurance Fund.

Business Closure

If the business closes, then your employment will immediately be terminated. In this event, you can pursue a claim against your employer, within three months of termination, in the employment tribunal for unfair dismissal, any wages that are owed to you, notice pay and accrued but untaken holiday entitlement.

You can submit your claim in the Employment Tribunal in the normal way, unless an insolvency practitioner has been appointed. In such case, you must seek their permission from them to pursue the claim. If you have not obtained this permission prior to submitting your claim, then the Employment Tribunal will likely decide to put a pause on your claim.

About the Author:

Alexandra Hodson is an employment law expert at Redmans Solicitors. She has over 10 years of experience with TUPE, unfair dismissal and constructive dismissal claims, and has also worked on highly complex discrimination and whistleblowing cases.

David Tattersall

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