What are your employment rights if your employer is insolvent?

If the business you work for is struggling financially it can have a massive impact on your finances and wellbeing. Coodes Solicitors explains what you are entitled to if your employer is insolvent.

It is extremely stressful if the company you work for is failing, particularly if it is struggling to make the monthly payroll when you have your own bills to pay. It is useful to have some knowledge about where you stand should your employer be unable to pay you what you are owed.

First of all, do you know if the business has entered into a formal insolvency event? This may be referred to as administration, liquidation or a creditor’s voluntary arrangement. The Government will not step in until it does, so this can be a frustrating situation for an employee. If the business is running out of money but is not yet formally insolvent, then an employee should seek legal advice, get in touch with ACAS and maybe even bring a tribunal claim, to protect themselves.

What happens when a business becomes insolvent?

When a business becomes insolvent, there will be two likely outcomes for the business and its employees. If it goes into liquidation then the employee will lose their job – with immediate effect in the case of compulsory liquidation.

If it goes into administration or into a creditor’s voluntary arrangement, the company will either be rescued or its assets sold on to a new buyer. In this case, the employee is more likely to keep their position, as the new owner becomes the new employer.

When a company goes into administration, an administrator has 14 days to decide to take on employment contracts or dismiss the employees. If the decision is taken to keep employees on then wages due under that contract are of high priority as creditors. Unfortunately, employees are often left as unsecured creditors in relation to other debts they are owed.

Can I get help from the Government if my employer goes into liquidation?

If the company you work for goes into liquidation, it is not all bad news. Although an employee can’t generally sue an employer who is in liquidation, they can get help from the Government.

Employees can claim from the National Insurance fund via the redundancy payments office for:

• Arrears of pay for up to eight weeks
• Holiday pay up to six weeks
• Statutory notice pay up to 12 weeks (all are capped at £489 per week)
• Statutory redundancy pay

What rights do I have if new owners take over the business?

There are many different things that could happen if the company you work for is failing and then bought by another business. There are various different ways businesses will treat employees in this situation as there are many different scenarios.

If the company’s assets are bought your employment may be transferred via what is known as a TUPE transfer, so that you continue working for the new employer. Generally, employees will have the same terms and conditions as well as special protection against dismissal but may not be able to recover any existing debts from the new employer.

Where the assets of a company in liquidation are bought, any remaining employees will not automatically transfer over. The new owners would be free to hire the old workforce under their own terms and conditions, so it is important that you check your new contract.

If your employer is in administration when their assets are bought, you will transfer to the new employer and get protection against dismissal. Again, be aware that the new owner has some scope to change terms and conditions of employment.

For more information on this or any Employment enquiries contact our Employment team on 0800 328 3282 or info@coodes.co.uk