Rights of Insolvent Employees
If your employer becomes ‘insolvent’ and stops trading/closes the business (or continues to trade although legally insolvent (e.g. ‘in administration’) and you are dismissed, you may be entitled to a number of payments:
- Redundancy Pay
- Statutory redundancy pay is based on age and length of service. You must have at least two years continuous service to qualify for the payment. There is a maximum of 30 weeks’ pay which may be claimed.
- You may also have a right to contractual redundancy pay depending on what your contract says
- Wages Owed
- Holiday Pay owed
- Pay in Lieu of Notice. The length of Notice is related to length of service. After four weeks service there is an entitlement to one week’s notice; from two years onwards another week’s notice is due for each year worked, up to a maximum entitlement of 12 weeks after 12 years’ service. You may be due more under your contract
In some circumstances, you may also be entitled to a ‘Protective Award’ (where more than 20 persons have been made redundant and there has been a failure to properly consult with the union/employees).
In some circumstances, you may also be entitled to compensation for Unfair Dismissal. This depends on all of the circumstances of your dismissal. In an insolvency situation the reason for dismissal is often redundancy. Redundancy is a potentially fair reason for dismissal and many dismissals for redundancy do not give rise to good claims for unfair dismissal.
Even if you are entitled to certain payments, there is no guarantee that you will receive them. Assuming that your ex-employer is not in a position to make these payments, the Insolvency Service (“IS”) may pay some of these payments up to certain limits and subject to certain conditions.
What Payments can the Insolvency Service make?
Subject to the various conditions considered below, the Insolvency Service may make the payments mentioned below. In each case the amount is capped at the statutory rate for a ‘week’s pay’ which is currently £475 (this rate is applicable to dismissals occur in on or after 6th April 2015 and is reviewed annually):
- Statutory Redundancy Payment
- Unpaid wages – a maximum of eight weeks pay may be claimed.
- Holiday Pay - a maximum of six weeks’ pay may be claimed, if owed and accrued within the last 12 months of the employer’s insolvency.
- Statutory Notice Pay
- Basic Award - where Unfair Dismissal has been found to have occurred - (however, please note this is not payable where a redundancy payment has been made)
- Protective Award - if awarded by an Employment Tribunal for failure by the employer to consult prior to redundancy.
It is important to note that any Protective Award is treated in law as “arrears of pay” (i.e. wages) and so is counted in the maximum of eight weeks pay which may be claimed.
What if I am not an employee?
If you are not an employee and work for the employer as a “self-employed” contractor you will not be entitled to the various statutory payments outlined above such as redundancy pay and a protective award. You would only be entitled to seek any payments due to you under your contract. These payments would not be payable by the redundancy service.
However, the question of whether or not you are an “employee” as defined in law and will depend on the terms of your contract. You should get legal advice on this and RMT can assist members in assessing what type of contract under which you have worked.
What should I do next?
You should make sure that you contact the administrator of the company as soon as possible to register your debt with them. They need to know who was working for the company and what money is owed. They can provide you with an RP1 form to make a claim to the Insolvency Service.
You may needto bring a claim in the Employment Tribunal in relation to any statutory or contractual payments you may be due. There is a strict 3 month time limit for bringing claims in the ET which would run from the last day you worked for the employer. You should contact RMT for assistance without delay.