Either company insolvency should become a ‘special circumstance’ meaning the obligation to consult with workforce could be dispensed with in this case, or perhaps reduced to a shorter and more manageable period, or the rules regarding Redundancy Payments Office safety nets could be amended so that the RPO does not pay out on protective awards.   This would still leave employees able to claim their protective awards against the company but at least they would not be directly funded by the taxpayer where company insolvency is concerned.



Background:  The number of company insolvencies is likely to rise by the end of 2010.  Returning a business to profit in the short term generally means significant cost cutting of the kind only achieved by reducing staff numbers meaning redundancy costs have to be absorbed by a business that is already financially distressed.   The trouble is that the company is damned if it does and damned if it doesn’t.   Non-compliance with the consultation rule means employees can claim what is termed a ‘Protective Award’ at an Employment Tribunal, compelling the company to pay up to 90 days of salary by way of penalty for failing to consult with staff (though this may be reduced if some consultation takes place).   There are few exceptions to the consultation rule and as matters stand at the moment, a company being unable to pay its debts is not one of them.  







Why is this idea important?

It is important because in a recession there are many more companies facing restructuring as they try to survive.  Not only does the law make restructuring a company more costly and difficult, it imposes impossible demands on the most hard-pressed managements.  What is more, it may well end up penalising creditors and the taxpayer, rather than the company itself, against which the protective award is intended as a sanction.   If creditors and the taxpayer pick up the cost of the sanction, it is no sanction at all against the guilty party – the company.   And companies that were already in trouble financially end up by ceasing trading altogether due to the burden of continuing to pay salaries during the required long consultation periods with the workforce.

2 Replies to “Company Insolvency and Protective Awards by the Government’s Redundancy Payments Office”

  1. The protective award is a punitive measure for failure to consult. Tribunals award up 90 days depending on the seriousness of the breach. One of the factors the Tribunal take into account is how long before the employees were laid off, the employer knew that the company was going to go into administration/liquidation. If it is clear that the employer knew in advance that this was going to happen and did not tell the employees, then the employer has effectively deprived those employees of the opportunity to seek new employment whilst they were still employed. The consultation period starts at 30 days which is not excessive.

  2. I am currently claiming a protective award in an Employment Tribunal against a company that went into administration. The administrators closed the dept. I worked in, claiming it was for “economic reasons”. There was no consultation, we were told we were being made redundant approx. 1 hr. before the end of the last working day. The next day the company was sold to a couple of the managers who promptly re-employed the brother of one of them and a few of their mates, doing the same jobs. The “economic ground”s were obviously bogus and the group redundancies were simply to enable the managers to “cherry pick” their mates. Protective awards need strengthening and need to be applicable to administrators as well as employers to prevent this kind of abuse.
    Also, please, spare us the “rescue culture” speech. The consultation period for smaller companies lasts 30 days. In my situation, the administrators took 30 days to prepare the company for sale.
    Guess what!? Three of them were charging the company approx. £3,000 per day. The only people who suffer in company takeovers/restructurings are the workforce.
    This idea is simply an example of the concerted assault by business leaders, banks and the current government on the hard-won rights of working people to be treated like human beings not lumps of machinery to be scrapped or disposed of at some incompetent managers whim.

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