Companies Collapse and Employees Suffer – But the Law Does Provide Protection

When companies collapse without warning, shocked employees can be left high and dry. However, as a case concerning a troubled package holiday company showed, those who swiftly take legal advice are not without Government-backed protection.

holiday sunsetThe company had encountered severe financial difficulties, in part due to the impact of terrorist attacks on some of its most popular holiday destinations and the falling value of sterling against other currencies. Within minutes of the company entering administration, 94 of its 151 staff were informed of their instant redundancy.

After proceedings were launched on behalf of one of those who lost their jobs, an Employment Tribunal (ET) noted that, by virtue of Section 188(1) of the Trade Union and Labour Relations (Consolidation) Act 1992, the company was, at least 30 days before the redundancies took effect, required to consult with appropriate workforce representatives with a view to avoiding or reducing the number of dismissals.

In clear breach of that provision, there had been no consultation whatsoever before the redundancies were announced out of the blue. The company did not recognise any trade union so there was no workforce representative body that could be consulted. The company’s financial position had not deteriorated so sharply as to render consultation impossible and the likelihood was that employees had simply been kept out of the loop as its fortunes spiralled downwards.

In the circumstances, the ET found that the employee was entitled to a protective award, comprising 90 days’ remuneration. That was the maximum award permitted by Section 189(3) of the Act, but the ET could detect no grounds for reducing it. In the event that the company was insolvent, the award would be paid by the Secretary of State for Business, Energy and Industrial Strategy, subject to the maximum liabilities specified under Section 184 of the Employment Rights Act 1996.

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