What to do when the business goes bad

In the wake of the Carillion collapse, Barry Ross, Director at Crossland Employment Solicitors talks about the important role HR plays in times of crisis.

A lot has been written about the collapse of Carillion from how directors ignored pleas to plug the pension deficit, to the loss of thousands of employees’ jobs.

But little has been written about the rights of the employees and whether there is anything they can do to protect themselves or enforce their rights in such tragic circumstances?



Keep communicating

Carillion went into compulsory liquidation in January 2018 and PWC was appointed as special managers by the High Court. Entering into compulsory liquidation automatically terminates an employee’s employment. In spite of this, Carillion sent a tweet asking agents, subcontractors and suppliers to continue to provide goods and services as normal – which was understandably confusing for staff.
During such a time, HR plays a vital role in ensuring that employees understand their status, what they should be doing and in always keeping them informed on latest developments to the situation. Help employees to understand the status of the business and the likelihood, if any, that their employment may transfer to a new employer.


Employment transfer

Whether an employee transfers to a new provider under TUPE will depend on several circumstances, including the nature of the insolvency proceedings in each case. Typically, proceedings which are not terminal and do not intend to liquidate the assets of a business will result in employees automatically transferring to a transferee, whereas proceedings which are terminal will mean that employees do not automatically transfer and any dismissals by reason of the transfer will not be automatically unfair, in line with the usual rules.

Curiously, with Carillion, despite this being a compulsory liquidation, many employees have transferred to new employers where the contracts have been bought out, likely due to the involvement of the Official Receiver and in the hope of generating some good PR from a bad situation. As of 19 February 2018, 7,610 jobs were saved. However a pension does not transfer to a new employer, which has been a particularly contentious point in this case, because of the severe pension shortfall of approximately £990 million. When facing this issue, advise any affected employees accordingly and tell them to contact the pensions provider to confirm their rights and whether they should take any steps.


Automatic unfair dismissal

Other than in cases of compulsory liquidation and court appointed receivership (though not all the time) an insolvency practitioner being appointed does not automatically terminate employment and a dismissal – which is because of the transfer itself and not for an ETO (economic, technical or organisational) reason entailing changes in the workforce – will be automatically unfair. So, if employees are terminated without fair reason to do so (such as redundancy or some other substantial reason), they may be able to bring claims against the Company, subject to the usual rules of a moratorium until permission is provided by the liquidator. The difficult questions will always be whether there is any money left for creditors to enforce any Judgment and if not, whether there is anywhere else they can turn.

Help employees by advising them on whether they should make claims with the Insolvency Service through the Redundancy Payments Service (“RPS”) and provide links or assistance to complete the necessary RP1 form.

Employees may be eligible to claim for arrears of wages (including overtime, bonuses or commission), accrued holiday pay, payment in lieu of notice and redundancy pay but claims to the Insolvency Service are limited. The RPS applies the statutory maximum weekly wage of £489 in respect of all claims for arrears of wages etc. Plus, you can claim a maximum of eight weeks’ pay, holiday pay is limited to a maximum of six weeks’ pay, and redundancy pay is limited at £489 per week, for a maximum of up to 30 weeks, calculated using the normal redundancy formula.

While the above totals may be paltry in comparison to what is actually owed by the business, if there is no money left over for creditors, it can be some comfort that employees are not left entirely empty handed.

Author: Kate Thomas

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