Company Administration Events and Protective Awards. We explain what the law says.

Toys R Us,  Maplin, Woolworths and British Home Stores. Once the main players on the high street,  soon to be a distant memory. No big deal, right? You can buy anything that they sold online – possibly cheaper? A few clicks and you can compare prices and look for the cheapest online retailer, without ever having to leave the house. The online shops still employ staff and the consumer still gets what they want.

However, what happens when the defunct employer is a service provider like a vehicle rental company, or the seller of something you wouldn’t buy online, like carpets? Let’s face it; no one wants to risk buying a carpet online. What happens to the gaping hole that can’t be catered for online? More importantly, what happens to the staff who have been dumped, often without notice,  and left on the employment “landfill”. 

Nobody asked the people who might know best – those who worked for these businesses and witnessed, first hand, their demise. These staff are the ones who knew could see that the train was about to derail before some of those in charge.

More importantly, they are the people best placed to find a way to fix things. These are the people, after all, who speak to customers day in, day out. They know about changing consumer habits and market trends. They’re also likely to have the best new product ideas and know which new processes or procedures will work or not.

However, most employers aren’t interested. It’s a top down approach – those in charge make the decisions. Unfortunately, there’s a not a lot employment law can do to intervene. The general rule is that if an employer wants to run their business unreasonably, irrationally or in a way that is destined to fail, then there’s nothing anyone can do to stop them.

Most employers running a failing business will make shoddy attempts to cover up the extent of the problems from their employees. Perhaps, these employers fear the consequences of drawing attention to the ship that everyone already knows is sinking. However, this is the point, where employment law can intervene.

The law is clear - where an employer is proposing to dismiss 20 or more staff by reason of redundancy then they must consult with their staff about ways of “avoiding the dismissals” and look at ways to keep the business afloat.

Why does the law say this? The answer is clear: where senior managers, often sitting in their ivory towers, have failed, it’s the employees who are best placed to come up with the creative, innovative ideas to save a failing business. After all, the staff - the ones at ground level, often have a better idea of the inner workings of the workplace more than the management.

That’s why Parliament forces employers to speak to their staff before pulling the plug.  However, like most progressive regulation, it is rarely, if ever, followed. Directors rarely tell their staff they are in financial trouble and, even if they do, never ask them how they could help to turn things around. As a result, employees who are made redundant following the insolvency of their business are normally entitled to an additional £4000 in compensation on top of their redundancy pay. This legal claim is called a “Protective Award”.

Of course, this extra money is rarely talked about. Those who manage the insolvency are more interested in their own fees than securing extra money for redundant staff. But the compensation can easily add up. For example, employees of TOM Vehicle Rental are likely to be entitled to an extra £400,000 in compensation as a result of the way they were made redundant.

Of course, none of this is a consolation for those who’ve lost their jobs. Each of them would prefer that their employer had listened to their suggestions and tried to save the business.

But worse of all, it’s not even business owners who end up shelling out for this compensation. It’s the government-funded insolvency service. It is a little known fact that part of your national insurance contributions go towards this “insurance policy” that covers staff who are in the unfortunate situation of being ditched without notice or consultation.

That’s why Thompsons say that company directors should start complying with the law, listening to their staff and working with trade unions, rather than risk breaching the law, which could, in rare cases, lead to a criminal fine.

If you’ve recently been dismissed, then “Talk to Thompsons” about how easy it is to get the extra compensation you are due.

Blog by Priya Cunningham