Redundancy and insolvency

If an employer cannot pay redundancy compensation because of insolvency, it is paid (subject to a cap) by the Redundancy Payments Office (the RPO), a division of the Department for Business, Innovation and Skills (BIS), under section 182 of the ERA 96. Payments under this scheme are funded by National Insurance contributions.

Whatever the contract says, all payments by the RPO are capped at the weekly pay levels of the statutory redundancy scheme (£450 in 2013-14). Any payment above this must be claimed as a debt in the winding up of the employer.

If the employer was paying below the National Minimum Wage (NMW), payments by the RPO will be at the NMW rate.

A claim is made by completing Form RP1. Employees can get a copy of this form by calling tel: 0845 015 0010 and quoting URN 10/708. A claim should be made as soon as possible. There is no online version of the form.

The RPO has produced an updated Fact Sheet: Insolvency Service Redundancy Payments Service Fact Sheet for Employees made redundant by an insolvent employer, February 2013, which explains how to complete the application form.

Only employees qualify for payments from the RPO (BIS v Studders [2011] UKEAT/2011/0571).

Payments by the RPO are only made if the employer is in a recognised insolvency situation. This is when:

• there is a court winding up order;

• there is an administration order;

• a resolution for voluntary winding up due to insolvency has been passed;

• a voluntary arrangement has been made with creditors; and

• a receiver has been appointed.

The RPO limits the number of capped weeks’ pay it pays out, as follows:

• statutory notice pay (in full);

• arrears of pay (up to eight weeks);

• holiday pay (up to six weeks)

“Arrears of pay” includes any statutory guarantee payment, any payment for time off for trade union duties, any pay for suspension on medical or maternity grounds and any pay awarded under a protective award. The implications of this were seen in the award made in favour of employees of the collapsed Jarvis group. The awards were capped at eight weeks’ pay even though a tribunal found that there had been no consultation at all (Leeds Employment Tribunal, 22 August 2011, unreported). As the RMT commented, the statutory award, “came nowhere near compensating the millions still owed in back pay”.

Employees must mitigate losses by looking for another job and by applying for Job Seekers Allowance (JSA). JSA is deducted from the sums paid out under the statutory scheme even if the employee fails to apply for it (Secretary of State for Employment v Stewart [1996] IRLR 334).

Under section 188(2) ERA 96, an employee has three months from the date of any decision of the Secretary of State to withhold payment to bring a claim in the Employment Tribunal.