Redundancy payments and insolvency
[ch 11: pages 409-410]If the employer cannot pay statutory redundancy compensation because of insolvency, it becomes payable (subject to a cap) under section 182, ERA 96, by the Secretary of State.
To claim statutory redundancy, Form RP1 must be completed. A Form RP1 can be requested by calling the Redundancy payments enquiry line: Telephone: 0330 331 0020, open Monday to Friday 9am to 5pm. The RP1 Fact Sheet published by the Insolvency Service explains how to make a claim. It is now possible to make a claim online.
The Redundancy Payments Office (RPO) processes and pays statutory redundancy and associated payments when an employer cannot pay its employees. Payments are funded by national insurance contributions. The email address of the Redundancy Payments Service is [email protected]. You should quote your national insurance number or claim reference number if any.
If calling on behalf of someone else, the other party must provide written or verbal authorisation. There is more information on the website of the government Insolvency Service (https://www.gov.uk/government/organisations/insolvency-service).
Whatever the contract says, all payments by the RPO are capped at the weekly pay levels of the statutory redundancy scheme (£479 from April 2016). Any payment above this must be claimed as a debt from the liquidator in charge of winding up the insolvent employer.
If the employer was paying below the national minimum wage (NMW), payments by the RPO will be at the NMW rate.
In general, 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; or
• a receiver has been appointed.
Under section 166(1), ERA 96, redundancy pay can also be reimbursed by the RPO where the employee has taken all reasonable steps (other than legal proceedings) to recover payment from the employer who has failed or refused to pay all or part of it.
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)
The eight weeks of pay do not have to be consecutive. Workers can choose the weeks most beneficial to them.
“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.
Often when a company collapses, the most recent pension contributions have not been paid over by the employer into the pension scheme and in some circumstances, the scheme trustees can make up these unpaid contributions from the National Insurance Fund.
Where a worker was being paid a statutory employment benefit such as statutory sick pay or statutory maternity pay when the company became insolvent, these payments become the responsibility of HMRC. HMRC runs a helpline: 0191 225 5221.
Employees must mitigate their losses by looking for another job and by applying for Jobseeker’s Allowance (JSA). JSA is deducted even if the employee does not 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. Tribunal fees must be paid and Acas Early Conciliation applies to this kind of claim (see Chapter 13).
City link collapse
A joint report by the Parliamentary Scottish Affairs and the Business Innovation and Skills Committees published in March 2015 highlighted the inadequacy of the insolvency regime, which protects business investors and employers while placing the whole burden of business failure on workers, suppliers and contractors. Courier business City Link collapsed over Christmas 2014, leaving 2,727 workers and 1,000 contractors without a livelihood. Many of those affected were required to work under bogus self-employment arrangements.
The report’s recommendations are available from the House of Commons website (www.parliament.uk/closure-city-link-inquiry).