Redundancy payments and insolvency
[ch 11: pages 369-370]If the employer cannot pay statutory redundancy compensation because of insolvency, it becomes payable (subject to a cap) under section 182 of the ERA 96, by the Secretary of State.
The Redundancy Payments Office (RPO) assesses and pays statutory entitlements to redundancy and associated payments when an employer cannot pay its employees. Payments are funded by National Insurance contributions.
Claims for redundancy payments in insolvency situations are sent to the following postal address: Redundancy Payments Service, PO Box 16685, Birmingham B2 2LX, or by email to [email protected], in both cases quoting the employee’s national insurance number or claim reference number if any.
Inquiries about claims can be made by ringing 0330 331 0020, but 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 (£475 in 2015-16). 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.
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.
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 last few weeks of pension contributions have not been paid over by the employer to the pension scheme. 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.
Employees must mitigate 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. Acas Early Conciliation applies (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, has highlighted the complete 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.publications.parliament.uk/pa/cm201415/cmselect/cmbis/928/928.pdf.