An employer making large-scale redundancies has a legal duty to consult with its employees through either their trade union or elected staff representatives. Whilst that, in itself, can be an arduous, and often contentious process, compliance becomes even more challenging when the employer is on the brink of insolvency.
Last year, the government launched a consultation seeking views on how this delicate situation operates in practice. The responses, published in November, highlighted the challenges which insolvency practitioners and directors face arising from the requirement for collective redundancy consultation.
The rules on collective redundancy consultation state that where an employer proposes to make 20 or more redundancies at a particular establishment within a period of 90 days, it must inform and consult with the representatives of those employees. The consultation period must last for at least 30 days for 20–99 redundancies, or at least 45 days for 100 or more redundancies.
Where the employer is insolvent, there is the added challenge of balancing this duty with creditor demands and the requirement to preserve value for stakeholders. In administration cases, insolvency practitioners are bound to adopt employees’ contracts after 14 days. As a result, deferring dismissals to comply with the collective redundancy timescales would inevitably result in the insolvency practitioner adopting all the employment contracts and the associated liabilities. These competing priorities often make it highly impractical to delay redundancies.
The government received responses from 28 different parties, including law firms, insolvency practitioners and trade unions. Most felt that there is an inherent tension between employment law and insolvency law. The key themes included:
Although the government has acknowledged the perceived tensions between insolvency law and employment law which may prevent effective consultation, it maintains that there is no conflict. It seems that, for now, consultation will remain an important part of the redundancy process, even when an employer is facing insolvency.
Given this difficult balancing act, directors and insolvency practitioners should take legal advice early on, and should consider the following key points:
For more information please contact a member of our Employment team – Tom Stenner-Evans, Senior Associate, on firstname.lastname@example.org or Rachael Lloyd, Solicitor on email@example.com.