HR · 18 May 2018

Going through insolvency? Don’t fear collective redundancy consultations

It’s not easy to remain adrift when your company is undergoing a financial crisis. But instead of filing for bankruptcy, insolvency allows a business to sell off assets such as property in order to “stay alive”. In most cases, employees will find themselves without a job. Redundancy comes into play.

Part of the redundancy process involves consulting staff on what to expect, why it’s happening, how many will be affected, what the options are and in what ways you’ll support them. In situations where over 20 redundancies occur in one location, there must be at least 30 days’ consultation before the first employee is set to leave. If more than 100 workers are involved, companies are given 45 days.

This requirement hasn’t been met in some of 2018’s larger insolvency cases, so going forward, companies will have to get employment law ducks in a row.

The government is set to publish guidance on collective redundancy consultations. In its own words, “You must follow ‘collective consultation’ rules or you will almost certainly be unfair and you could be taken to an employment tribunal.”

Consultation doesn’t need to end with an agreement, it added, but with employment tribunal fees removed, small business owners will need to ensure they follow proper procedures. If helmed by a fair leader then the risk of claims being brought up is significantly reduced.

Alan Price, employment law director at Peninsula, suggested the faucet has been turned and low value claims – such as unpaid wages – will reign supreme. Unfortunately, that means the business leader will have to become more synonymous with a law guru.

Not to the extent of knowing the ins and outs of every employment law section, but to keep abreast with the news, to do research and know which areas require urgent attention.

Price explained: “Ensuring bosses are determining status correctly, applying employment rights to every member of staff and not subjecting individuals to unfair treatment is vital. Employers need to get this right to remove the risk of facing an employment tribunal claim and to avoid their business being scrutinised in public due to judgments now being published on the internet.”

The government’s guidance will look to resolve clashes between insolvency and employment law. For example, the cost of retaining employees while consulting can exhaust funds – diminishing the purpose of using insolvency to pay back creditors.

Of course, in order to understand these challenges, the government launched a call for evidence in 2015. According to the Insolvency Service, “Respondents understood that legislation aims to encourage constructive engagement with employees, as well as ensuring the appropriate support mechanisms are available to staff losing their jobs.

“However, it was acknowledged that collective redundancy consultation can be difficult to apply in a real-life insolvency situation where decisions need to be made quickly. Additionally, this may be the first time employers have dealt with a collective redundancy situation, which can be daunting while navigating insolvency, employment law and financial distress.”

As part of the guidance, the government sought to put measures in place, namely that companies provide information on how to ensure legal compliance when electing employee representatives. It also advised being consistent across the board and transparent about difficulties being faced, which could make staff less apprehensive and angry about the situation.

While it sounds like a lot to contend with, having the confidence to trust staff and include them when the chips are down comes hand-in-hand with creating a company people would want to work for. Employees can appreciate the effort and lengths bosses have gone to. After all, public scrutiny has ensured we all view such companies as a rare breed, one which quality talent is more likely to flock towards.

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