“What are Rights of My Employees in Administration? (TUPE)”
One of the most frequent questions asked by directors of companies going into administration is what will happen to the company’s employees. Many directors worry about the welfare of their employees when their company is insolvent and how their actions will affect those employed by their company. Here’s our guide to employees’ rights in company administrations.
The Administrator Terminates the Employees’ Contracts
When the administrator takes control of the company, he will decide whether to retain the employees. If he terminates their employment contracts, employees can claim from the government’s National Insurance Fund online through the Department of Business, Innovation and Skills.
They can claim for the following (though it is not guaranteed they will receive the full amount for all of them):
- Redundancy (subject to the normal requirements, i.e. minimum two year employment period)
- Up to 8 weeks’ wages, with an additional payment for failure to consult
- Up to 6 weeks’ holiday pay (minimum employment term – one month)
- Statutory notice pay (1 week after a month’s service, increasing by 1 week per year of service to a maximum of 12 weeks)
- Unpaid pension contributions (handled by their pensions administrator)
- Unfair dismissal basic award
They can also claim for statutory notice pay if: they have worked their statutory notice period but have not been paid for that period, they were dismissed without their statutory notice or they were not allowed to work the full notice period.
The maximum amount that will be paid for all of the above is £479 per week.
Separately, employees can claim for statutory sick pay, statutory maternity pay, statutory paternity pay or statutory adoption pay as appropriate. These are administrated separately by HMRC and the National Insurance Fund.
Claims are normally paid 4-6 weeks after the claim has been submitted.
When the Employees are Retained by the Administrator
If the administrator retains the employees after his appointment and does so for a period of more than two weeks, he will be deemed to have adopted the employees’ contracts until the business is sold on.
When the administrator adopts the employees’ contracts, they also become preferential creditors, which means they are high up (though still below secured creditors such as banks) in the chain of creditors for payments of certain outstanding amounts owed to them.
This gives them the right to claim salary (and commission) arrears for up to four months prior to the administration to a maximum of £800, up to six weeks’ holiday pay and some occupational pension payments. If the employee is owed more than this, they will need to claim it through the National Insurance Fund.
When the Administrator Sells the Company and TUPE
A sale of the company in administration will not affect employees’ rights to redundancy pay and their employment rights should (though not always) be protected by TUPE (the Transfer of Undertakings – Employment Rights legislation) but the protections provided are different to the transfer of a solvent company.
Where TUPE does apply, the new employer must pay any outstanding amounts remaining after the employees have received amounts claimed from the National Insurance Fund. The company can change employees’ employment terms and conditions or reduce their pay if it helps to prevent job losses within the company. The new changes must be agreed with the employee or their trade union representative and it must abide legislation as to their statutory employment rights.
Questions or Concerns?
If you have questions about administration, how it might affect your company, and whether it’s the best option for you to take, call us on 08000 746 757. Alternatively, speak to one of our experienced consultants using the live chat on the bottom right, or send an email to email@example.com.