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What am I entitled to if my employer goes bust?

View profile for Martha McKinley
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Minimising stress in the workplace

In what has become an all too familiar sight, thousands of employees of Thomas Cook had their employment abruptly cut short earlier this week when the company ceased to trade and became insolvent. While media coverage may have focussed on stranded holiday-makers, it is the company’s employees who are ultimately suffering the long term impact of the collapse of another high street retailer. In this case the company’s insolvency practitioner – accountancy firm KPMG - will be contacting affected employees and advising on how to claim any money which may be due to them. However it can often be difficult to ascertain what payments, if any, employees in this situation may be entitled to.

In particular, employees of smaller organisations made redundant very suddenly are often left without clear instructions as to what money they might be due and where to claim it from. The first step is to determine whether or not the company is actually insolvent. If it is not then the government’s Insolvency Service will not take responsibility for sums due to employees, and steps must be taken to issue a claim at the employment tribunal and recover the money directly from the employer.

Below are several types of payments that may be due and can be claimed either from the Insolvency Service or enforced against the employer through the employment tribunal.

Unpaid wages

If an employee is owed wages, commission or an unpaid bonus, they can recover up to eight weeks pay (subject to a £525 cap) from the Insolvency Service or the full amount directly from their employer if it is not insolvent.

Notice pay

This is due to all employees who have been employed for at least one month, and entitles them to one week’s pay for every complete year of service up to 12 weeks. In line with the other payments which can be recovered from the Insolvency Service, if the employer is not financially able to pay this sum, it is subject to a weekly cap which is currently £525. Otherwise the full entitlement can be recovered from the employer.

Holiday pay

If an employee has accrued holiday pay in the current leave year which was outstanding at the date of termination, then they are able to recover up to six weeks compensation subject to the weekly cap of £525 by claiming through the Insolvency Service. Otherwise  once again the employer is liable for the full sum provided it is not insolvent.

Redundancy payment

If an employee employed for at least two years at the point at which they were made redundant, they will be entitled to a statutory redundancy payment. This is calculated using the age at the date of dismissal, the employee’s length of service and is subject to the weekly cap of £525. The government website has a helpful online calculator.

Protective award

This is a sum of money available to employees who are able to show that in a situation in which 20 or more employees were made redundant, there was a failure to inform and consult with them about this dismissal.

Employees who are successful are able to claim up to 90 days pay, the purpose of such an award being to punish the company’s failure to consult rather than compensate the employee for any loss suffered as a result of such a failure. This sum can only be claimed by way of a claim to the employment tribunal.

It is important to note that there are timescales to pursue the claims outlined above, and employees only have a very short period of time (typically three months less one day from the date of dismissal) to protect their right to do so. Any redundant employee who believes they might be owed compensation from their employer should take legal advice to ensure they maximise their chances of recovering sums due to them. Contact our specialist employment team on 0175 321 6399.

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