Protective Awards, Insolvency and Redundancies

There are strict time limits to comply with and a specific procedure that must be followed before they expire.

A redundant employee only has 3 months (less one day) from the date the redundancies to which the complaint relates are made to start an Employment Tribunal (ET) claim.

It is a legal requirement that ACAS must first of all be contacted under the Early Conciliation procedure within this time limit before a claim can be submitted to the Tribunal. If that process isn’t completed properly it will be fatal to a claim.

If the process is completed properly, the time limit for submitting a Protective Award claim can be extended, but it is complex as it depends on when ACAS are contacted and how long ACAS are involved. Missing a time limit automatically prevents an employee from pursuing a claim.

In order to bring a claim against a company in administration, permission to pursue the claim must either be obtained from the administrators or the Courts. If the company enters into a certain type of liquidation permission can only be obtained from the Court. The restriction on pursuing claims is designed to protect the company and its creditors.  This adds complexity and often administrators will refuse to grant permission to pursue a Protective Award claim.

A solicitor can handle the application process and make sure permission is secured to proceed. Where permission is refused, the Court application process is not easy to deal with.

The legal issues in these claims are complex.

Once claims are issued they will probably be defended by the administrators/liquidators because they are under a duty to keep the amount of money owed to creditors to a minimum.

More often than not these claims go to a full hearing, at which the Tribunal will need to decide whether the claims succeed. The Employment Tribunal will probably need to consider whether the company has a defence in showing there were ‘special circumstances’, which meant that they did not have time to consult. The special circumstances defence is complex and any number of reasons could potentially give the insolvent company a defence to the claim. A solicitor will know the best way to address that.

The Employment Tribunal will also need to decide what size Protective Award to make, which can be up to 90 days’ gross pay per employee. Where there are mitigating circumstances or where some consultation has occurred before or after the redundancies, administrators/liquidators often argue the award should not be as much as 90 days. A solicitor will know the best legal arguments available to secure the maximum award.

Whilst an award can be up to 90 days’ gross pay per employee, if the company is insolvent, the employee won’t recover all of that as compensation.

Where a company is insolvent, the Protective Award can be paid by the Government’s Insolvency Service out of the National Insurance Fund but the payment is subject to limits. If paid by the State, the Protective Award will be capped at a maximum weekly amount and an employee can only claim a maximum of 8 weeks (56 days).

The amount payable can also be reduced if payments have already been made for non-payment of wages and would be subject to further deductions for tax, National Insurance and Jobseeker’s Allowance.

Any balance of compensation will then be an unsecured debt against the company and the payment of any further compensation will depend whether there are any funds to pay out to creditors by way of dividends.

A solicitor can handle all of the follow up correspondence with the Insolvency Service and make sure that they have all the necessary information to process your claim.