Call for evidence launched on collective redundancy consultations in insolvency

Grant Falvey/LNP/REX
Grant Falvey/LNP/REX

The Government has launched a public call for evidence into how collective redundancy consultation with employees works when a business is on the brink of insolvency.

It follows the publication of a parliamentary report highlighting collapsed courier City Link’s failure to consult with redundant employees.

Minister for employment, consumer affairs and equalities Jo Swinson published the call for evidence on the same day as the report into the City Link fiasco was made public.

Employers proposing 100 or more redundancies have to start collective redundancy consultation with staff representatives at least 45 days before the first redundancy takes effect.

This minimum redundancy consultation period was reduced from 90 days on 6 April 2013 – the last legislative change in this area.

Employers planning 20 or more redundancies have to start redundancy consultation at least 30 days before the first redundancy.¬†These are the minimum consultation periods, and there is a further requirement to begin consultation “in good time”.

There is a separate duty for employers to notify the Department for Business, Innovation and Skills (BIS) in writing of the proposed redundancies.

Individuals can go to an employment tribunal to seek a “protective award” if their former employer has not met its consultation obligations. However, on an insolvency, claimants can recover the award from the Government, paid out of the national insurance fund.

Swinson is seeking views on:

  • how well employers understand the requirements to consult collectively when they are proposing mass redundancies;
  • what factors help or hinder employers in conducting redundancy consultation in circumstances where they are facing insolvency;
  • the role that directors play in ensuring that employee representatives are in place, starting redundancy consultation and notifying BIS of redundancies; and
  • what can be done to ensure timely and effective redundancy consultation and BIS notification when employers are facing insolvency.

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Stephen Simpson, XpertHR principal employment law editor, picks out the key points of the public consultation: “The Government wants to find out if the processes for redundancy consultation and notification to BIS can be improved and clarified.

“It is also looking into the possibility of further guidance for employers on collective redundancy consultation, and wants to hear from anyone who has examples of where constructive consultation and employee engagement took place in an insolvency situation.”

The report by MPs into how City Link handled its insolvency says that many of its 2,727 staff and approximately 1,000 contractors found out from media reports on Christmas Day 2014 that their jobs were going.

Simpson commented: “The outcome of the inquiry highlights that it can be in the financial interests of a company to break the law. If it ignores the statutory redundancy consultation period, then there is no financial punishment because the protective award is paid later by the taxpayer, once the company has gone out of business.”

The report is highly critical of City Link’s directors, who knew about the financial problems, but failed to think about the impact of alerting its staff so late in the day.

The report states: “While the financial calculation is simple, ignoring the consultation period has a high human cost that appears not to have featured in the decision-making process. Employees are denied a reasonable notice period in which to seek alternative employment and instead, at a time of financial uncertainty, must pursue a court claim for lack of consultation if they wish to be compensated.”

The call for evidence runs until 12 June 2015.

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