Case of the week: Secretary of State for Business, Innovation and Skills v Coward and another

Secretary of State for Business, Innovation and Skills v Coward and another

FACTS

Ms Coward was made redundant and, soon after, her former employer was dissolved. She claimed unpaid statutory redundancy pay of £5,481 and unpaid notice pay of £2,030 from the Secretary of State under ss.166 and 182 of the Employment Rights Act 1996. These provisions allow claimants to recover sums from the Government when a company ceases trading.

The employment tribunal allowed both claims.

The Secretary of State accepted that the statutory redundancy pay was due under s.166 of the Employment Rights Act 1996, as Ms Coward had taken all reasonable steps short of litigation against the company to recover that sum. However, it appealed the decision relating to the notice pay, where claims are subject to a different statutory test.

DECISION

The Employment Appeal Tribunal (EAT) noted that, under s.182 of the Employment Rights Act 1996, a claimant can recover notice pay only if his or her former employer is “insolvent” within the definition set out in s.183 of the Employment Rights Act 1996. Under that section, the company must have been subject to winding-up, administration, appointment of a receiver, or a voluntary arrangement. Each of these requires an appropriate formal filing to be made to Companies House.

In the case of Ms Coward’s former employer, the Companies House records simply showed that the company had been dissolved. The employment tribunal had erred in finding that the company had been insolvent on the basis of its accountant’s evidence that it had been unable to pay its debts. This was not the correct test and, as no formal insolvency process had taken place, Ms Coward’s claim under s.182 could not succeed.

The appeal was upheld.

IMPLICATIONS

The EAT was asked by Ms Coward to exercise discretion. The decision serves as a reminder to claimants that the tribunal does not have any discretion in this area, as the legislation is clear. In such situations, while the Government will cover any unpaid statutory redundancy pay, it will not extend to unpaid notice pay unless the employer was officially insolvent.

Nicholas Jew, employment partner, DLA Piper

Practical guidance from XpertHR on insolvency

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