Employee bankruptcy

One of our long-serving employees has been declared bankrupt. We are concerned this may impact on his job, particularly in terms of his ability to afford travel to work as well as retain a smart appearance. What steps can we take, and what are our obligations?

The normal duration of first-time bankruptcy is one year. This, and the fact that the stigma surrounding bankruptcy has decreased in recent years, means that bankruptcy (or the formal alternative, an Individual Voluntary Arrangement) have become much more commonplace.

Certain jobs in areas such as the legal or financial services sectors will have unique rules that may prohibit employees continuing to practise after being declared bankrupt, and in such cases, employers may have to investigate dismissal on the grounds of ‘statutory restriction’ (the least used of the six fair reasons for dismissal). Similarly, it will be a standard clause in most properly drafted service agreements (as well as in the Articles of Association of most limited companies) that directors will cease in their duties if they are declared bankrupt.

With regard to employees who do not fall within the categories above, staff and employers’ obligations towards one another still remain the same after an employee has become bankrupt.

The Trustee in Bankruptcy will provide the employee with an amount to live on that should pay for travel to and from work and appropriate work attire. If this does become an issue, consider offering a loan to the employee, particularly if they are ‘client facing’ and therefore need to be smart in appearance to perform effectively. Employers who do offer loans should ensure there is a recoupment provision within the contract of employment, or agree an appropriate amendment to the contract.

You cannot take disciplinary action on the grounds of bankruptcy alone on an employee with more than 12 months’ service it has to have had an impact on the employee’s performance or capability. Even in an extreme scenario where an employee becomes homeless, it will only be relevant for employment purposes where it impacts upon their ability to carry out their role.

By Russell Brown, employment lawyer and partner, Glaisyers Solicitors

Each week we ask the experts to answer your legal dilemmas. If you have a legal question or dilemma, e-mail dawn.spalding@rbi.co.uk


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