Company insolvencies in England and Wales reached their highest level in 30 years in 2023, leaving thousands of employees with uncertain futures. With the demise of The Body Shop this week, employment lawyer Stephen Moore examines what’s in store for the company’s UK workers.
With the appointment of administrators announced on 13 February 2024, The Body Shop is the latest high street retailer to enter insolvency. On Tuesday, it was reported that the store was set to shut half of its 198 stores, with some, including its flagship Oxford Street store, to close their doors that same day. Hundreds of job losses are expected, including almost 300 head office positions. So what rights and protections are afforded to The Body Shop’s affected employees?
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It is for the administrator to decide how to deal with staff employment contracts, which will not automatically terminate on its appointment. For staff in stores remaining open, the administrators will likely “adopt” their employment contracts.
They will continue to work under the instruction of the administrator and have a right to be kept informed of the administration process.
They should continue to receive their salaries and once administration ends, the payment of any unpaid salaries earned post-adoption will be prioritised over other debts (such as administration fees, and those of floating charge holders and unsecured creditors). Unpaid salaries earned pre-adoption and any other sums due will not enjoy the same protection, however.
The employment contracts of the 300 head office workers and shop workers at closing stores will likely be terminated. As with remaining employees, any sums due (outstanding salaries, redundancy payments, compensation payments) will rank as unsecured claims.
They will become unsecured creditors, the usual insolvency rules will apply and any claim they have will rank second to last in order of priority. Once administration ends, they will share any available remaining assets in proportion to the debts they are owed and are unlikely to recover more than a few pence per pound outstanding. These rules apply to all, regardless of seniority within the company.
While there may be the option to claim certain sums against the government, The Body Shop is essentially able to avoid legal action from its employees”
An affected individual may seek legal action to recover sums owed by the company. However, for the duration of the administration, a moratorium will prevent such proceedings from being instituted.
Any claims issued are likely to be suspended until administration ends, unless the consent of the administrator or court for them to proceed can be secured. At this point, again, the likelihood of recovery is very low. While there may be the option to claim certain sums against the government, The Body Shop is essentially able to avoid legal action from its employees.
For those affected, some (albeit restricted) protections do exist. For those who remain employed at The Body Shop, debts equal to remuneration (including salaries and sick pay) owed for the four-month period before the appointment of the administrator, accrued holiday pay and some pension contributions will be paid in priority to floating charges and unsecured creditors, increasing the likelihood that these sums will be recoverable.
For those whose employment contracts have been terminated, the government guarantees certain payments via the National Insurance Fund, including debts of up to eight weeks’ arrears of pay, notice pay and statutory redundancy payments. Both protections are subject to significant caps, thus The Body Shop’s remaining and terminated employees should prepare to be left out of pocket.
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