GUEST COMMENT: Your rights if your employer becomes insolvent

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After weeks of uncertainty, it now seems that around 750 Lehman Brothers staff in London will definitely lose their jobs. Unfortunately for them, they will do so in a particularly challenging situation: insolvency.

Following an insolvency, you may find that the HR people you would normally turn to for answers may have lost their jobs as well. Employees can only hope that the administrator gives them information and support. But they may be disappointed. Often, employees find themselves summarily dismissed without consultation, and given forms to make a claim against the Redundancy Payments Office and HM Revenue and Customs (HMRC).

The Redundancy Payments Office will pay employees their redundancy pay, their wages, holiday pay, notice pay, a basic award for unfair dismissal, and unpaid pension contributions. However, these claims will be capped and the payments will not reflect all the employees' losses. Statutory sick pay, maternity, paternity and adoption pay can be claimed against HMRC. Any additional sums due to the employees may only be paid if there are sufficient funds realised from the liquidation.

If the administrator chooses not to consult with the employees (as is often the case), this will give rise to a claim for a protective award of up to 90 days' pay. Given the catastrophic nature of the collapse of Lehman Brothers, it may be unlikely that the employees, if successful, will benefit from the fact that they will be preferential creditors. In this case, they may again have to turn to their statutory right to claim a remedy against the Secretary of State, but they will find this remedy is of limited value - sums recoverable from the Secretary of State are capped and may not reflect the actual losses sustained by the employee.

An at-a-glance summary of employee rights on insolvency is set out below:

· Those whose jobs have 'disappeared' will be redundant, and entitled to redundancy payments - statutory or contractual.

· If the employer does not follow the correct procedure, the dismissal will be unfair and the employee entitled to a basic and compensatory award.

· If the normal notice period is not worked, the employee will be entitled to a payment in lieu of notice.

· Where more than 20 redundancies are proposed within a 90-day period, collective redundancy consultation obligations are triggered. Often the administrator chooses not to go through the collective consultation process. This entitles the employees to a protective award of up to 90 days' pay (as noted above).

· Notice payments, redundancy payments, damages for unfair dismissal and un-reimbursed expenses are unsecured debts and as such rank last in the order of priority for repayment, so they will be difficult to recover. Wages, sick pay, maternity pay, bonuses and commission are preferential debts which come higher up the order of priority.

· If there are no assets left from which to pay the entitlements due to employees, they will have to turn to various agencies: the Redundancy Payments Office (for redundancy pay, wages, holiday pay, notice pay, basic award for unfair dismissal and unpaid pension contributions), HM Revenue and Customs (for statutory sick pay, maternity, paternity and adoption pay) and the Secretary of State (for protective awards, which are paid out of the National Insurance Fund). In most cases, the sums recoverable are capped and the payments will not reflect all the losses. Any additional sums due to the employees will then only be paid if there are sufficient sums realised from the liquidation.

· Employees who held shares in the business as a result of previous bonus awards will find that they have little or no value.

Anne-Marie Balfour is an employment solicitor at Speechly Bircham.

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