What are your rights if your employer goes into administration?

The last year and a half has been tough for businesses right across the country. Thousands have seen their income slashed to almost nothing, while others have sadly gone out of business as their customer base dried up completely. Going into administration is a shattering event for business owners, but it’s just as bad for the people who depend on these companies for their livelihood.

Whether it’s a case of ‘you saw it coming’ or it’s a complete surprise, being made redundant because your company has gone into receivership is a huge blow. However, you still have rights, and it’s essential that you understand exactly what they are so you don’t lose out. You may be able to claim for any unpaid wages, holidays and (if you were employed by the company for over two years) redundancy pay.

A shock to the system

Redundancy is a real shock to the system, especially if you’ve been working for a business for a long time. One of the biggest recent collapses that left thousands of workers high and dry was the end of travel group Thomas Cook. It showed in sharp relief how a single business can have a huge knock-on effect for thousands of workers, as well as the ancillary businesses that depend on the continued business of a major name like Thomas Cook.

It also highlighted just how important worker’s rights are in these difficult times. So what can you do if your boss pulls the plug?

The difference between liquidation and administration

If a business is liquidated it’s permanently closed or wound up. Once insolvency practitioners are appointed, you will lose your job. At that point, the Insolvency Act 1986 kicks in and the business has to pay its debts to creditors. As an employee, you’ll be designated as a ‘preferential creditor’, but don’t think that pushes you to the top of the queue as it can take months or even years before you see even a small amount of the money you’re due.

You do have the right to claim from the National Insurance Fund through the government’s Insolvency Service or Redundancy Payments Service. It won’t be a huge amount, but it could be enough to keep you going until you find a new job.

If a company goes into administration then an administrator (either a single person or a team) will work hard to keep the business going and to find a potential buyer who may be willing to take the business on. While you have more of a chance of hanging onto your job for a little longer if the company goes into administration, it may be simply a case of delaying the inevitable. In this case, unless things look very positive and a buyer takes over quickly, start job hunting as soon as you can. Even if a new boss takes the reins you may still find yourself being made redundant as they reorganize the business.

Claiming your entitlement

If you’ve worked for a business for more than two years then you should be entitled to redundancy pay. This is capped at a certain amount each week (currently around £525), and the amount you get will depend on how long you’ve worked for your employer, your age, and the terms of your contract.
Outstanding payments are also capped at the same rate as redundancy pay. These include outstanding wages, and overtime and can be claimed for up to eight weeks.

You can also claim for any holiday pay that’s owed to you (up to six weeks), and payment in lieu of your agreed notice period, again capped at the same rate as the redundancy pay for a maximum of 12 weeks.

So a financial cushion does exist and you shouldn’t be left with zero income, even if the worst happens.

Protective Awards

You may also be able to claim for a Protective Award. This applies if you were made redundant without consultation (which is often the case when a company goes into administration) and 19 or more of your colleagues are affected. A Protective Award can be worth up to 90 day’s pay and is in addition to any other payments you’re entitled to. You’ll need to meet the criteria and the decision is down to a tribunal. If you’re represented by a trade union then they can make the claim on your behalf. A claim needs to be made within 90 days of dismissal or redundancy, and you do need to jump through a couple of hoops first before you can pursue it, including an ACAS early conciliation process and getting an Early Conciliation Certificate.

No matter what happens, it’s important to get the right advice as quickly as you can. If your job is on the line and your boss is about to shut up shop, talk to an employment law expert sooner rather than later. It could make a very difficult and upsetting event a little easier.