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MPs call for more protection for employees if company goes out of business

Wed 15 Apr 2015

Employment law must give greater protection to workers if their employer goes out of business, MPs have said.

According to a joint report from two parliamentary committees, City Link deliberately chose not to tell employees and contractors that a collapse was imminent. Indeed, they did not find out about this development until it actually happened.

MPs pointed out that the fine for ignoring the statutory redundancy consultation period is less than the cost of continuing to trade.

As a result, they believe it is "clearly in the financial interests of a company to break the law", particularly as any fine will be paid for by the taxpayer.

However, the report stated that ignoring the consultation period has a "high human cost that appears not to have featured in the decision making process at City Link".

For instance, it said employees were not given a sufficient notice period in which they could look for alternative employment.

Furthermore, the report noted that the affected individuals may "have to pursue a court claim for lack of consultation if they wish to be compensated" at a time when they are going through "financial uncertainty".

Adrian Bailey, chair of the Business, Innovation and Skills committee, said it is clear that the current insolvency system "fails to offers sufficient protection to workers, suppliers and contractors alike".

He pointed out that while investors and directors are "cushioned from the impact of failure", workers, suppliers and contractors must "pay the highest price".

Mr Bailey has therefore insisted that the balance "needs to be shifted so that our insolvency system is no longer skewed in favour of investors and directors".

Ian Davidson MP, chair of the Scottish Affairs Committee, added that the system as it stands provides "perverse incentives to withhold information or to skip proper consultation processes in contravention of the law".

Sue Kelly, a partner in Winckworth Sherwood’s employment department, commented, “Much depends on how many employees are being made redundant at one “establishment” within a 90-day period. The statutory obligation to consult collectively only arises where 20 or more are involved, but when this is the case, the minimum consultation period will be 30 days (unless 100 or more are being made redundant, in which case it is 45 days) and yet the penalty for failure to consult (“protective award”) can be up to 90 days’ full salary, and that should be the starting point where the employer’s breach of the consultation obligations is serious and culpable.”

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