Yesterday, the boss of a bus company made the national news after suddenly shutting down his business and making the staff redundant with an abrupt note. The former employees were of course shocked and passengers let down, but did the employer break any laws by doing this? We asked our employment law expert Ed McFarlane what usually happens in this kind of situation:
“Sad news from Somerset where a local transport company, Nippy Bus, suddenly ceased trading over the weekend, leaving many staff unemployed and passengers stranded. Reports indicate that the management had announced the closure in a rather offhand manner. What are the employment law implications of suddenly closing a business?
First of all, any employees with over two years’ service (one year in Northern Ireland) would be regarded as unfairly dismissed if they were dismissed without any prior warning or consultation. However, winning an unfair dismissal claim isn’t likely to be worth much if the company has no money to pay any awards, and only limited help is available from the Insolvency Service which covers a certain amount of unpaid wages, holiday pay and compensation for redundancy.
Also, a further problem is that an award for unfair dismissal isn’t likely to be significant in such circumstances, as even if there is money in the Company to pay it, the award might be reduced if the redundancy was inevitable due to the situation of the Company. It might only cover a notional consultation period that could have led to a fair dismissal, which might be as low as two weeks’ pay.
However, where 20 or more people are made redundant, the law requires an employer to have a collective consultation period with employee representatives before dismissals take effect. If between 20 and 99 staff are at risk there must be a 30-day consultation period, and if 100 or more are at risk, the consultation period is 45 days.
If this requirement is breached, there may be a claim for up to 90 days’ pay per employee. Again, if there is no money to pay awards, then the Insolvency Service can pay some of the award, but only up to eight weeks’ pay for lack of consultation. A sudden emergency isn’t always a good excuse to avoid liability, e.g. sudden flooding of a mine, and the awards are intended to deter sudden redundancies.
One aspect of the law that is often overlooked is that along with collective consultation, there is an obligation to inform the Insolvency Service of any proposal to dismiss 20 or more employees at one establishment in a 90-day period with a form HR1. If this obligation is not met, then the employer may commit a criminal offence and be liable to a fine.
Furthermore, any Company director, manager or secretary who has consented or connived in such a breach, or who neglected to act, can also be liable to be prosecuted personally and be fined and so end up with a criminal record.
If any employee alleges discrimination, or detriment as a whistleblower in a sudden closure, managers involved in such decisions can face personal liability for discrimination. However, discrimination claims may be unlikely to succeed if everyone involved is being treated equally badly, as discrimination is about disparate unfavourable treatment rather than bad treatment on its own.”