Carillion aftermath: What are employees’ rights when a company goes under?

As the ripple effect of Carillion's collapse only just begins to take shape, thousands of employees face the stark reality of being made redundant and uncertain futures. But what are the rights of those affected and what exactly would you be entitled to? Insolvency expert Mike Smith provides some clarity.

While the initial media frenzy surrounding the Carillion collapse is beginning to wane, the impact on many other stakeholders, such as subcontractors and their many thousands of employees, is only just starting to be felt. 

The dramatic collapse of Carillion is already hitting thousands of UK suppliers hard. Subcontractors who are owed money by the firm are being pressured by the banks and many have already have begun the process of making workers redundant.

Sub-contractor insolvencies are also inevitable, with the liquidator PricewaterhouseCoopers saying it will not pay any bills for goods and services rendered before the liquidation date. That means those owed money for work completed prior to the liquidation will become unsecured creditors. 

They will need to lodge a claim with the official receiver for payment. With reported liabilities of £5bn and just £29m in cash, it’s unlikely they’ll receive much of the money they are owed. That could lead to the insolvency of some the estimated 30,000 SMEs in the Carillion supply chain, and inevitably, the redundancy of their employees.

But what are the rights of employees who have been made redundant by a failing company? Will they receive redundancy pay? And what about other benefits such as maternity pay? 

In the event of the insolvency of a subcontractor, if the insolvency practitioner believes the company can be saved then certain employees may be asked to continue working. That will not affect their rights to redundancy pay if the business later fails. If the company collapses, employees who are entitled to redundancy pay or who are owed money by the company become preferential creditors. On liquidation, it’s often the case that there’s no enough money remaining to pay preferential creditors. 

What can employees claim should a firm go under?

1.Statutory notice pay

Employees have the right to receive a notice period before their employment comes to an end. The notice employees must receive depends on their length of service with a week’s notice for between one month and two years of service or 12 weeks of notice for those employed for 12 years or more.

2.Redundancy pay

If the failed company has insufficient funds on liquidation to pay redundancy agreements that may have been in place, employees of failed businesses can claim statutory redundancy pay. The length of service for statutory redundancy pay is capped at 20 years and payments are capped at £489 a week. Statutory notice pay is also capped at £489 a week. However, redundant employees who claim statutory notice pay and statutory redundancy pay will receive both. 

3. Payment for a failure to consult collectively

Employers who propose to make 20 or more employees redundant over a period of 90 days or less have a statutory duty to consult representatives of a trade union or elected employee representatives. The aim of the consultations is to reach an agreement about how to reduce the number of people being dismissed. 

4. Holiday pay

Employees who have holiday owing must also take it before they leave or receive a payment from their employer. Up to six weeks’ statutory holiday pay can be claimed on redundancy from a failed company. 

5. Unpaid pension contributions

If there are pension contributions which remain unpaid then employees should get in touch with the insolvency practitioner (liquidator) who will be able to claim this on their behalf. These will be paid by the Department for the Economy from the National Insurance Fund. Payable contributions include unpaid contributions that have been deducted from an employee’s pay but which have not been paid into the scheme and contributions unpaid by the employer on its own account.

6. Sick pay, maternity pay and paternity pay

If a company becomes insolvent and enters into liquidation or administration then sick pay, maternity and paternity pay will be paid by HMRC. HMRC will step in from where the employer left off and pay employees at the statutory level.

There’s no doubt that the aftershocks of the Carillion collapse will hit some people hard. However, it can be hugely reassuring to know that if the worst does happen, as the employee of a failed subcontractor, there is still some support out there to help you get back on your feet.   

Mike Smith is a senior director of Company Debt, and an insolvency expert of four decades.