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Calling it a day? You'll Still Get Your Pay!

Thomas Cook have gone bust, ceasing to operate on 23rd September 2019. Even those on holiday at Point Nemo or deep in the Marianas Trench have heard the news by now, and there’s been plenty of advice on what stricken holiday-makers need to do to to get back home or reclaim their money.

The focus has now switched to their employees, especially with the news that the usual payday at the end of the month has not been honoured. This isn’t unusual for companies that are in liquidation, as the money simply isn’t there for payroll to continue as normal. However, it doesn’t mean that the employees are out of luck.

Because Thomas Cook has stopped trading, the situation would be classed as a dismissal for reason of redundancy. The Employment Rights Act 1996 defines redundancy as one of the following four situations:
the employer ceases to carry on the business in which the employee was employed;
the employer ceases to carry on that business in the place where the employee was employed;
the needs of the business for employees to carry out work of a particular kind cease or diminish; or
the needs of the business for employees to carry out work of a particular kind in the place where the employee was employed cease or diminish.

Clearly when a business stops trading it is a redundancy situation, and there are a number of schemes to help employees stuck in this situation. The government will step in and cover redundancy payments, holiday pay, outstanding payments (unpaid wages, overtime and commission), and money the employee would have earned working their notice period (‘statutory notice pay’), although it is worth noting that money the employee gets (or could have got) by claiming benefits will be deducted from the payments. There’s even a scheme to make sure that unpaid pension contributions are covered!

Claims for redundancy, unpaid wages and holiday pay can be made as soon as the employee is made redundant. The person dealing with the insolvency (the ‘insolvency practitioner’ or ‘official receiver’) will give out a ‘CN’ (case reference) number which is needed to make the claim, and the claim must be made within 6 months of being dismissed.

The process is slightly different for statutory notice pay - the employee needs an ‘LN’ reference number to make a claim, which is sent out after the notice period would have ended (usually no more than 12 weeks after the date of dismissal). The redundancy claim must be made before the claim for notice pay.

The downsides are that it’s not an immediate payment, and the statutory amount that an employee is entitled to may be less than the amount given under the contract. Someone must be appointed to handle the insolvency, and the Redundancy Payments Service needs time to process the claims. However, it’s a lot quicker than waiting for the insolvency practitioner to resolve the insolvency situation and then make the payment, and definitely a lot better than receiving nothing!

Not every employee will be eligible for redundancy payments or for the Redundancy Payments Service to step in. If you are facing an insolvency situation and want advice on whether you might qualify, please get in touch with our Employment Law team for a free call-back to discuss the issues you are facing.

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