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Rights and conditions
02 November 2016
Losing a job is often a distressing experience for any employee. This is particularly true where the employer becomes insolvent and the entire workplace is closed down, with little or no notice.

Some ATL members who are employed by limited companies to work in the independent sector have had this unfortunate experience. In boarding schools, homes as well as jobs can be lost.

ATL members who are concerned that their jobs may be at risk through insolvency of their employers are advised to contact ATL's London office as soon as possible.

Salary and redundancy pay

Employees are often owed salary when the employer becomes insolvent. As they are regarded as being dismissed because the workplace has been closed, they are also entitled to a redundancy payment if they have been continuously employed for at least two years.

While claims from employees are treated as 'preferential debts', in which case they are paid ahead of other claims, by the time the costs of the insolvency fees have been paid, there may be no money left to satisfy their claims.

Where this occurs, it is possible to claim the following from the National Insurance Fund, of the Government's Redundancy Payments Offices:

  • up to eight weeks' arrears of salary
  • statutory redundancy pay
  • pay in lieu of any statutory notice you were entitled to but did not receive
  • a maximum of six weeks' holiday pay for unused holiday and for holidays taken but not paid (however, holiday pay does not normally apply to teachers).

In each case, there is an upper limit on the amount of weeks pay that is taken into account; this is reviewed each year and is currently £450.

Statutory redundancy pay

This is calculated as follows:

  • half a week's pay for each complete year of service between up to the age of 21
  • one week's pay for each completed year of service between ages 22 and 40
  • one and a half week's pay for each complete year of service from the age of 41.

No more than 20 years' service can be used in the calculation. Tax is not payable on a redundancy payment. For more information, see the redundancy section of this website.

Pension

If the employer has not paid certain pension contributions into your occupational pension scheme, the National Insurance Fund is obliged to pay into it arrears accrued in 12 months prior to the insolvency. However, a lesser amount is payable in the case of money purchase schemes.

After redundancy

The potential to recover one's full financial loss, based on actual salary, is very limited, even if one attempts to pursue the former employer through the employment tribunals or courts.

If one is unemployed, it is advisable to claim Job Seeker's Allowance and any other benefits one is entitled to. If a claim is made to the Redundancy Payments Office for notice pay, any benefits you are entitled to will be deducted from it, whether you claim them or not. Best endeavours should also be used to find another job.

The receiver/insolvency practitioner is responsible for dealing with the insolvency of the employer. In practice this should mean that they notify employees of any meeting of the company's creditors that will be taking place, which they can attend, to provide the claim forms that are to be sent to the Redundancy Payments Office and to assist in the processing of the claims. The Redundancy Payments Office is responsible for settling the claims.

See also