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© tom schmucker dreamstime.com General | July 07, 2015

Action needed from UK government on redundancy consultations

The UK insolvency trade agency R3 is calling for government action to reform the collective redundancy process in insolvencies.
The profession is calling for a number of measures including clear guidance from government and reform of the ‘protective award’ compensation regime, which currently sees the taxpayer foot the bill for incomplete redundancy consultations.

Current rules require 45 days of redundancy consultation, and alternatives to redundancy to be discussed. “Insolvent businesses however, do not have the funds to comply and there are rarely any realistic alternatives. This leaves insolvency practitioners seeking to comply with the law in an impossible position.”

Andrew Tate, R3 vice-president, says: "The government ‘call for evidence’ is very welcome. This is a perfect chance to embrace the calls for reform and sort out the very real problems that exist with trying to consult on redundancy when companies fail."

"Existing consultation requirements are near impossible to fulfil in many company insolvency situations. This is a hopeless state of affairs which needs to be addressed urgently."

He urges for clear guidance. "Companies can become insolvent incredibly rapidly. There may not be enough money left to pay salaries for a week let alone 45 days while consultation takes place, or even to pay for the consultation process itself. Moreover in an insolvency process the future of the business might not be clear enough for meaningful consultation."

If a full consultation cannot be completed, the insolvent company may be required to pay employees a ‘protective award’ by an Employment Tribunal. Since the company is insolvent, this award is usually paid by the UK taxpayer via the National Insurance Fund. The fund then seeks to recoup this payment from the insolvent company’s remaining assets later on.

Currently, the statutory redundancy consultation period in the UK is:
  • Employers proposing 100 or more redundancies have to start collective redundancy consultation with staff representatives at least 45 days before the first redundancy takes effect.
  • Employers planning 20 or more redundancies have to start redundancy consultation at least 30 days before the first redundancy.

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