FAQs – EMPLOYMENT LAW AND INSOLVENCY

These FAQs are to assist official receivers in understanding the subject and should be read in conjunction with the more detailed guidance given in the main body of the Technical Manual chapter.  Links to the relevant parts of the Technical Manual are given within the FAQs.

GENERAL

How is the state of employment defined?

Employment has been defined as ‘employment under a contract of employment, a contract of apprenticeship or a contract personally to do work’.  A key factor in establishing if parties have the relationship of employer and employee is therefore the existence of an employment contract (see paragraph 76.4).

What if there is no employment contract?

Where the official receiver ascertains that there is no contract of employment, it is likely that the arrangement will be that of self-employment, under a ‘contract for services’ (see paragraph 76.4).

Is a company director an employee?

A director is not automatically an employee of the company of which he/she is a director.  If, however, he/she has a service agreement, or similar, with the necessary features of an employment contract then the director is also an employee, even if he/she is the sole director and sole employee (see paragraph 76.7).

What are the consequences of the relationship not being one of employee and employer?

The most significant consequence of a relationship not being one of employee and employer is that the individual engaged is not afforded the various statutory protections that apply to employees (see paragraph 75.3).

What statutory protections are employees afforded?

There are numerous statutory protections afforded to employees.  The main ones are to receive at least the minimum wage, to receive rest periods including holidays, not to be discriminated against and not to be unfairly dismissed (see paragraph 76.14).

How are these statutory protections policed?

Where a person believes that his/her statutory employment rights have been breached, he/she may make a complaint to an Employment Tribunal, which is essentially a court specialising in these types of claims (see paragraph 76.15).  The tribunal might award monetary compensation or, for a claim of unfair dismissal, may order reinstatement.

INSOLVENCY AND EMPLOYMENT

What is the effect on an employment contract of the insolvency of an employer?

Where a company as an employer is subject to a compulsory liquidation, the employment contracts of the  employees are automatically terminated (see paragraph 76.40).

Where the employer is made bankrupt, there is no automatic termination of the employees’ contracts.  The non-payment of wages resulting from the cessation of trade is, however, likely to be a breach of contract allowing the employee to bring the contract to an end (see paragraph 76.40).

In any case, the official receiver is likely to find it necessary to dismiss the employees (see paragraph 76.42).

Can the employees make any claim against the insolvent estate?

Monies due to an employee for wages, etc. are a debt in the proceedings, some of which will be treated preferentially (paid in advance of other claims in a distribution).  An employee can also make a claim to the National Insurance Fund for outstanding monies (see paragraph 76.43).

What is the National Insurance Fund?

The National Insurance Fund is a fund of monies that can be used to pay certain debts owing to employees where the employer becomes formally insolvent (but not, apart from a claim for redundancy, where the employer simply ceases to trade) (see paragraph 76.44).

There are limits to the amount that can be paid out (see paragraph 76.53).

How does an employee make a claim for monies from the National Insurance Fund?

The National Insurance Fund is administered by the Redundancy Payments Service (RPS), which is part of the Insolvency Service (see paragraph 76.45).  The employee would need to make application to the RPS for payment of the outstanding sums using form RP1, which is generally supplied to them by the insolvency office-holder (see paragraph 76.46).  The RPS will, in turn, ask the insolvency office-holder to provide information to assist in confirming the claim made (see paragraph 76.47).

What should I do if a claim against the insolvent has been made to an Employment Tribunal?

Generally speaking, the claimant and the Employment Tribunal should be notified of the insolvency proceedings and reminded that proceedings may not be brought or continued without the leave of the (insolvency) court (see paragraph 76.63).

What about a claim being made to the Employment Tribunal by the bankrupt?

This should be treated as a right of action which will, in most cases, vest in the official receiver as trustee (see Chapter 31.9, Part 8).