EMPLOYMENT CLAIMS (BANKRUPTCY ONLY)

PART 8

November 2010

EMPLOYMENT CLAIMS (BANKRUPTCY ONLY) 

31.9.155  Scope of this Part

This Part of the chapter deals only with employment claims.  That is claims which arise from and concerning the bankrupt’s (former) employment, as opposed to a claim in connection with the bankrupt’s work (a fall at work, for example) – for which reference should be made to the other Parts of this chapter.

 

31.9.156  Employment claims generally

Employment claims are generally brought before an Employment Tribunal (see paragraph 31.9.158), unlike other types of claims where the usual forum is the court (though such claim may end up in the court, ultimately).  An employment claim will almost certainly concern the bankrupt’s leaving of a job, in connection with which he/she is claiming unfair dismissal (see paragraph 31.9.163) or wrongful dismissal (see paragraph 31.9.166).

Another type of employment claim often encountered is one for discrimination (see paragraph 31.9.172), which may or may not be connected with a claim for loss of a job.

 

31.9.157  Information required from the claimant

In order that the official receiver, as trustee, can assess which is the best option to take in respect of a right of action relating to an employment claim, he/she should, as a minimum, seek the following information from the claimant bankrupt : 

  • The event which led to the claim and the date of that event.
  • The identity of the defendant.
  • The monetary value of the claim, including a breakdown of the damages and losses being claimed.
  • Whether the action is for wrongful dismissal, unfair dismissal and/or something else.
  • Any insurance policy that is backing the claim.
  • The grounds on which any solicitors are acting (for example, is it a conditional fee arrangement, or similar?).
  • Any limitation on the claim.
  • Copies of any claim forms (this will, most likely, be an ET1 form).
  • Copies of any documents (for example, orders) issued by or to the  tribunal.

The letter attached at Annex A may be used for this purpose

 

31.9.158  Employment Tribunals           

Employment Tribunals hear claims to do with employment.  They operate in a way similar to courts in that they receive submissions from both sides before considering the evidence and making a binding judgment. 

More information on Employment Tribunals can be found on their own website (http://www.employmenttribunals.gov.uk/).

 

31.9.159  Time limit for bringing an employment claim

A claim relating to dismissal (wrongful or unfair) made to an Employment Tribunal must normally be made within three months of the dismissal (normally the dismissal will be the last day worked – regardless of any pay in-lieu of notice, etc.) or last discriminatory act complained of [note 1].  The Employment Tribunal has discretion to extend this time period [note 2] where the employee was unable to bring the claim or where it would not have been appropriate to do so (where, for example, the employee was completing, or believed that he/she was completing, the (former) employer’s internal procedures [note 3] or where the employee was seriously ill) http://www.employmenttribunals.gov.uk/FormsGuidance/makingAClaim.htm) [note 4].

Where a claim for wrongful dismissal is brought in a court, the time limit is six years from the date of dismissal [note 5].

 

31.9.160  General principle regarding employment claims

It is a general principle of insolvency legislation that an employment contract (one that requires the bankrupt to provide his/her skill and/or labour) cannot vest in the trustee in bankruptcy.  The trustee cannot carry out the role of the bankrupt, nor can he/she force the bankrupt to remain in the job and any right of action arising from that contract must remain personal (see paragraph 31.9.37) to the bankrupt [note 6].

Where the contact has ended (whether by termination or conclusion), any right to claim under that contract would vest in the official receiver, as trustee.

Most employment claims tend to be as a consequence of the bankrupt’s dismissal from a job and the ending of the contract of employment.  Not all claims for dismissal vest in the official receiver, as trustee and to decide whether a claim for dismissal vests, it is necessary to decide whether the claim is one for unfair dismissal or wrongful dismissal.

 

31.9.161  Unfair dismissal versus wrongful dismissal

In simple terms, a claim for unfair dismissal (see paragraph 31.9.163) is a claim that that the bankrupt ought not to have been dismissed from his/her job (it was ‘unfair’ to have done so).  The primary remedy for an unfair dismissal claim is to reinstate the bankrupt to the job from which he/she was unfairly dismissed, or re-engage him/her in an alternative job.  Unfair dismissal is a creation of statute [note 7].

A claim for wrongful dismissal (see paragraph 31.9.166), on the other hand, is a claim that the person was dismissed in breach of their contract of employment (where, for example, a contractual notice period was not given or where an inefficiency procedure was not followed correctly).  Fairness (or otherwise) is not at issue – maybe, for example, the employee was inefficient and it was ‘fair’ to dismiss them, but the correct procedure (as provided for in the contract) was not followed.  The remedy for wrongful dismissal is normally financial compensation.  Wrongful dismissal is a concept of common law.

 

31.9.162  Constructive dismissal

Constructive dismissal does not, of itself, give rise to a right of action, though it may lead to a claim for unfair dismissal and/or wrongful dismissal (see paragraph 31.9.161).

In simple terms, constructive dismissal describes a situation where an employee terminates his/her own contract of employment by reason of his/her employer’s conduct.

In the case of a claim for dismissal based on constructive dismissal, the tribunal or court would first need to establish that the claimed constructive dismissal was, in fact, a dismissal and not, simply, a resignation. 

 

31.9.163  Unfair dismissal

Where a person believes that they have been unfairly dismissed, they may make a claim for unfair dismissal to the employment tribunal [note 8] (see paragraph 31.9.158).  It is then for the employer to show that the dismissal was not unfair with regards to such reasons as the capability, conduct or redundancy of the employee [note 9].

Where the tribunal finds in favour of the employee, it will explain to him/her what order it can make as regards reinstatement to the job from which he/she was unfairly dismissed, or re-engagement to an alternative job [note 10] and ask if he/she wishes the tribunal to make such an order [note 11].  Perhaps unsurprisingly, it is often the case that the employee does not wish to be reinstated or re-engaged, in which case the tribunal may make an award of compensation for the unfair dismissal [note 12] [note 13].

 

31.9.164  A claim for unfair dismissal does not vest in the trustee

It has been held that a claim for unfair dismissal is personal and cannot vest in the trustee of a bankruptcy estate.  This is regardless of whether the bankrupt is seeking reinstatement/re-engagement or simply compensation [note 14].

In simple terms, the reason for this is that the primary remedy for a claim for unfair dismissal is reinstatement (see paragraph 31.9.161), and this is not something that the official receiver, as trustee, can be awarded.  The trustee cannot carry on the employment.

Any compensation (including for unpaid wages) awarded in connection with a claim for unfair dismissal will be ‘personal’ to the bankrupt and will not form part of his/her estate in bankruptcy.

 

31.9.165  Dealing with a claim for unfair dismissal

Where the official receiver, as trustee, has notice of a claim for unfair dismissal, he/she should write to the solicitors or advisors acting for the bankrupt (or the bankrupt him/herself if there are no solicitors or advisors), copying in the relevant employment tribunal and ask them to consider whether they believe that the claim vests.

In the likely situation that they conclude that it does not vest (see paragraph 31.9.164), the claim can then proceed unhindered by the official receiver, as trustee.

The letter attached at Annex H may be used for this purpose (and includes reference to the leading case on the subject [note 15]).

If the solicitors maintain that the claim does vest, then the advice of Technical Section should be sought.

 

31.9.166  Wrongful dismissal

A claim for wrongful dismissal is a claim that the dismissal was a dismissal in breach of a provision of the employment contract.  In order to be able to bring an action for wrongful dismissal, the employee must show that he/she was engaged for a fixed period, or a period terminable by notice, and that there were insufficient grounds for his/her dismissal.

Apart from in exceptional cases, the correct forum for a claim for wrongful dismissal is the employment tribunal [note 16].

Unlike in an unfair dismissal claim (see paragraph 31.9.163), it is not the normal practice of the tribunal to enforce the employment contract (to seek to reinstate the employee) [note 17].  The normal remedy where the tribunal finds in favour of the employee is to award damages.

 

31.9.167  A claim for wrongful dismissal is a claim that there was a breach of contract and would normally vest 

Where there is a claim for wrongful dismissal, it is clear that the person has been dismissed and there is, therefore, no ongoing employment contract.  The employee is released from the employment contract by the employer’s actions [note 18].  The right to claim for the breach of contract would, therefore, vest in the official receiver as trustee of the bankrupt’s estate (see paragraph 31.9.160).

 

31.9.168  Dealing with a claim for wrongful dismissal – getting agreement that claim vests

Where the official receiver, as trustee, is aware that a bankrupt is bringing a claim for wrongful dismissal he/she should write to the solicitors or advisors acting for the bankrupt (or the bankrupt him/herself if there are no solicitors or advisors), copying in the relevant employment tribunal, and inform them that he/she believes that the right of action vests in him/her as trustee of the bankruptcy estate.  He/she should seek their agreement to this.

The matter can then proceed on an ‘agreed’ basis and the official receiver can seek to deal with the right of action in line with paragraph 31.9.169).

The letter attached at Annex I may be used for this purpose.

 

31.9.169  Dealing with a claim for wrongful dismissal

There are, essentially, five ways that a wrongful dismissal claim may be dealt with by the official receiver, as trustee.  Three of these options might be termed ‘positive’: 

  • Litigation (take the case to tribunal) (see paragraph 31.9.170)
  • Assignment (sell the right of action) (see Part 6)
  • Settlement (do a deal with the defendant to bring the claim to an end) (see paragraph 31.9.182)

The remaining two options might be termed ‘negative’ (see Part 10): 

 

31.9.170 Litigating a wrongful dismissal claim (amended May 2015) 

For the reasons given in paragraph 31.9.130, the litigation of a wrongful dismissal claim is unlikely to be the most appropriate way to proceed.  Instead, the official receiver, as trustee, should first consider settling the claim (see paragraph 31.9.182) or assigning the claim (see Part 6). 

Were the official receiver to decide that litigation was the best option, they would first need to take account of the guidance in paragraphs 31.9.132 and 31.9.134.

 

31.9.171  A claim for wrongful dismissal and a claim for unfair dismissal can arise from the same dismissal

It is possible that a bankrupt may have a claim for wrongful dismissal and unfair dismissal based on the same dismissal.  Contrary to what might be thought, this would not be a ‘hybrid’ claim (see paragraph 31.9.43). 

In essence, what the official receiver is dealing with is two, separate, rights of action, one that arises from statute (the unfair dismissal claim – see paragraph 31.9.163) and one that arises from a breach of contract (the wrongful dismissal claim).  They can be dealt with as two, separate, claims.

Most likely, the appropriate course of action would be to seek to assign (see Part 6) the wrongful dismissal claim back to the bankrupt.

 

31.9.172  Claims for discrimination

Where an employee feels that he/she has suffered some disadvantage in connection with his/her employment due to his/her sex, race, disability, religion or belief, sexual orientation or age, he/she may make a claim for discrimination against the employer [note 19].

This may be connected to, or separate from, a claim for dismissal (see paragraph 31.9.161). 

Discrimination claims are heard by an Employment Tribunal (see paragraph 31.9.158).

 

31.9.173  Remedies for a claim for discrimination.

The remedies in a claim for discrimination include a declaration of the rights of the parties and an order for compensation (not limited to an order for compensation to injury to feelings) [note 20].

The declaration of rights and any compensation for injured feelings would be ‘personal’ to the bankrupt and any compensation for losses (such as wages losses) would be a ‘property’ claim, vesting in the official receiver, as trustee.

 

31.9.174  The possibility of limiting a discrimination claim to avoid it vesting

In the normal way of deciding such matters, a claim for discrimination (see paragraph 31.9.172) (that is, one with more than one head of damage – a ‘hybrid’ claim – see paragraph 31.9.43) would vest in the official receiver as trustee of the bankrupt’s estate.   It has been held that in a claim for race discrimination, the claimant can limit his/her claim to one for a declaration and compensation for injured feelings, making the claim entirely personal and taking it out of the bankruptcy estate.  The claimant can limit his/her claim at any point (even once it is before the employment tribunal) [note 21].

It is thought that the court took this approach due to the seriousness of race discrimination, though it is possible that the principles would be applicable to other discrimination claims.  That point has yet to be tested in court.  It is not thought that the principle would be applicable to other ‘hybrid’ claims.

 

31.9.175  Dealing with a claim for discrimination – getting agreement that claim vests

Where the official receiver, as trustee, is aware that a bankrupt is bringing a claim for discrimination he/she should write to the solicitors or advisors acting for the bankrupt (or the bankrupt him/herself if there are no solicitors or advisors), copying in the relevant employment tribunal and inform them that he/she believes that the right of action vests in him/her as trustee of the bankruptcy estate (assuming it does, in fact, vest – see paragraph 31.9.160).  He/she should seek their agreement to this.

The matter can then proceed on an ‘agreed’ basis and the official receiver can seek to deal with the right of action in line with paragraph 31.9.176).

The official receiver may used the letter attached at Annex J for this purpose.

 

31.9.176  Dealing with a claim for discrimination

There are, essentially, five ways that a claim for discrimination may be dealt with by the official receiver, as trustee.  Three of these options might be termed ‘positive’: 

  • Litigation (take the case to tribunal) (see paragraph 31.9.170)
  • Assignment (sell the right of action) (see Part 6)
  • Settlement (do a deal with the defendant to bring the claim to an end) (see paragraph 31.9.182)

The remaining two options might be termed ‘negative’ (see Part 10): 

 

31.9.177 Litigating a discrimination claim (amended May 2015)

 

For the reasons given in paragraph 31.9.130, the litigation of a discrimination claim by the official receiver is extremely unlikely to be the most appropriate way to proceed.  Instead, the official receiver, as trustee, should first consider settling the claim (see paragraph 31.9.182) or assigning the claim (see Part 6).

 

Were the official receiver to decide that litigation was the best option, he/she would first need to take account of the guidance in paragraphs 31.9.132 and 31.9.134.

 

31.9.178  Where claimant bringing a claim for discrimination and unfair dismissal

Where a claimant is bringing a claim for unfair dismissal (which does not vest – see paragraph 31.9.163) and a claim for discrimination (which, generally, does vest – see paragraph 31.9.166), it has been held that the employment tribunal can distinguish between the two claims as separate claims and not treat the claim as a ‘hybrid’ action (see paragraph 31.9.43) [note 22].

The unfair dismissal claim can then proceed unhindered by the official receiver, as trustee, leaving the discrimination claim to be dealt with as appropriate (see paragraph 31.9.176).  That said, it is likely that the best outcome in this circumstance is to seek an assignment (see Part 6) of the discrimination claim back to the bankrupt.  The claims will be inextricably linked and the bankrupt (and trustee) may find it difficult to litigate each claim separately. 

 

31.9.179  A claim for redundancy

Assuming that the contract (employment) has ended as at the date of bankruptcy, the right to claim and receive the redundancy payment vests in the official receiver, as trustee.  This would apply equally to a claim for enhanced redundancy (where a redundancy payment has been made but the ex-employee is seeking to increase the amount awarded).

Where the contract (employment) has not ended as at the date of bankruptcy (where, for example, the offer of redundancy has been made and, perhaps, accepted but the employment has yet to cease) any redundancy payment made during the term of bankruptcy should be claimed as after-acquired property [note 23] (see Chapter 31.8), except for arrears of pay (including pay in lieu of notice and holiday pay) which should be claimed under an IPA/IPO [note 24] (see Chapter 31.7).

 

31.9.180  Equal pay claims

A claim for equal pay [note 25] is claim that an employee (generally, a woman) has been paid less than another person of the other sex doing the same job.

Generally speaking a claim for equal pay will be brought whilst the person is still in the employment to which the claim arises and, that being the case, it would remain personal to a bankrupt and would not form part of his/her bankruptcy estate (see paragraph 31.9.37).  However, any compensatory payment made during the term of bankruptcy would be considered income and should be claimed under a ‘lump sum’ IPO/IPA [note 26] [note 27] (see Chapter 31.7).  

Similarly, any increase in future pay secured as a result of the action could be considered for an (increased) monthly IPO/IPA (see Chapter 31.7) if it is awarded during the period of bankruptcy.

Such a claim brought after the contract (employment) has ended would vest in the official receiver, as trustee of the bankruptcy estate and the whole amount of compensation would be due to the estate whenever paid.  The bankrupt may not limit his/her claim to one for injured feelings (as is allowed in a claim for unfair dismissal – see paragraph 31.9.174) as compensation for non-economic losses may not be awarded in an equal pay claim [note 28].

 

31.9.181  Loss of earnings for a period after the making of the bankruptcy order (amended July 2011)

Where a court makes an award for the loss of future earnings in a vesting claim (most likely a wrongful dismissal claim – see paragraph 31.9.166 – but not an unfair dismissal claim – see paragraph 31.9.163), the money represents property damages and will therefore vest in the official receiver as trustee [note 28a] [note 28b].  This is the case despite the fact that the award was intended to compensate the bankrupt for lost earnings beyond the date of discharge [note 29].  The logic behind this position is that the creditors rely upon the ability of a borrower to be able to work and earn money when they decide to give credit. 

This view should, however, be balanced against the principle that bankruptcy is intended to provide a ‘fresh-start’ to the bankrupt.  In this regard, it has become normal practice that the official receiver limit his/her claim over the future loss of earnings to those monies representing the lost earnings in the period ending three years after the commencement of bankruptcy.  This brings the official receiver’s claim to the monies in line with the period that he/she would have been able to claim the monies under an IPO/IPA.

 

31.9.182  Settling an employment claim

As with any other sort of claim, an employment claim may be settled before or during the time it is submitted to the employment tribunal.

It is the normal procedure for the employment tribunal to send a copy of any claim received to the Advisory, Conciliation and Arbitration Service (ACAS) (http://www.acas.org.uk/index.htmx?articleid=1461) who will attempt to assist the parties in reaching a settlement, if that is what they both wish to do.

So far as the official receiver, as trustee, becoming involved in the settlement of any vesting claim is concerned, the advice in Part 5 of this chapter may be followed.

 

31.9.183  Award made where employer in formal insolvency

Where an award is made by an employment tribunal in a vesting right of action and the person against whom the award is made has entered into formal insolvency (in an employment case this is most likely to be the ex-employer), the official receiver should ensure that the claim is lodged with the relevant office-holder and, also, seek to recover the sum owed from the Redundancy Payments Service (http://intranet/BSD/RP/RPHomePage.htm). 

 

31.9.184  Claiming a ‘personal’ award

It has been held that a part of any award of compensation in respect of a ‘personal’ right could be claimed for the bankruptcy estate.  The judgment in the relevant case [note 30] did not give any indication when it would be appropriate, or correct, to claim such an award.  See paragraph 31.9.185 for guidance on the position for the official receiver to take in this regard. 

 

31.9.185  Position to take regarding claiming ‘personal’ awards

Whilst it is possible that the official receiver, as trustee, may seek to claim a personal award (see paragraph 31.9.184), the position that should be taken is that ‘personal’ awards might only be claimed if they change character (see paragraph 31.9.196).

 

[Back to Part 7 – Litigation of a right of action] [On to Part 9 – Dealing with the fruits of a right of action]