The Collapse Of Thomas Cook – Employees’ Rights To Payment

On 23 September 2019, it was announced that Thomas Cook had entered compulsory liquidation after the Court granted a winding up order which will subsequently lead to the company being struck off the register. This had the effect of automatically terminating the employment contracts of all employees of Thomas Cook.

Employees’ rights to payment – The law

Where 20 or more employees are being made redundant over a period of 90 days or less, as was the case with Thomas Cook, an employer has various duties under the Trade Union and Labour Relations (Consolidation) Act 1992. These include a duty to inform and consult with appropriate employee representatives for a specified period prior to dismissal. In the case of Thomas Cook, 100 or more redundancies (in fact, thousands) were proposed as a result of its dire financial situation and therefore it was under a duty to consult at least 45 days before the first redundancy was to take effect. An employer is also under a duty to consult individually with employees who may be affected.

The purpose of informing and consulting is for the employer to provide the necessary information about the reasons for the proposed dismissals, the employees who are at risk of redundancy and the proposed method of selecting employees for redundancy to enable meaningful consultation on ways to avoid dismissals, reducing the number of employees to be dismissed and mitigating the consequences of those dismissals.

Where an employer breaches its duty to inform and consult, this is likely to affect the fairness of any dismissal and an employee may bring a claim in an Employment Tribunal. If successful, an Employment Tribunal has the power to award up to 90 days’ gross pay in respect of each employee who suffered the breach depending on the seriousness of the breach. Given that there has to be 45 days between the start of consultation and dismissals taking effect if an employer is making 100 or more redundancies, there is a significant risk that a total failure to consult could result in a minimum of 45 days’ gross pay for each employee.

An employee with more than two years’ continuous service with a company will also be entitled to a statutory redundancy payment in a situation where their employment terminates on grounds of redundancy. Such payment is calculated by reference to an employee’s age at the date of redundancy, length of service (subject to a maximum of 20 years) and gross weekly pay (subject to a cap of £525 per week). Employees may also be entitled to an enhanced redundancy payment if it can be established that an employer had a reasonable, notorious and certain custom and practice of paying enhanced redundancy payments or in accordance with their terms and conditions of employment. An enhanced redundancy payment may be payable regardless of whether or not an employee has reached two years’ continuous service depending on the wording of the employment contract.

National Insurance Fund

Where an employer fails to make a statutory redundancy payment, for example if it is insolvent and cannot afford to do so, an employee in England, Scotland or Wales can apply to the Secretary of State for payment out of the National Insurance Fund.

An employee can also claim for the following payments where their employer is insolvent:

  • Holiday pay – up to a maximum of 6 weeks’ of holiday days and subject to a cap of £525 per week;
  • Other outstanding payments, such as unpaid wages, commission or overtime – up to a maximum of 8 weeks’ of money owed;
  • Statutory notice pay – based on an employees’ length of service and subject to a cap of £525 per week. It should be noted that an employee will be expected to take all reasonable steps after being dismissed to minimise their loss by seeking alternative employment or by claiming any state benefits they may be entitled to. If an employee fails to take any steps to secure alternative employment or minimise their loss then the Redundancy Payments Office has the discretion and power to reduce the amount of the notice payment accordingly.

In order to make a claim, an employee must be in possession of a case reference number, which should be provided by or can be requested from the appointed insolvency practitioner. This number will need to be inputted into the online application.

Employees' rights to paymentHow can Nelsons help?

Ella Sheppard is a Solicitor in our expert Employment Law team.

The law surrounding redundancy and consultation can be tricky for employers to navigate their way around and the potential compensation if you get it wrong can be significant.

If you are considering making small or large scale redundancies, our expert team are able to guide you through the process and ensure you do not fall foul of consultation requirements. Please contact us on 0800 024 1976 or via our online form.