When an employer becomes insolvent, employees are able to recover certain outstanding payments from the Secretary of State. In the recent case of Graysons Restaurants Ltd v Jones, the Court of Appeal confirmed that compensation for equal pay claims could be recovered in this way.
The legal position
According to the Employment Rights Act 1996, when an employer becomes insolvent and there are outstanding payments owed to employees, those employees will be able to recover some specified payments from the Secretary of State by making an application to The Insolvency Service. These payments include the following:
- Any arrears of pay of up to eight weeks (currently capped at £525 per week);
- Statutory notice pay (currently capped at £525 per week);
- Holiday pay of up to six weeks (currently capped at £525 per week); and
- Basic award for unfair dismissal.
In order to be recoverable under the statutory scheme, the employee must have been entitled to the payment on the “appropriate date” which, for the purposes of arrears of pay, will be the date on which the employer became insolvent.
Graysons Restaurants Ltd v Jones
The facts of the case
Ms Jones was one of 86 catering assistants who in 2007 brought equal pay claims against their employer at the time, Liverpool City Council. The female-dominated group of employees claimed that they should receive pay equal to that of their colleagues in male-dominated roles, such as gravediggers and road sweepers. During the course of the litigation, it was conceded that the catering assistants had been performing work of equal value to their male colleagues.
In February 2007, Liverpool City Council outsourced the Claimant’s work to a private company, Dutchy Catering Ltd, which went into administration and appointed administrators on 9 January 2009. The assets of Dutchy Catering Ltd were purchased by Graysons Restaurants Ltd (Graysons) and they took on the Claimant’s employment.
Under The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), although liability for unpaid sums owed to employees would usually be passed to the transferee (in this case Graysons), this would not be the case where the transferor was insolvent and the sums owed could be recovered from the Secretary of State.
The question to be answered in this case, therefore, was whether the compensation for equal pay could be considered to be arrears of pay, and so recoverable from the Secretary of State, or not, in which case liability would pass to Graysons.
One of the arguments put forward was that as the value of the equal pay claim was not known at the time of the insolvency, it could not be considered to be arrears of pay. However, the Court of Appeal disagreed. As the remedy in a successful equal pay claim would be to recover the difference in pay between what should have been paid and what was actually paid, the claim was considered to be one of the arrears of pay and so recoverable from the Secretary of State up to the specified limits.
How Nelsons can help
For further information or to comment on this article, please contact a member of our Employment Law or Restructuring & Insolvency teams in Derby, Leicester and Nottingham on 0800 024 1976 or via our online form.