On 23 September 2019, Thomas Cook announced it was entering Compulsory Liquidation. The circumstances of the liquidation sparked controversy and left thousands of passengers stranded abroad and some 9,000 staff dismissed by way of redundancy.
Approximately 1,000 of the dismissed employees have issued proceedings against the company to claim a Protective Award. A Protective Award, which can be as much as 90 days’ gross pay, is payable to employees who have not had the benefit of consultation prior to their redundancy. During consultation the employer should give information about the proposed dismissals as well as information about ways of avoiding the dismissals. The usual requirement when a company intends to make 20 or more employees redundant is that the company informs and consults the affected employees at least 30 or 45 days (depending on the number of redundancies) before the first dismissal. A company that fails to do this will be liable to pay a Protective Award unless ‘special circumstances’ apply. In the case of Thomas Cook this liability could amount to £4,200 per person.
While a company on the brink of insolvency may not consider consultation feasible, case law has determined that insolvency in itself will not amount to a ‘special circumstance’. However, it is also acknowledged that special circumstances may arise in some insolvency situations.
In the proceedings issued against Thomas Cook the Tribunal will have to determine whether ‘special circumstances’ were applicable to the company. But what are ‘special circumstances’ and what will the tribunal consider when determining the company’s liability for the Protective Award?
A tribunal will be likely to consider whether, at all material times, the company considered the practicalities of consultation. It will not be sufficient for a company to say with hindsight, that consultation was not practicable at any point. As matters progress, a company must take all steps towards compliance that are practicable in the circumstances. In one case, a school had been aware that pupil intake was in decline and that if things did not improve the school would have to close. Two months later, the school confirmed that the school was to close and dismissed the staff without consultation. It was found that when the school first became aware of the decline in intake, it gave rise to a fixed, albeit provisional, intention that there would be changes and that this should have compelled the employer to contemplate redundancies.
Timing of insolvency
A tribunal is more likely to find that special circumstances exist in the event of a “sudden disaster” rather than a “gradual run down of the company”. However, a tribunal will not find that a company must consult, or continue to consult, in circumstances where to do so would induce unlawful activity. For example, in one case, a company failed to consult for the requisite period but it was decided that the fact of insolvency was a mitigating factor when calculating the amount of the Protective Award because, if the company had completed the consultation period, it would have required the company to trade while insolvent, which would have been unlawful. In that case a Protective Award was granted, but not for the full 90 days’ salary.
In any event, a claim for monies against an insolvent employer is likely to be difficult to recover. However, once liability is established by a tribunal, employees have recourse to the National Insurance Fund. Although, the fund will only guarantee payments up to a limit of eight weeks’ pay and that will be subject to a statutory limit on a weeks’ pay. This is less than the 90 days’ potentially recoverable from the employer.
While it remains to be seen whether Thomas Cook took steps to consult with employees before making redundancies, it seems unlikely that the company will escape all liability for the Protective Award, although there may be mitigating circumstances that reduce the full 90 day liability.
Any company facing financial difficulties should at all-times consider the concealment of consultation where there are to be collective redundancies and ensure that when there is trouble on the horizon, statutory duties are not neglected.
Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.