How does insolvency impact employee rights? | Hudson McKenzie

How does insolvency impact employment rights?

Following the liquidation of a major construction firm, urging the government to aim to take protective measures for all its employees who will be now out of work, this leads to the questioning as to how far the insolvency of a company can impact upon an employee’s rights.

When a large company becomes insolvent, meaning that it will be officially closed for business, this can have an extremely detrimental effect upon the thousands of employees that operate under the company, who following from the company’s collapse, may now face unemployment.

Therefore, what measurements could be put in place, so to ensure that when large companies become insolvent, the employees effected are protected by their initial employee rights, beyond the lifespan of the company?

For instance, when a company becomes insolvent, there are two avenues that the company may go down; either ‘administration’ or ‘liquidation’. Liquidation means that the company will no longer be in business, meaning that its employees are no longer accounted for under that specific company. However, administration means that an administer is appointed for the company in question, so to assess whether the company can be kept afloat by selling it to a new buyer or not.

Thus, should there be an automatic process put in place, in which an administrator is automatically assigned to an insolvent company, so to decrease the chances of liquidation?

By doing so, the rights of the employees of the insolvent company may have a greater chance of being protected, particularly as the employee is are more likely to remain employed, despite the initial insolvency status of the company.

If you would like to read more about how insolvency may affect your rights as an employee, please click the following link:

https://www.gov.uk/your-rights-if-your-employer-is-insolvent

Alternatively, if you would like to discuss this article further, please contact one of our highly specialised employment lawyers on 020 3318 5794 or by email at londoninfo@hudsonmckenzie.com

Author: Portia Vincent-Kirby

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