HM Insights

The Carillion collapse – An Employment Lawyer's Perspective

Just as many businesses were returning from the Christmas holidays, Carillion employees returned to their workplaces to find that their employer was going into liquidation.

Carillion employs approximately 20,000 people in the UK and has interests not only in construction but also providing various services under government contracts, ranging from serving school meals to maintaining prisons.

At this time of uncertainty employees will be keen to know just what their rights are but, given the uncertainty surrounding the liquidation, there will also be substantial knock-on effects to those in the supply chain.

Here we take a look at some of the employment issues facing businesses and employees in situations such as this.

Construction Employment Law Redundancy Tupe Rights Scotland Carillion Unemployed Claim

Opportunities from the liquidation process?

There have been a number of reports that Carillion's size and the scale of projects was interlinked with many other contractors and sub-contractors. Comment has been made that many of the larger contractors may well take on the contractual obligations of Carillion, taking forward the projects currently stalled by Carillion's collapse.

Some Carillion employees may be offered further employment with other contractors.

Ordinarily, where one business would take on the work of another business the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) would be in operation. The TUPE regulations operate to protect the terms and conditions of employment of employees on the transfer of a business.

In an insolvency situation the TUPE regulations are relaxed to make it easier to transfer business undertakings.

There are two categories of supervised insolvency, each with different treatment under TUPE 2006:

  1. businesses subject to insolvency proceedings instituted with a view to the liquidation of assets

    Under this category the liabilities for employees and employees will not transfer to the new employer. Furthermore the new employer will be free to take on employees if they wish and to agree new terms of employment. In addition, any dismissals made before a transfer will not be automatically unfair.
  2. businesses subject to insolvency proceedings instituted not with a view to the liquidation of the transferor's assets

    Under this category an incoming employer will be freed from certain employee debts and will have increased ability to vary the terms and condition of employment, for any staff who transfer over.

Notwithstanding the relaxation in the rules set out above, TUPE would apply as normal in relation to the need to inform and consult employee representatives (although there would be a special circumstances defence available for failure to fully inform or consult where it is not reasonably practicable or an employer to perform the duty imposed on it). There is no exemption from the requirement for the transferor to provide employee liability information to the transferee about the employees, if any, who are to be transferred.

There needs to always be very careful consideration of the risks in acquiring any new piece of work or contract in a situation such as the failure of a large business like Carillion, and weighing up and checking the risks involved in relation to employment law protections is very important, not least to work to ensure that the correct communication exercise is undertaken and the risk of time-consuming and expensive disputes are minimised.

What if I have to make redundancies as a result of Carillion failing to pay my business?

Many suppliers of Carillion have been concerned by the fact that they are not going to get paid for work which has been done and as a result of this, financial and operational pressure may result in the need to make redundancies in order to stay afloat.

Where that is the case, businesses will not be excused from having to go through a proper consultation process before announcing any redundancies.

Any knee-jerk reaction will need to be avoided and legal obligations observed; ensuring that redundancies are only carried out as a last resort after careful planning and full consultation. Procedural unfairness can arise if redundancies are rushed. Costly substantive unfairness can easily occur if a fair selection pool or fair selection process is not applied.

Employee rights

Different rules can apply depending on which insolvency process is followed. Administration is generally the process by which an administrator has a period of time to attempt to preserve at least parts of the business, which typically continues or is preserved to continue, whilst attempts are made to find a buyer. However, liquidation is a final dissolving of the business, ceasing to trade, and an attempt by the insolvency practitioner appointed to obtain the greatest return to creditors through the assets held.

Employees who lose their employment as a result of an insolvency may have different rights depending on whether the business ceases to trade or if there is a transfer. Claims of unfair dismissal, protective awards for failure to consult on redundancies, and claims asserting reinstatement by a transferee employer are all possibly available, depending on the circumstances. The national insurance fund maintained with the insolvency service can prove an invaluable source of assistance also, with redundancy payments, up to eight weeks arrears in pay, statutory minimum notice pay, and up to six weeks holiday pay that can be claimed (albeit typically the cap on a week's pay will be applied, which is presently £489).

Get in touch

Please contact us if you would like to discuss any issue further. Our team are very experienced in TUPE and insolvency matters. Our retainer package offers excellent business support in employment law and HR matters, whilst our team also acts for individuals in claims, settlements and general advisory work.