Tribunal Claims Against Insolvent Employers

When an employer becomes insolvent in England and Wales - meaning it cannot pay its debts as they fall due - employees may face uncertainty about their employment rights and compensation. Insolvency can occur through administration, liquidation, receivership or a company voluntary arrangement. Insolvent employers often cannot meet payroll, redundancy or other contractual obligations, yet statutory protections and tribunal processes exist to help employees recover what they are owed. This guide explains how tribunal claims work against insolvent employers, when claims should be brought, what payments may be recovered, how the Redundancy Payments Service and the National Insurance Fund operate, and key practical considerations.

Understanding Insolvency and Employee Rights

Insolvency affects the employer's ability to pay its debts, including wages and redundancy obligations. When an employer is insolvent, its assets are typically controlled by an insolvency practitioner or official receiver appointed to manage the company's affairs. Insolvency usually leads to dismissal of employees, which often triggers entitlement to statutory payments and compensation.

Under UK law, employees may pursue payment through two principal routes:

• Claiming from the National Insurance Fund (NIF) via the Redundancy Payments Service for specified statutory entitlements owed by an insolvent employer; and
• Employment Tribunal claims for disputes about entitlements or where NIF claims are rejected.

Types of Payments Claimable After Insolvency

When an employer becomes insolvent and employment is terminated, certain statutory payments may be recoverable through the NIF:

Statutory Redundancy Pay

Employees with at least two years' continuous service may be entitled to statutory redundancy pay based on age, length of service and weekly pay up to a statutory cap.

Unpaid Wages

Employees can claim up to eight weeks' unpaid wages for work they have already done. This includes wages owed under the contract and certain statutory payments.

Holiday Pay

Unpaid holiday pay for accrued or taken but unpaid holidays in the 12 months before insolvency may be claimed, up to a maximum of six weeks' pay.

Statutory Notice Pay

Employees can claim statutory notice pay if they did not work a full notice period. This is calculated at one week's pay for each year of service up to a maximum of 12 weeks.

Protective Awards

If an employer fails to consult appropriately when making collective redundancies (normally involving 20 or more dismissals), an Employment Tribunal may award a protective award of up to 90 days' pay. In insolvency situations, the Redundancy Payments Service will pay up to eight weeks' pay of any protective award subject to statutory caps, once a tribunal has made a judgment.

How Claims Are Made

Applying to the Redundancy Payments Service

When an employer enters formal insolvency, the insolvency practitioner will provide employees with an RP1 factsheet and a case reference number (CN number). Employees use this number to apply online to the Redundancy Payments Service for the payments outlined above.

Time Limits for Claims

• An application to the National Insurance Fund for statutory redundancy pay generally must be made within six months of dismissal.
• Applications for other amounts such as wages, holiday pay and notice pay must typically be made without undue delay once insolvency is known.
  If a claim to the NIF is rejected, employees usually have three months from the date of rejection to bring an employment tribunal claim against the Secretary of State and the employer (if still listed as a respondent).

Employment Tribunal Claims in Insolvency Scenarios

When to Use a Tribunal

A tribunal claim may be necessary where:

• An application to the National Insurance Fund is denied and you disagree with the decision; or
• The dispute concerns rights not covered by the NIF (e.g. unfair dismissal, unlawful deductions from wages not covered by NIF claims).

Tribunal claims involving insolvent employers should include both the former employer and the Secretary of State for Business and Trade as respondents, as the latter is responsible for NIF payments. Early conciliation with ACAS is a required step before filing a claim.

Enforcement and Practicalities

A tribunal award against an insolvent employer does not guarantee payment. If the employer has no assets or funds, recovery may be impossible through enforcement against that entity alone. However, claims through the NIF offer a statutory safety net for certain payments up to statutory caps.

Special Situations

Transfer of Business

Where an insolvent employer's business is sold as a going concern and employees transfer under TUPE, the new employer may be responsible for liabilities and entitlements. If the transfer occurs after insolvency, the new employer normally does not inherit debts owed by the old employer; employees may then claim through the NIF for amounts owed by the original employer.

Company Directors and Insolvency

Directors who are also shareholders may not qualify for NIF payments if they do not meet the legal definition of an employee for these purposes; tribunal or appellate authorities have upheld this principle in case law.

Practical Considerations

Evidence and Documentation

To support claims to the NIF or an employment tribunal, employees should collect payslips, contracts, correspondence about the insolvency, CN reference numbers and details of any tribunal or NIF decisions.

Professional Advice

Insolvency and employment claims can be procedurally complex. Solicitors or experienced advisers can assist with determining eligibility, meeting time limits, completing forms and preparing tribunal claims where needed.

Caps and Limits

Statutory caps on weekly pay and total redundancy payments apply and change over time. Current figures should be checked on official sources when preparing a claim.

Common Questions

Can I still claim if the employer has already gone into liquidation?
Yes. Insolvency practitioners will provide details to make a claim to the Redundancy Payments Service. If rejected, tribunal claims can challenge that decision.

Can I claim for unfair dismissal against an insolvent employer?
Yes. Tribunal claims for unfair dismissal can proceed, but even if successful, enforcement of compensation against an insolvent employer may be difficult; statutory entitlements such as redundancy and notice pay may be more reliably recovered via the NIF.

What is a protective award and how is it affected by insolvency?
A protective award compensates employees for failure to consult on collective redundancies; in insolvency, the government will pay up to eight weeks' pay from the NIF after a tribunal judgment.

Key Takeaways

Tribunal claims against insolvent employers in England and Wales involve specific statutory processes alongside employment tribunal rights. When an employer becomes insolvent and dismisses staff, employees may apply to the Redundancy Payments Service for statutory redundancy pay, unpaid wages, holiday pay, notice pay and capped protective awards. If these applications are rejected or disputes arise that are not covered by NIF claims, employees can pursue claims through an Employment Tribunal naming both the former employer and the Secretary of State. Time limits, evidence requirements and statutory caps are important considerations. Understanding these mechanisms helps former employees protect their rights and maximise recovery when an employer cannot pay.