Articles by McGrigors
18 May 2005
Make sure your firm knows who is the boss
of who
by Shona Findlay
(Published The Evening News)
Recent coverage of the MG Rover crisis in the media indicated confusion on whether some employees who had received redundancy notices from MG Rover were actually employed by Phoenix Venture Holdings Limited, the parent company of MG Rover.
Whilst the position in relation to these particular employees is unclear, the scenario does provide food for thought for employers in redundancy situations. In particular, it highlights the issues that the insolvency of one company may have on other companies in a group.
When one subsidiary of a group is forced into administration, it is a natural assumption that redundancies will be isolated to that company.
However, if the result of the winding up of one company in the group is a diminishing need for employees in other parts of the group, the unfortunate consequence may be further redundancies.
In those circumstances, the identity of the employer is vitally important. An employee who can demonstrate that they are in fact employed by another, solvent, company in the group may thus be entitled to a larger redundancy package and a degree of consultation, and may avoid dismissal altogether. Whilst the answer to the question of "who is the employer" may initially appear obvious, further investigation may bring unexpected results.
The first port of call will usually be the employment contract. However, this is not necessarily determinative of the true position.
Other factors to consider may include: who pays the employee; where the employee works; who is responsible for their safety, discipline etc?
One reason why the true identity of the employer is important is related to redundancy payments.
The amount paid out may differ considerably depending on who their employer is within the group.
If the employee is employed by a solvent group company, they may be entitled to that company’s enhanced redundancy package, as opposed to the minimum statutory payments they could expect to receive from an administrator.
The identification process will also be a vital step prior to carrying out the redundancy consultation process.
In a typical collective redundancy situation, there are extensive obligations on the employer in terms of consulting with trade unions or elected employee representatives.
The appointment of an administrator does not negate the requirement for consultation. However, the urgency of the situation may well mean there is little time to consult.
This situation may constitute exceptional circumstances, excusing the company partly or wholly from these obligations.
Therefore, if the employee is employed by a solvent group company, they can probably expect (and be entitled to) a greater level of consultation than in the case of an insolvency situation, where minimal consultation may be more justifiable.
Also, if the employee is not employed by the insolvent employer, his or her true employer may have an obligation to consider suitable alternative employment within the rest of the group.
Therefore, it will be vital to ensure that the correct employer has been identified to ensure that it has fulfilled its consultation obligations, including consideration of suitable alternative employment.
If the true employer has failed to carry out its full responsibilities, this may expose the true employer to unfair dismissal and breach of contract claims and may result in potentially expensive sanctions.
In summary, the consequences of winding up one group company may have potentially far-reaching consequences for the other companies in the group.
Also, identification of the true employer is key in order to ensure redundancy procedures are effected properly and to protect the group from ongoing financial liability. This will involve ensuring that contracts are sufficiently well drafted and are representative of the true position.
For further information please contact:
peopleservices@mcgrigors.com
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