Shona Findlay, solicitor in the People Services team at UK law firm McGrigors, looks at the lessons to be learned from the MG Rover collapse...
Coverage of the MG Rover situation has focused on the huge redundancies, however it has come to light that some employees who received redundancy notices were actually employed by the solvent parent company, Phoenix Venture Holdings.
Whilst the position in relation to these particular employees is unclear, the scenario does provide food for thought for employers in various redundancy situations. It highlights the issues that 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 that further redundancies may be necessary regardless of the solvency of the remainder of the group.
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 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 different results. The first port of call will usually be the contract.
However, whilst this is clearly a relevant factor to take into account, it does not necessarily determine 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.
A key issue for the employee will be how much money they receive when their employment is terminated. 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 scope of those consultation requirements may differ depending on a number of factors, including how many are being made redundant and over what period of time.
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. Therefore 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 them to unfair dismissal and breach of contract claims, resulting in potentially expensive sanctions.
When closing one group or company the fall-out can have potentially far reaching consequences for the other companies in the group.