Employee issues on insolvency

Introduction

When a company becomes insolvent, the position of the employees can be key. If the business is being rescued as a going concern then it is hoped that jobs will be saved.

For that to be possible, employees may need some reassurance on their position to avoid them jumping ship, which for some businesses may have the consequence that there is then no longer any company or business of substance to be rescued. The need to get key employees on side early on must be balanced with the need to maintain confidentiality when negotiating a rescue and not causing panic in the company and among creditors if word of a potential deal spreads.

The position of an employee on a company's insolvency

The general rule is that a contract of employment is between the employer and the employee. This means that due to the personal nature of the contract, if either party changes, the contract in its current form should terminate. However, this is not necessarily to the benefit of the employee or the company on insolvency and so employment contracts can operate differently