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 amongst creditors if word of a potential deal spreads.

If the business continues in some format then the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE 2006), SI 2006/246 will apply to transferring employees. If there is no hope of a rescue deal and an employee transfer, then it is important that employees' arrears are dealt with in accordance with statutory considerations.

The position of an employee on a company's insolvency

The general rule is that a contract of employment