Why Employees May Be Entitled To Compensation
When an employer proposes making large-scale redundancies, UK employment law requires more than simply informing employees that their jobs are ending.
The employer is normally required to carry out a meaningful consultation process with recognised employee representatives or elected employee representatives.
The purpose of consultation is to allow meaningful discussion before dismissals take effect.
This may include discussions around:
- Whether redundancies can be avoided.
- Reducing the number of redundancies.
- Alternative positions within the business.
- Changes to working arrangements.
- Support for affected employees.
- The proposed timetable.
If that consultation does not happen properly, affected employees may be entitled to compensation regardless of whether the business later becomes insolvent.
Why Insolvency Does Not Automatically Remove Employee Rights
Many people assume that once a company enters administration or liquidation, employees lose any legal rights they may have had.
That is not the case.
Employment rights continue to exist even where a business becomes insolvent.
While insolvency can affect who ultimately pays compensation, it does not necessarily prevent employees from bringing legitimate claims.
Protective Awards exist because Parliament recognised that employers should not avoid consultation obligations simply because a business subsequently fails.
Why The Government Pays
One of the most common questions we receive is:
“Where does the money actually come from?”
Where an employer remains financially healthy, compensation would usually be paid by that employer.
However, where the employer is insolvent, the law provides a different mechanism.
Subject to statutory limits, qualifying Protective Awards are generally paid through the Government’s Redundancy Payments Service, funded by the National Insurance Fund.
This is designed to ensure employees are not left without a remedy simply because the employer no longer has the funds to meet its obligations.
For many employees, this provides reassurance that bringing a claim is not taking money away from former colleagues or from the administrators attempting to wind up the company.
What If I Already Received Redundancy Pay?
You may still be entitled to make a Protective Award claim.
This is because different employment payments compensate for different legal rights.
For example:
Statutory Redundancy Pay
Compensates eligible employees for losing their employment through redundancy.
Notice Pay
Compensates employees where they did not work their contractual or statutory notice period.
Holiday Pay
Pays employees for accrued but untaken annual leave.
Protective Award
Compensates employees where collective consultation requirements were not properly followed before large-scale redundancies.
Receiving one payment does not automatically prevent entitlement to another.