On 10 October 2024, the Government published the Employment Rights Bill 2024, promised within the first 100 days of the new Parliament with a whole raft of planned reforms including measures on ‘exploitative’ zero-hours contracts and ‘fire and rehire’ practices, and establishing protection from unfair dismissal 'from day 1', as well as changing requirements in relation to statutory sick pay and collective redundancy consultation.

The 150-page Bill contains a whole raft of changes. In this article, we look at how they could impact insolvencies and what are the key changes that an insolvency practitioner needs to know.

Collective redundancy consultation

Removal of the reference to 'at one establishment' - The requirements to collectively consult, and to notify the Secretary of State, will apply where the employer is proposing to make 20 or more employees redundant across the whole business over a period of 90 days, rather than in each 'establishment' or unit of the business as is the case now.

This will significantly extend the consultation requirements more broadly, as small numbers of redundancies at different sites over a 90 day period taken together could trigger collective consultation obligations. This will increase cost and timelines of any restructuring measures involving reducing staff numbers.

Increasing the maximum period of the 'protective award' - This is the compensation payment an employment tribunal can award to employees where an employer has failed to comply with its collective redundancy consultation obligations, currently subject to a cap of 90 days' pay per affected employee. Two options being considered are:

  • to increase the cap from 90 to 180 days’ pay; or
  • to remove the cap on the protective award entirely leaving it to the discretion of the tribunal to decide the employer’s penalty.

Please note: where a company is insolvent the 8-week cap for payment by the Insolvency Service would remain unchanged, and the balance would be an unsecured debt in the insolvency. This change will increase the level of unsecured claims for protective awards.

Introducing 'interim relief' - This would prevent there being an effective dismissal in certain circumstances where an employee brought claims for the protective award and mean an employee would be able to claim wages until the hearing. This not only has the potential to increase unsecured claims but also an interim claim for relied for wages would run until the claim the court resolved the hearing. Also, where an insolvency transaction for the sale of the business is being negotiated, employees claiming interim relief would not be dismissed employees. This would clearly impact TUPE risk for any buyer.

Doubling the minimum consultation period - Increasing minimum consultation periods when an employer is proposing to dismiss 100 or more employees from 45 to 90 days. While in the throes of an insolvency transaction, such as a pre-pack administration sale, this change would not make much difference, the issue is more around whether this makes deliverability of a turnaround more difficult – pre and post insolvency. 

Unfair dismissal

Introduction of "day-one" unfair dismissal rights - Potentially from 1 October 2026, removal of the two-year qualifying service requirement for entitlement to unfair dismissal rights, although initial 'probationary' periods of 9 months will be allowed to assess new hires. We shall have to see how this develops, but the warning signs are this significantly increasing the 'TUPE' cost on insolvency for purchaser and how that plays into securing the best offer for creditors.

TUPE

Strengthen protections - The Government intends to 'strengthen' existing TUPE protections. No further details have yet been provided. Again, we will have to see how these changes impact on the commercial terms and TUPE cost of a business sale in insolvency. 

The crucial details of many of these changes, and so what they will actually mean for employers, and therefore buyers out of insolvency, as well as the impact to the insolvent estate are still subject to consultation. In addition, implementation dates for the majority of reforms are not until 2026. Whatever the final detail, these changes will result in increased employee cost and higher liabilities that will need to be factored into any insolvency.

For more detail on the above and all of the planned employment law reforms see our Employment Essentials: Employment law changes 2024

To discuss any of the points raised in this article, please contact Jasvir Jootla, and Hannah Swindle.