What happens to my employment rights when my company goes into administration?

The High Street Retail Chain Paperchase is on the verge of appointing administrators, so the papers say. Arcadia similarly collapsed at the end of November 2020.

Will employees keep their jobs? Administrators will try and sell viable parts of the businesses. If so, TUPE may apply, if you are employed in the part sold off. So, if a buyer is found and if the individual company that employees you gets rescued (bought) from the administrator, TUPE will protect your labour rights (though there might be redundancies later).

Labour rights protected under TUPE are the transfer of the employment contract (irrespective of the wishes of the putative transferor and transferee) and all rights, powers, duties, and liabilities under or in connection with it from transferor to transferee, and the transferee (normally, but see below) becomes liable for acts or omissions of the transferor in relation to the transferring employees. Following the transfer, the transferee is also obliged to continue to observe the terms and conditions agreed in any collective agreement on the same terms applicable to the transferor under that agreement, until the date of termination or expiry of the collective agreement or the entry into force or application of another collective agreement the status and function of the representatives or of the representation of the employees affected by the transfer, such as trade union recognition, are preserved on the same terms and subject to the same conditions as existed before the date of the transfer by as long as the conditions necessary for the constitution of the employee’s representation are fulfilled.

But unfortunately, not all the business will be sold (or rescued). Buyers will often only want the parts of the company with the potential for profitability going forward. Hopefully, some of these famous High Street names (and jobs) will be saved.

It is often said that the labour rights associated with TUPE put off would-be rescuers. But since 2006 a buyer does not inherit liability for the ailing company’s prior employment unpaid debts to employees (such as unpaid wages). These do not transfer to the new employer, provided they are reimbursed to employees by the Secretary of State to a certain level. The new owner must of course honour TUPE rights going forward after the sale. But the buyer does not have to offer the same pension rights previously enjoyed by the transferred employees. And TUPE does not prevent fair post-transfer redundancies, where reconstruction is necessary.

Finally, there is also a surprisingly little-used provision in TUPE to allow the administrator to negotiate changes to employment contracts via employee representatives designed where the purpose of these negotiations is to safeguard employment opportunities by ensuring the survival of the undertaking, business or part of the business that is being transferred

But if you are employed by a company that no buyer wants, or that has gone into compulsory liquidation, TUPE doesn’t apply. In which you will have to claim your redundancy and certain payments from the Redundancy Payments Service. This happened to Carillion employees whose companies went straight into liquidation.

Dr John McMullen is an Employment Partner in Spencer West LLP and Author of Business Transfers and Employee Rights.