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Effect of Company Administration on Employees

Friday, 1 February 2013

Companies such as Blockbuster and HMV falling into administration demonstrate the impact of technology on traditional modes of doing business. The advent of the internet and its efficiency for providing products and services has seen some businesses becoming the new favourites of consumers while those that failed to join the bandwagon have become side-lined and eventually forced under.

Here we explore the potential effect of company administration on employees.


When a company becomes less likely to fulfil its credit obligations it may be put into administration; the primary objective of this step is to try and rescue the company and prevent total liquidation. The business may still be run as a going concern or sold to another business but most important to employees, is its effect on their jobs.

Administration and TUPE

Where the business is transferred to a new owner, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) sets out the protection of employees. An employee’s contract is deemed to be transferred with the business and continues to operate as if it was originally made between the employee and the transferee.

An employee may however, object to this transfer and the contract becomes terminated. Termination in this circumstance would be regarded as a resignation by the employee but where the objection by the employee is as result of a substantial change to the working conditions, it could be treated as an unfair dismissal by the employer.

Administration and Redundancy

The employer may decide that the services of the employee are no longer needed as a result of the administration and redundancy becomes necessary. Where this occurs, the employee becomes entitled to a redundancy pay.

When the notice of redundancy is served on the employee, an alternative employment or trial of a new role may be offered. The employee may also be given time off to look for another job or volunteer to retire early. The employee must be careful in accepting or rejecting an alternative job offer so as not to lose the right to redundancy pay. Any employee that rejects a valid offer suitable for them loses the right to redundancy pay.

Statutory Redundancy Rights

An employee who has an employment contract and has been in continuous service for two years is entitled to statutory redundancy payment once they are dismissed, laid off or put on short-term work. A written statement setting out the detailed payment must be given to the employee and in the event of a dispute, the employee can make a claim to the employment tribunal. Where no prior consultation is made with the employee before redundancy, the employee may sue for unfair dismissal.

If you would like more information regarding the effects of company administration on employees, Rollingsons has experienced employment lawyers who can advise you. Please contact Aneil Balgobin via e-mail or by telephone on 0207 611 4848.

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