Employment Update: Protective Award

10 July 2008

A protective award for failure to consult employees on redundancy becomes a contingent liability payable by the liquidator when the company employer subsequently becomes insolvent. Liability for payment does not transfer to the state.

In its judgment in Haine v Sec of State for BERR and the liquidator of Compounds Section Ltd the Court of Appeal has decided an important question on employer insolvency.

The employer company was in financial difficulties. The employees were made redundant without consultation on 10 February. A liquidator was appointed on 16 February. The employees claimed and eventually got from the Tribunal on 31 August a protective award against the employer under Section 188 TULRCA for failure to consult prior to the redundancies taking place.

The question is - who should pay? The liquidator or the State

The case came before a High Court Judge who thought the State should pay.

The Court of Appeal disagrees. It was clear when the liquidator was appointed that a protective award would be made. The award should be counted as a contingent liability in the liquidation and the liquidator should pay.

Point to note:

  • The Court of Appeal made it clear the driving force behind their decision is that it does not want directors of failing companies to think that they can ignore the statutory employee consultation requirements and that the BERR will pick up the tab for them.