Claire’s Accessories Administration

As a result, approximately 154 stores have closed and around 1,300 employees have been placed at risk of redundancy.

The company’s financial difficulties have been attributed to increased competition from lower-cost online retailers, contributing to reported losses of £25 million over the past 3 years.

In light of this news, it is important to consider an employee’s rights when faced with redundancy.

What is Redundancy?

A redundancy is defined under section 139 (1) of the Employment Rights Act 1996. The statutory definition explains that an employee is taken to be dismissed by way of redundancy if the dismissal is wholly or partly attributable to the fact that:

• The employer has ceased or intends to cease to carry on the business for the purposes of which the employee was employed by him, or, to carry on that business in the place where the employee was so employed.
• The requirements of that business for employees to carry out work of a particular kind, or for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish.

Redundancies typically arise when there is a reduced need for employees to carry out work under a company, often due to business closure, workplace closure (i.e. specific site closure or relocation) or reduced requirement for employees to undertake the same role.

What are an Employee’s Rights When Being Made Redundant?

Employees facing redundancy benefit from several statutory and contractual protections, which employers must carefully follow.

1. The right to not be unfairly dismissed.

Employees with at least two years’ continuous service have the right to not be unfairly dismissed.

In the context of redundancy, a dismissal will only be ‘fair’ if:

• It is a genuine redundancy (i.e. due to business closure, workplace closure or reduced requirement for employees to carry out work of a particular kind); and
• The dismissal is reasonable, having regard to all the circumstances, including following a fair procedure.

A fair procedure is typically seen to include appropriate consultation, the use of fair selection criteria and consideration of alternative employment. If an employer is making 20 or more employees redundant at the same time (or within a 90-day period) at the same establishment, the employer must engage in a ‘collective redundancy’.

During a ‘collective redundancy’, the consultation should take place between the employer and a representative (usually a trade union representative or an elected employee representative). The collective consultation must cover ways to avoid the redundancy, the reason for the redundancy, how to keep dismissals to a minimum how the limit the effect on employees involved. Failure to engage in collective consultation can lead to claims to an employment tribunal for a protective award of up to 180 days’ actual gross pay. This therefore could provide costly to employers and highlights that following procedures in a proper and fair manner is crucial.

All employees with two years’ service also have the following rights:

• The right to time off to look for work or arrange training; and
• The right to receive a statutory minimum redundancy payment.

In some cases, employees may also be entitled to a contractual redundancy payment (also known as an enhanced redundancy payment), depending on the terms of their contract, the employer’s handbook or the company’s internal policies. This will be individual to each company and if an enhanced redundancy payment is made, the employer must ensure that is applied without unlawful discrimination.

2. Protection from Automatically Unfair Selection

Certain dismissals are deemed automatically unfair, regardless of the employee’s length of service. Examples include selection for redundancy because an employee:

• Raised health and safety concerns;
• Asserted a statutory right (i.e. the right to a minimum notice period); or
• Made a protected disclosure (i.e. whistleblowing).

Employers should therefore take particular care to ensure that redundancy selection does not inadvertently include these prescribed grounds.

3. Protection from Discrimination

Employees must not be selected for redundancy because of a protected characteristic under the Equality Act 2010 (i.e. race, marital status, sex, disability, age, pregnancy, religion etc). A redundancy dismissal in such circumstances may give rise to a discrimination claim.

4. The Right to be Offered Suitable Alternative Employment

If an employee has notified their employer of their pregnancy or if they are on maternity leave, adoption leave, neonatal care leave, bereaved partners’ paternity leave or shared parental leave, they will receive special protection. This means that they have an automatic right to be offered any suitable vacancies within the company, if one is available. Suitable alternative employment refers to a role that is appropriate for the employee in terms of status, location and job specification.

5. Notice Rights and Wrongful Dismissal

All employees are entitled to receive notice of termination.

Statutory minimum notice is set out in Section 86 of the Employment Rights Act 1996, and this imposes an obligation on the employer and the employee to give notice of termination, also defined as the statutory minimum notice period. The requirement to give notice is usually set out in the employee’s contract of employment. Employers may choose to make payment in lieu of notice (PILON) if this is a provision set out in the contract of employment, allowing employment to terminate immediately by making a payment equivalent to the employee’s notice period.

In the absence of a written contract, there will be an implied term to give reasonable notice. The period of reasonable notice in each case will depend on the unique terms of the specific contract of employment. However, the courts will typically look at factors such as the typical notice period for that job in that industry, the notice period of any colleagues who have express contractual terms as to notice period, the employee’s length of service, the employee’s salary and their status (seniority) in the company.

Where an employer fails to provide the correct notice, the employee may have a claim for wrongful dismissal based on a breach of contract.

What Happens if the Employer is Insolvent?

In the event of a company going into administration, such as in the case of Claire’s Accessories, employees may be faced with additional uncertainty surrounding redundancy and payment. If an employer is insolvent, refuses to pay or cannot afford to pay, the employees have the right to apply to the National Insurance Fund for unpaid employer’s payments. This will include statutory redundancy payment and other sums which may be due under the employee’s contract of employment (i.e. holiday pay).

Conclusion

The administration of Claire’s Accessories highlights the complexities surrounding redundancies and insolvency. For employees, understanding their rights is crucial to ensuring they receive the protections and payments to which they are legally entitled to. For employers, it highlights that careful compliance with redundancy obligations remains essential, even during financial difficulty. It emphasises the need for careful planning and strict adherence to statutory obligations which will in turn mitigate exposure to Employment Tribunal claims.