Can they claim for the debts they are owed following the recent compulsory liquidation?

With the sad news that Thomas Cook entered into compulsory liquidation on Monday 23 September 2019, understandably the headlines have focused on the impact of the failure on those holidaymakers who require either repatriation or are now being forced to make alternative holiday arrangements. But what has been the impact on staff? As a global employer of 21,000 employees what are the consequences for them of Thomas Cook’s compulsory liquidation?

Sadly, the immediate effect of compulsory liquidation is to automatically end the employment of all employees.

But what, if anything, can employees claim? In theory, employees can claim damages for breach of their employment contract, unless they have been paid everything they are due under those contracts. However, employees are prevented from bringing a claim that the dismissal is unfair, as their employment is legally considered to have ended as a result of the operation of law.

The trouble is, of course, that the employees’ claims are worthless. Many debts owed to an employee, including the right to damages, are unsecured and ranked second to last in order of priority on a liquidation of assets. Unsecured creditors share equally any available assets of the company in proportion to the debts due to them. Therefore, in practice, this is likely to yield next to nothing. Consequently, trying to obtain any unpaid remuneration in the liquidation is simply not realistic.

But all is not lost. Employees may be able to claim some unpaid remuneration from the National Insurance Fund, which guarantees a basic minimum payment of specific debts owed to employees by their employers, provided certain conditions are met.

The debts which are guaranteed by the fund are:

  • Eight weeks’ arrears of pay, statutory notice pay and unpaid pension contributions. This pay can include overtime, contractual sick pay or maternity pay.
  • A statutory redundancy payment or equivalent. 

These payments combined will be capped at the statutory limit of £4,200.

In this case, the claims will only be accepted from employees of Thomas Cook and not those who were engaged as a worker or providing services on a self-employed basis.

For those employees with a larger claim than £4,200, making a claim against the National Insurance Fund does not prevent them from bringing a further claim in the liquidation, although as noted this is unlikely to lead to a significant recovery.

On a practical note, Thomas Cook employees will receive a formal notice of redundancy letter that includes a case number, or CN. This will enable them to make an online application to the National Insurance Fund. Other information is also required when making the claim, including National Insurance number, an email address and bank or building society details into which the payment will be made. Claims to the National Insurance Fund should be made within six months of being dismissed. In addition to a claim for a redundancy payment, employees may be entitled to claim a protective award of 90 days’ pay on the grounds that the employer failed to inform and consult them about the planned closure.

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