And teaches us a few lessons on how not to treat staff when closing down your business.
You may have spotted in both local and national news reports recently a story about a Company called ‘Nippy Bus’, whose owner seemingly overnight decided that he had had enough and decided to close the Company down, leaving just under 30 employees somewhat bewildered, without a job and owed salary for work that had been carried out.
We can’t be sure of what was behind this sudden closure, but we can certainly learn some valuable lessons about how NOT to deal with a situation where a Company ceases to trade.
If you are thinking about closing your Limited Company then these are the things that you should be considering, and what the Director at Nippy Bus should have done:
- If there is any contemplation that the business will close, and that more than 20 people will lose there jobs, then consultation with those people must start in ‘good time’- which in this case would have been 30 days before the first dismissal took place.
- This normally coincides with submitting the HR1, which formally notifies the Insolvency Service.
- During the consultation period, employee’s should be told of the risk to their role, the proposed plan, including the timescale.
- They will then be given a chance to comment, suggest and influence the decision making process- this could be ideas to help save the business or change how it is run.
- If the closure or reduction is staff numbers is confirmed, then those with over 2 years’ service will be entitled to Redundancy Pay.
In the case of Nippy Bus, it appears that the decision was taken suddenly, but perhaps after a long period of the owner being frustrated and fed up and he maybe had no idea how to deal with the matter appropriately or didn’t have the energy or will to do so and simply thought that ‘shutting down’ was the easiest and most painless way of doing it (although not particularly painless for his employees!).
So what are the risks of not closing your business the right way:
The first and main one in the Nippy Bus case, is that all the staff with the relevant length of service will probably be deemed to be unfairly dismissed, however if the business is no longer in existence there is very limited value on this kind of claim.
The slightly better news for the employee’s however is that as more than 20 staff were dismissed, and no collective redundancy process was followed this will have been a breach, which could result in them being award 90 days pay each. Furthermore the Director(s) of the company who failed to follow this process can be personally prosecuted, and fined, ending up with a criminal record.
So it is important both ethically and legally to do the right thing. Another Somerset Company (admittedly on a much bigger scale) who is doing things the right way is GKN who are closing their Yeovil based factory. They have consulted fully with staff and unions, and have been working with other local employers to assist their employee’s to find new roles.
Once staff know that a closure is definite, it’s also worth bearing in mind that up until the time that they finish working they are entitled to reasonable time off to go to job interviews and if you need them to remain at work up until the closure Company’s offer retention bonuses or enhanced redundancy payments.
The closure of any Company is a sad situation for everyone who works there and is unlikely to be a pleasant experience for either the owners or the employees, but at least if the matter is dealt with in a compassionate and methodical way it is more likely that staff receive all that they are entitled to and that the Director stays out of court.