Wilko Job Losses – Redundancy Rules When A Company Goes Into Administration

The deal to save the retail chain, Wilko, has fallen through, leaving over 10,000 workers’ jobs at risk of redundancy. HMV owner, Doug Putman, was in advanced talks to purchase and keep 300 of Wilko’s 400 stores open, but the deal has now collapsed due to the rising costs involved in the transaction.

It is anticipated that Wilko’s administrators, PwC, will be announcing the details of further job losses and store closures in the coming days. Wilko went into administration last month, having struggled with inflationary pressures, market competition, and supply chain issues.

What are the rules and processes relating to redundancy when a company goes into administration?

When a company, such as Wilko, goes into administration some or all of its employees may be at risk of redundancy due to the company’s financial insolvency or inability to continue its operations in its current form.

In the context of a company going into administration, the following redundancy process is usually followed:

1. Administrator’s appointed

When a company enters administration, an insolvency practitioner or administrator is appointed to take control of the company’s affairs. Their primary duty is to act in the best interests of the company’s creditors. Unlike other types of insolvency events, the appointment of an administrator will not, in and of itself, terminate employees’ contracts of employment.

2. Administrator’s assessment

The administrator will assess the financial situation of the company; its assets, liabilities, and prospects for recovery. They will determine if any parts of the business can be saved, sold, or restructured.

3. Employee consultation

During the administration process, the administrator should consult with employees and their representatives regarding any potential redundancies. Such consultation should be aimed at finding alternatives to job losses, if possible.

4. Selection for redundancy

If it is determined that redundancies are necessary, the administrator should establish fair and objective criteria for selecting which employees will be made redundant. This will typically involve factors like job performance, skills, and qualifications.

5. Notice and compensation

Affected employees should be provided with notice of their redundancy in accordance with employment laws. They may also be entitled to a statutory redundancy payment. The right to and amount of any statutory redundancy payment will depend on an employee’s length of continuous service with the company.

6. Employee rights and claims in administration

Where a company is insolvent, the general rule is that claims for arrears of wages and benefits, or damages from wrongful or unlawful dismissal would rank as unsecured claims and are provable claims in the same manner as other debts. However, employees have preferential status for some of their claims, being sums owed for remuneration in respect of the period of four months before the relevant date. This includes maternity pay, sick pay, holiday pay, and redundancy pay, although the priority for an employee as a preferential creditor is limited, currently to a total sum of £800. Obviously, an employee may be owed more than that and, if so, will have the right to recover certain debts from the National Insurance Fund.

7. Job opportunities

In some cases, the administrator may help affected employees find alternative job opportunities, either within the company (if part of the business is being sold) or by connecting them with potential employers.

Any type of redundancy is a challenging and often distressing process for employees. In the context of a company entering administration, it is typically used as a last resort when efforts to save the company or its assets have failed. The administrator’s role is to navigate this process while ensuring that legal requirements are met, and employees are treated fairly and respectfully.