In the light of this recent news story about the success of a woman in her claim for unfair dismissal after the business she worked for was shut down we’re going to examine how businesses can potentially avoid liability in such claims if they close down. We’ll therefore look at the following issues:
- Why might you close your business?
- What potential problems might your encounter if you close your business?
- How can you avoid unfair dismissal claims against you?
Please note: we recommend that you obtain specialist employment law advice before you take any action referred to in this post.
Why might you close your business?
There are a number of reasons as to why a business may close. These include:
- The business becoming insolvent (and being subsequently liquidated)
- The owner retiring; or
- The owner simply wanting to do something different
Any three of these reasons might lead to a business closing. This will involve the selling of the business’ assets and the shedding of liabilities. One of the primary liabilities to a business is its employees. If the business is genuinely closing down then the business should engage in some form of redundancy process with its employees. If it fails to do so it is opening itself up to potential claims of unfair redundancy dismissal from its employees. However, these will generally be limited as (it it’s a company) once the business has been closed there’s very little chance of litigants recovering much – if anything – from a dissolved company. However, the situation changes if the business is simply closing down to avoid liabilities that it has accrued and is looking to operate a substantially similar business in the future under a similar name.
What potential problems might your encounter if you close your business?
- Claims for statutory redundancy pay
- Unfair dismissal claims
- Claims for breach of contract
Your business will be obliged to pay statutory redundancy payments to employees that are being made redundant. However, if the business is closing because it is insolvent then the employer will generally not (be able to) pay out and employees will have to fill in Form RP1 so that they can be compensated from the National Insurance Fund.
Your business may also (as above) face an unfair dismissal claim (or multiple unfair dismissal claims) if you fail to carry out a redundancy process or if you close the business but restart it at at a later date, pursuing the same (or similar) business with the same (or a similar) name. In the latter case, you may find that if you are found liable for an unfair dismissal claim (for example, if you dismissed an employee for redundancy and didn’t employ them in the new business) then you may accrue personal liability (if you’re a director of the previous and existing company) for the unfair dismissal under the Insolvency Act 1986 for a transaction at an undervalue. You’ll obviously want to avoid such potential problems.
How can you avoid unfair dismissal claims against you?
- Carry out a fair and thorough redundancy process
- If you’re looking to open a (substantially similar) new business then considered whether you’re at risk of a TUPE claim
- Make sure that no transactions at an undervalue have taken place whilst you were closing the business
- Obtain advice from a specialist employment law solicitor before taking any action
Employment Law Advice Solicitors are employment law solicitors based in the City of London.
Employment Law Advice Solicitors
