An Employment Tribunal compensatory award is the ultimate goal of most claimants. Increasingly however, this does not resolve the dispute. If the Respondents fail to make payment, claimants must enter into separate court action in order to recover their award.
And it isn’t a minor problem – over half of the awards made by the Tribunal last year remain unpaid.
In the majority of cases, failure to pay may be linked to the failure of the employer’s business. In the present financial climate, with insolvencies jumping by 40% to a 13 year high, some businesses are simply unable to pay their debts. However, there are also many rogue employers who, during or after the Tribunal process, “dissolve” their companies (i.e. removing them from the register) or allow Companies House to take that action by failing to update their records. This absolves the company of any debt. The Respondent employer then creates a “phoenix company” from the remains and carries on as normal. As most Tribunal claims are made against a limited company and not an individual, this leaves the employee(s) unable to take any further action short of applying to return the company to the register, a long drawn out and expensive process that few claimants have the resources or the energy to pursue.
(For that reason, during Tribunal proceedings we recommend following a company Respondent through the Companies House website so that any notice of dissolution can be quickly acted upon. Provided you or your legal representative notify Companies House that Tribunal action is being taken (or that an award is outstanding) they should put the dissolution process on “pause.”)
If recovery from an insolvent employer fails, employees can apply to the Insolvency Service for up to eight weeks arrears of pay, the statutory notice period, holiday entitlement (not exceeding six weeks) and the basic award for unfair dismissal or redundancy (depending on which of these items are specified in the final judgment). If an employer has dissolved the company it will only be possible to recover the basic award. In addition, there is no possibility of recovering any element of compensation from the Insolvency Service, and particularly in discrimination cases this may be a very large sum.
What are the Government doing to address the issue? Certain measures were introduced in 2018 following the recommendations of the Taylor review. Under the so-called “naming and shaming” scheme, claimants can ask the Government to send employers a penalty warning notifying them of a potential Government fine, and the prospect of being named online, unless they pay within 28 days. The scheme has had some success in recovering £6.5m in unpaid Tribunal awards since its inception. In the last full financial year 2022-2023, 435 penalty warnings were issued and £972,777.04 paid in fines.
As for naming rogue employers, we know from research that shame can be a powerful social motivator. Unfortunately to date, the scheme has so far failed to name any defaulting employers at all, which begs the question as to whether it is simply an empty threat.
Possibly the best advice for those pursuing Tribunal proceedings is to accept an offer of settlement, particularly if the business appears unstable or the employer might otherwise seek to avoid payment. This is particularly the case given the huge backlogs in the Tribunal system; many claims are taking years to be resolved, during which time the fortunes of a business can rapidly change.
A settlement offer may fall short of what might have been awarded by a Tribunal, but at least there is the certainty of obtaining recompense rather than facing what could be a long drawn out and possibly unsuccessful attempt to recover a Tribunal judgment.
Our solicitors are always on hand to give you friendly, professional advice. Please contact Zoe on 0203 858 9765 or email zoe@mulberryssolicitors.com. Mulberry’s has offices in Brighton and London.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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