It's time to change the law so employees aren't in the dark
Published 17/06/2015 | 02:30
One lesson from the shocking clear-out at Clerys is that it's time to enhance and specify the legal obligations owed by company directors to their employees. This should include some provision to keep staff informed about what is going on financially at their employer.
Employees are manifestly directly affected when a company fails, but right now they have no entitlement to see key information that could help them at least understand that risk.
Liquidations are a commercial reality. But the effects go far wider. At Clerys the former employees were instantaneously dismissed, left without any income and deprived of a notice period in which to seek other employment.
In this case many of the workers affected were not direct employees, they worked for concession holders. The situation for those working in concessions is as bleak as that of direct employees, with perhaps added complication. In law, the appointment of liquidators in circumstances where a business ceases to trade amounts to the cessation by redundancy of the contracts of employment. Salaries have ceased. The former employees will be entitled to a statutory redundancy payment of two weeks' pay per year of service, subject to a cap of €600 per week, plus one week's pay. Many may also be owed arrears of pay and other entitlements.
In insolvency law, such payments will generally rank as preferential payments from remaining company funds. If there is no money left, the State will have to pick up the tab through the Insolvency Payments Scheme, operated by the Department of Social Protection.
It will cover redundancy payments and arrears of pay, again capped at €600 per week for an eight week period. Some other entitlements, including some pension entitlements, are also covered.
Prompt payment under that scheme will, to some extent, alleviate the plight of the former employees - at taxpayers' expense. This will rightly lead to calls for consideration as to how to prevent this from occurring again. The answer may not be so simple given that business failure is a commercial risk. When closely examined, the closure may have been commercially unavoidable.
However, one of the worst features of the closure was the shock. Long-serving employees were in the dark about the financial situation facing their employer.
Traditionally directors of companies owed duties only to the company. The Companies Act 1990 introduced a limited duty on directors to have regard to interests of employees. This was repeated in the Companies Act 2014. Commentators accept this is ineffective.
Companies will be concerned that transparency means revealing commercially-sensitive information.
A situation that permits the instantaneous closure of a business and consequent termination of otherwise lawful obligations, with the taxpayer to pick-up the cost, is just wrong. There can be no legally protected interest in a commercial practice that facilitates an abandonment of contractual obligations without consequence.
A more legitimate fear is that such a warning will become a self-fulfilling prophecy with creditors taking flight. This of itself shows that it is a difficult balance. However, making it legally clearer that companies are genuinely to be run with regard to their employees' interests may help prevent that situation from arising in the first instance. It deserves more consideration.
Conor Power is a barrister and senior counsel.