Monthly Bulletin – May 2025 – Practical Perspectives

What happens to employees when a business becomes insolvent?

Business insolvencies in early 2025 have risen 11% from last year, with many companies facing financial distress. For HR professionals, understanding the employment implications of insolvency is crucial. Here’s what happens when a business goes into administration, is sold out of administration, or enters liquidation.

Administration: A temporary measure

Administration is meant to protect a company from creditors while attempting a rescue or sale. An insolvency practitioner takes control, often keeping the business running to maximise value. Employees usually stay in their roles, but redundancies may occur if cost-cutting is needed.

If 20 or more redundancies are proposed, collective consultation obligations apply, and insolvency alone is not a defence for failing to consult. Employers should follow proper processes where possible to limit liability. Redundancy procedures should be reviewed to ensure compliance.

Sale out of administration: what happens to employees?

If the business is sold as a going concern out of administration, the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) may apply, transferring employees to the new employer. However, in insolvency there are a few tweaks to the impact of TUPE:

• Employees can claim wages and holiday pay (up to 8 weeks, capped at a week’s pay per week as per statutory redundancy figures) from the Insolvency Service. Any excess liability usually transfers to the buyer.
• Normally, TUPE prevents contract changes, but in administration, terms can be renegotiated if agreed by employee representatives to help the business survive.
• Consultation with employees remains mandatory, though there is a limited special circumstances defence. HR should make every effort to consult even within tight timeframes.

Liquidation: the end of the road

Liquidation means the company ceases trading, and all employees are dismissed. Employees can claim for unpaid wages, notice pay, redundancy pay, and holiday pay through the Insolvency Service. However, payments are capped, and employees may not recover the full amount owed.

Neurodivergence: legal responsibilities of employers

Last month marked Neurodiversity Celebration Week, an opportunity to raise awareness of neurodivergence in the workplace. Beyond awareness, employers have legal obligations under the Equality Act 2010 to support neurodivergent employees.

Neurodivergence as a disability

Neurodivergence covers conditions like autism, ADHD, and dyslexia, all of which affect individuals differently. Whether a condition is a disability depends on its substantial and long-term impact on daily activities, such as communication and social interaction. If it meets this threshold, employees are legally entitled to:

• Reasonable adjustments
• Protection from discrimination
• Fair treatment unless objectively justified
• A workplace free from harassment

The impact of ‘masking’

Many neurodivergent employees mask their condition, appearing neurotypical while struggling internally. Government guidance confirms that coping mechanisms can break down, particularly under stress. The impact of the condition should be considered without coping strategies if it is possible that these will break down. Employers must also consider environmental factors like noise, lighting and fatigue when assessing workplace impact.

Reasonable adjustments

Employers have a positive duty to remove workplace barriers for neurodivergent employees. Adjustments might include:

• Flexible working (adjusted hours, remote work)
• Quiet spaces to reduce sensory overload
• Clear, structured communication
• Assistive technology such as noise-cancelling headphones
• Extra time for tasks or training

Every individual is different, so open dialogue is key. 

Tribunal cases: getting it wrong can be costly

There are several tribunal cases which highlight the consequences of failing to support neurodivergent employees:

• Sherbourne v N Power: the claimant had Asperger’s syndrome and was required to work in an open plan setting with a busy walkway behind him; this caused him to feel overwhelmed and distracted. An employment tribunal found that there had been a failure to implement reasonable adjustments to the physical workplace. 
• Borg-Neal v Lloyds Bank: Dyslexic claimant awarded £500,000 after being dismissed for using a racial slur in a training session, claiming his condition prevented him from finding an alternative phrase quickly.
• Jandu v Marks & Spencer: Tribunal ruled that failure to adjust selection criteria for a dyslexic employee in a redundancy process was unlawful. The Claimant was awarded £54,000

Summary

• Neurodivergence can be a disability – Employers must assess each case individually.
• Reasonable adjustments should be considered – Simple changes can remove barriers and improve inclusion.
• Ignoring legal duties is costly – Tribunal claims are rising, and failing to accommodate neurodivergent employees can result in significant compensation awards.

Redundancy and Re-Employment

Redundancy doesn’t always mean the end of employment. Offering alternative roles – whether before notice, during notice, or even after dismissal – can help retain talent. However, it must be handled correctly to avoid legal risks.

Before giving notice

The search for alternative employment should start early in the consultation process. If an employee accepts a new role before notice is given, there’s no dismissal—just a contract update. However, if they reject a suitable role unreasonably, they may lose their right to a redundancy payment (s141 Employment Rights Act 1996).

To withhold redundancy pay, the employer must:

• Make a formal job offer (not just a casual mention).
• Provide clear details on pay, responsibilities, and terms.
• Ensure the role starts immediately after, or within four weeks of, termination.

During the notice period

The duty to search for alternative roles continues throughout notice. If an employee accepts a new role, they enter a statutory four-week trial period (s138 ERA). If the trial fails, redundancy rights remain, unless the refusal was unreasonable.

After employment ends

Once dismissed, employers no longer have a legal duty to offer alternative roles, but re-hiring is an option. Key considerations include:

• Continuity of service – A break of over one week (Sunday to Saturday) resets employment rights.
• Redundancy pay – Rehired employees keep their redundancy pay but must build up two years’ service again for future entitlements.
• HMRC scrutiny – Rapid re-hiring may raise tax avoidance concerns; be prepared to justify the redundancy.
• Advertising new roles – If recruiting for a similar role too soon, an ex-employee could challenge the redundancy’s legitimacy. Waiting for the three-month tribunal claim window to expire is safest.

Top tips

• Put offers in writing – Include job title, salary, location, and trial period terms.
• Consider a trial period – This can encourage acceptance and clarify employment terms.
• Don’t force alternative employment – Pushing an unwanted role may lead to constructive dismissal (if the employee resigns in response to the (likely) repudiatory breach) and/or a Hogg v Dover College dismissal, in which case the employee can continue to work in the new role (with continuity of employment intact) whilst bringing a claim for unfair dismissal and redundancy pay in respect of the old role. 

Handled well, alternative employment can be used to retain skills and reduce redundancies.

BBC settles discrimination claims ‘on the steps’

Settling employment disputes often boils down to ‘who blinks first’. A claim is issued. Both parties put their respective positions on the record. But what often prompts settlement of disputes are considerations that you won’t find on the face of the pleadings. For the employer – commercial sensitivities and the risk of adverse publicity. For the employee – balancing ‘having their day in court’ against the settlement sums on offer and (usually non-recoverable) costs of litigation. 

Sometimes the settlement ‘dance’ is done and dusted quickly. Both parties size each other up and come to terms. However, many cases get tantalisingly close to the hearing before terms are agreed. A case in point is the recent discrimination case brought by four female news presenters against the BBC. The case recently settled, just a week before it was due to begin.

Four female newsreaders alleged that they had been discriminated against in a restructuring and recruitment process for lead presenters at BBC News. The i Newspaper quoted an insider who stated: “They needed to get this resolved before Monday,” an insider said. “There were witness statements ready and senior news managers would have had to account for their actions.”

The BBC said it had not accepted any liability over the claims made by the women in settling case. However, it is understood that the agreement includes an undisclosed payment to the presenters.

This case is a reminder of the different considerations at play when settling tribunal claims. It does not start and end with an exposition of the legal risks. It involves many other nuanced concepts including commercial sensitivity, preserving ongoing relationships, cost (the BBC case was listed for three weeks in the tribunal) and the potential for reputational damage. As the insider quoted in the i Newspaper stated: “There would have been claim and counter-claim between the BBC and the women in public. Then viewers would see the newsreaders back on screens. It would have been very damaging, so the settlement is better for all.”

Whenever a claim is received from an employee, the employer should take a view on each of these factors when deciding on a strategy for defending the claim.

‘Sir …that was my chair’ – are we at work or back in primary school?

And finally, a tribunal has found that forcing a senior employee to sit at a desk which was viewed as a ‘junior’ desk can amount to constructive dismissal. 

A constructive dismissal occurs where an employee resigns in response to a fundamental breach of contract by the employer. Often, the breach relied upon is a breach by the employer of the implied term of trust and confidence which underpins the employment relationship.

In Walker v Robsons (Rickmansworth) Limited, the Claimant was a director at an estate agency, holding the position of branch manager. In the branch in which he worked, the back desk was informally reserved for the branch manager, with more junior employees sitting in the middle. After a period spent working at a different branch, the Claimant returned to the branch and was told to sit at a middle desk. The Claimant was upset about the desk he was given, perceiving this as the desk for the assistant manager. He resigned and claimed constructive dismissal.

The Tribunal found that moving the Claimant to the middle desk was conduct likely to destroy or seriously damage the relationship of trust and confidence.  It was reasonable for the Claimant to view this as a demotion. In fact, the desk faux pas had been completely unintentional by the employer (a result of poor communication). This made no difference – the Claimant had reasonably believed that the desk move constituted a demotion and resigned in response. His claim succeeded. Workplaces are funny places, full of their own in-jokes and subtexts. This case is a lesson to employers to make sure that they understand the particular politics at work in their workplaces, no matter how silly or trivial they may seem from the outside. It might be a special mug reserved for a certain employee or, as in this case, an unwritten seating arrangement which dictated seniority.