Effects on the employment relationship of the insolvency of the employer: A worker perspective

Abstract

The article looks critically at the Insolvency Act prior to the amendments of 2002 and the limited protection it gave workers on the insolvency of their employer. The effect of the Act was that workers’ contracts of employment were automatically terminated by their employer’s insolvency, leaving them with a limited preferent claim against the employer’s insolvent estate. Since certain other creditors (such as the Revenue Service) ranked higher than employees, there was often little left for workers to recover. Another problem was that workers often had no warning of their employer’s insolvency, giving them no opportunity to make representations to save the company – and their jobs. Under pressure from organised labour, the 2002 amendments to the Insolvency Act and the LRA addressed these problems by:
• requiring an employer that is facing financial difficulties to advise its employees or their representatives of possible liquidation;
• providing that a provisional sequestration or liquidation suspends contracts of employment for a period before they are terminated, rather than terminating them immediately; and
• providing for a process of consultation between employees facing dismissal as a result of an insolvency and relevant stakeholders to attempt to reach consensus on appropriate measures to save part or the whole of the business.