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Redundancy is an emotive subject, especially for those workers who, through no fault of their own, suddenly get a glimpse of their reflection in the sharp end of the axe. So, when Somerset printer Butler and Tanner (B&T) informed its workforce in April that they were all out of a job, its owner MPI would have been braced for a reaction - and it certainly got it.

The usually measured forum at printweek.com, for example, blazed with fierce recrimination from employees; MPI’s announcement had thrown 287 lives into uncertainty.

The slanging match raged on. Unite appeared in the national press describing the redundancies as “despicable”. MPI chief executive Mike Dolan hit back and blamed the union. He argued that during ongoing negotiations over changes to working conditions, it was the union’s inflexibility that caused investors to pull out, withdrawing the funds needed to pay wages at the colour book printer. The only option, he said, was to shut down. Two opposing views, one sad result: a 150-year-old company in liquidation, and its workers left scouring the job ads.

Unfortunately, scenarios such as this underline the harsh day-to-day realities facing the printing industry in the current economic climate. B&T is not the only high-profile company to have announced job cuts this year – Polestar and Quebecor have also had to wield the axe in recent months – and nor will the firm be the last, with financial experts predicting further torrid times ahead. Whatever the merits of the conflicting arguments in the B&T example, it has served to throw some useful light on how companies should handle collective redundancy.

The Trade Union and Labour Relations [Consolidation] Act of 1992 states that collective consultation is needed if an employer proposes to dismiss 20 or more employees within a period of 90 days. This means entering into talks with the recognised union, or nominated employee representatives, over a range of chewy issues that include: why it is proposing dismissals; how many employees it proposes to dismiss, who they are and how it plans to select them; and how it plans to carry out the action and calculate redundancy payment. And, since the case of UK Coal Mining vs NUM last year, anyone shutting operations down is now duty bound to consult employees over why it is doing so, what effects such a decision will have, and how to mitigate them.

Correct procedure
Such consultation is meant to take place long before any final decision is made. In the case of actions involving 100 or more people, this means at least 90 days before the redundancies are due to kick in. Even those making fewer than 100 redundancies are meant to allow at least 30 days for consulting. In fact, a company’s duty to consult begins as soon as it comes up with the idea. Employers don’t need the employees’ agreement over its plans, but they need to show sufficient conversation has occurred over the given period of time, ‘with a view to reaching agreement’.

If they fail to abide by these commitments then employers could find themselves answering some difficult questions because if employee representatives report to an employment tribunal a failure to inform and consult, the company can be liable for a nasty ‘protective award’ – a punitive payment of up to 90 days’ pay per employee. “Three months’ salary can mean really big sums of money,” says Richard Lister, practice development lawyer in employment and incentives at Lewis Silkin. “That’s a very powerful weapon for the Trade Unions and employees.”

Companies also have a separate obligation to report planned redundancies, again 30 or 90 days in advance, to the Department for Business, Enterprise and Regulatory Reform (Berr, formerly the DTI). Failure to do so can mean a fine of up to £5,000. All of which makes consultation not simply morally and legally right, but a financially sound option too.

And if the business itself is not financially sound then this is not reason enough to free it from its obligation to consult, according to the experts. “The reason most firms turn to redundancy is through a downturn in their fortunes,” says Anne Edwards, employment lawyer at Bracher Rawlins. “So you can’t just say ‘we don’t have to consult our workforce because we’re on the verge of shutting down’. There are rare special circumstances that negate the duty to consult, but case law has said this isn’t one of them.”

Preferential debt
Of course, while insolvency is no excuse for not consulting with employees, woeful books can make it somewhat tricky to cover employees’ rightful individual claims to unpaid benefits. After all, how can a company shell out hundreds of thousands of pounds from an empty pot that may already have other creditors crawling all over it? For this reason, wages and holiday pay at insolvent companies count as preferential debt – that is, they have to be covered first.

The former employees of Abbey Green Repro found themselves facing this type of quandary in February, when the company laid off its entire staff and began operating as ABR Litho. This led 19 ex-employees to pool together in May and put the company into administration, which meant they could then apply to the government for the monies owed by their former employer. Malcolm Fillmore, senior partner at administrator Atherton Bailey, put ABR Litho’s outstanding wage bill at £174,188.

“The employees could probably have pursued claims from the company,” says Lister. “But if there was no money in the firm, they may have been sceptical that it was worth pursuing it directly. So they probably decided with the trade union that the most likely way to claim was through the government’s National Insurance Fund.”

Employee protection
This is a fund available from the Berr for employees of insolvent companies to pursue claims for unpaid wages and other benefits. The company has to fit the legal definition of insolvent, hence ABR’s ex-employees’ move to put it in administration. Workers are then able to claim holiday pay and pension contributions, and three months’ back pay, capped at £330 per week. “If there’s no money to pay the debt, the government will protect the employees,” says Lister. “But £330 a week isn’t much if you’re on a large wage.”

Indeed, such rewards are simply a way of making the best of a bad situation and do little to ease the uncertainty surrounding sudden redundancy. Claims, both individual and collective, are usually organised through the trade unions, which makes it easier on the employee. But the process can drag on for a period of weeks or even months, especially when public sector funds are involved. “While this is all boiling away, the actual employee won’t be party to the consultation,” says Edwards. “That’s the difficulty. Because it’s collective, individuals can get lost in the process.” But when they have already lost their job it’s better that than losing what’s owed to them altogether.

David Waller is section editor for the Haymarket business title Management Today