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'Employees first' ruling nixed after appeal

Legal wrangling

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The Court of Appeal has overturned a ruling that gave employees priority over administration fees when companies collapse.

The original ruling, handed down by Mr. Justice Peter Smith, stated that when a company goes into administration, cash owed to employees must take priority over the administrators' fees and administration costs.

It prompted concern that the administrations of companies involving large redunancies could have been jeopardised.

After 14 days, the administrators of a company's collapse become responsible for the employment contracts. Justice Smith's ruling would have ringfenced cash for the protective awards these employees would be entitled to, at the expense of the administrator's fees, and legal costs.

According to TheLawyer.com, if Justice Smith's ruling had stood, in similar cases, the administrator could well decide to make all staff redundant, to avoid becoming liable for paying protective awards at a later stage.

The Court of Appeal came to the rescue of administrators and overturned Smith's ruling.

Under UK law when more than 100 employees are to be laid off, the employer must consult with the staff for a period of 90 days before issuing the P45s. If it fails to do so, an employment tribunal can award the employee a so-called protective award, covering salary or wages for a period of up to 90 days. ®

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