Treating contractors like employees in insolvency unlikely to please employers
24 March 2015
Parliamentary proposals for contractors to move up the queue of creditors so they are in line with directly employed staff following company insolvency will meet with significant opposition from employers, insolvency lawyers say.
Tue, 24 Mar 2015
Parliamentary proposals for contractors to move up the queue of creditors so they are in line with directly employed staff following company insolvency will meet with significant opposition from employers, insolvency lawyers say.
Following logistics firm City Link’s collapse over Christmas, its employees will receive much of what they were owed, but its contractors may end up getting as little as 2p for every pound owed.
In the wake of City Link’s collapse, Parliament’s Scottish Affairs and Business, Innovation and Skills Committees published a joint report yesterday (23 March). Among its recommendations the report calls for the order of payments in the Insolvency Act 1986 to be updated to give preference to all company workers whether they are directly employed or not.
But any move to ensure contractors are moved up the queue of creditors is likely to meet with significant pushback from employers, Simeon Gilchrist, partner at law firm Edwin Coe, told Recruiter.
“I think you will face significant pushback against any proposal that contractors should be treated in insolvencies as if they were employees,” he said.
“Employees and employers pay NI [National Insurance] contributions for precisely this purpose, whereas contractors do not make those same payments at the employment rates.
“I think you may have to look at tackling the definition of what is meant by ‘employee’ and forcing more labour-intensive industries into reversing out of contracting out their human resource requirement.”
Employers could also seek to block the reforms because it may damage their chances of being rescued following insolvency.
Commenting on the report’s proposal, Guy Thomas, insolvency partner at law firm Taylor Walton told Recruiter: “On the one hand, it appears to develop on current practice of Employment Tribunals. When testing an employee’s status, they can focus on the practical work they do rather than the job title.
“Put another way, the Tribunal’s approach can be that if the claimant quacks like an employee and walks like an employee, then they probably are an employee.
“My concern is that this proposal would place a serious additional burden on an insolvency practitioner when reviewing a company’s options. Such a burden risks making a rescue of the business less, not more, likely,” he added.
Following logistics firm City Link’s collapse over Christmas, its employees will receive much of what they were owed, but its contractors may end up getting as little as 2p for every pound owed.
In the wake of City Link’s collapse, Parliament’s Scottish Affairs and Business, Innovation and Skills Committees published a joint report yesterday (23 March). Among its recommendations the report calls for the order of payments in the Insolvency Act 1986 to be updated to give preference to all company workers whether they are directly employed or not.
But any move to ensure contractors are moved up the queue of creditors is likely to meet with significant pushback from employers, Simeon Gilchrist, partner at law firm Edwin Coe, told Recruiter.
“I think you will face significant pushback against any proposal that contractors should be treated in insolvencies as if they were employees,” he said.
“Employees and employers pay NI [National Insurance] contributions for precisely this purpose, whereas contractors do not make those same payments at the employment rates.
“I think you may have to look at tackling the definition of what is meant by ‘employee’ and forcing more labour-intensive industries into reversing out of contracting out their human resource requirement.”
Employers could also seek to block the reforms because it may damage their chances of being rescued following insolvency.
Commenting on the report’s proposal, Guy Thomas, insolvency partner at law firm Taylor Walton told Recruiter: “On the one hand, it appears to develop on current practice of Employment Tribunals. When testing an employee’s status, they can focus on the practical work they do rather than the job title.
“Put another way, the Tribunal’s approach can be that if the claimant quacks like an employee and walks like an employee, then they probably are an employee.
“My concern is that this proposal would place a serious additional burden on an insolvency practitioner when reviewing a company’s options. Such a burden risks making a rescue of the business less, not more, likely,” he added.
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