Employee Rights in Corporate Insolvency

A UK and US Perspective

Hamiisi Junior Nsubuga, Hamiisi Nsubuga

• Publisher: Routledge
• Year: 2019
• Print ISBN:
  9780367321543
• eBook ISBN:
  9781000731118
• Topic: Law
• Subtopic: Commercial Law
• Index: Law

This book analyses corporate rescue laws, processes and policies prescribed in

corporate insolvency or bankruptcy laws, and employment laws of the UK and

the US, with a particular focus on how extant employee rights are treated when

a debtor employer initiates corporate insolvency proceedings.

The commencement of formal insolvency proceedings by an employer affects

employees' rights and interests. Employment laws seek to protect employees' rights

and interests, while insolvency laws seek to promote corporate rescue, which may

entail workforce changes. Consequently, this creates a tension between whose

interest insolvency law should give primacy of protection. The book analyses how

corporate rescue processes such as administration, pre-pack business sales, company

voluntary arrangements, receivership and liquidation impact employee rights

and protection during corporate rescue proceedings in both jurisdictions. It goes

on to address how the federal system of government in the US and the diffusion

of power between federal and state law jurisdictions impact a uniform code of employee

protection during Chapter 11 bankruptcy reorganisation proceedings. The

book considers how an interpretative approach to law (Dworkin's Interpretative

Theory of Law) may be used to balance both employee protection and corporate

rescue laws during corporate insolvency in the UK and the US.

Of interest to academics, students and employment law practitioners, this

book examines the tension between corporate rescue laws and employment protection

laws during corporate insolvency in the US and the UK and how this

tension may be remedied or balanced.

1 Corporate rescue and employment protection – concepts, policies and processes

Introduction

In modern market economies, a company is a place of social relationships from which members, such as employees, derive their livelihood.¹ Capital and labour are the two most important factors of production in a company. Employees provide human capital in the form of labour that facilitates the day-to-day running of the company that enables the company to enhance its going concern value.² Therefore, human labour is a strategic asset³ without which a company may struggle to achieve its economic goals.⁴

Shareholders invest money in companies in anticipation that such companies will prosper and generate profits that will enhance their economic well-being. Likewise, employees seek employment in these companies in order to gain a source of income. This income would facilitate and enhance their economic well-being, provide for their relations and meet their living costs.⁵ Job satisfaction and job security are regarded as important aspects of quality of life.

However, on the insolvency of their employer, employees not only face the prospect of having their economic well-being in terms of job security and income interrupted, but also face the possibility of having their jobs permanently ended where their employer is liquidated.⁶ In addition to losing their job security and income, employees may also suffer social disruptions to their well-being.⁷ Social effects, such as marriage and family breakdown, increase in crime and other anti-social practices, such as alcoholism and neighbourhood nuisance, have been to some extent attributed to job losses.⁸ Therefore, job security is an important aspect of an employee’s economic security.

1 J. E. Stiglitz, “Employment, Social Justice and Societal Well-being” (2002) 141 Int’l Labour Rev. 9–29.

2 The term ‘going concern value’ refers to the value of the company as a going entity for the foreseeable future as opposed to being liquidated. See also, Edith Penrose, The Theory of the Growth of the Firm (Oxford, Basil Blackwell, 1959).

3 Michael Armstrong, A Handbook of Personnel Practice (4th edn, London, Kogan Page, 1991).

4 Lester C. Thurow, The Future of Capitalism (New York, W. Morrow & Co, 1996).

5 The term economic well-being in the context of employees relates to remunerative employment through which they are paid wages or salaries for services rendered. See, Margaret M. Blair and Lynn A. Stout, “A Team Production Theory of Corporate Law” (1999) 85 VA. L. Rev. 247.

6 M. Stephens, “The Long-Run Consumption Effects of Earning Shocks” (2001) 83 Rev. Econ. Stat. 28–38.

7 Richard H. Price, “Psychological Impact of Job Loss on Individuals and Families” (1992) 1(1) Curr. Dir. Psychol. Sci. 9–11.

8 J. Gruber, “The Wealth of the Unemployed” (2001) 55 Ind. Labour Relat. Rev. 79, 94.

However, following the global economic recession in 2007/2008 that economically affected companies both in the US and the UK, most companies have become more risk-averse⁹ to financial investments and business activities that may potentially affect their companies’ business productivity, or risk the companies’ economic and financial stability. Therefore, some companies in these jurisdictions have continued to engage in corporate restructuring¹⁰ as a measure of either improving their business productivity or protecting the financial stability of their companies’ businesses.

However, the forms of corporate restructuring that these companies adopt often involve cutting or lowering production costs, which often point towards labour costs reduction. Reduction in labour costs may involve cutting jobs or introducing new working practices, such as ‘zero-hours’ contracts¹¹ or implementing changes to the terms and conditions of employment. Some companies may consider moving production and service centres to locations where labour and service costs are relatively cheaper both locally and internationally. All these practices by the employers threaten employment security; therefore, a need to balance the interests of employees and employers during corporate insolvency.

The genesis of corporate rescue and employment protection in the UK and US

The United Kingdom

In the UK, many of the policies underlying social employment protection during corporate insolvency derive from the European Union (EU) Social Policy influenced by the sociopolitical and economic culture. The social employment protection policies that are influenced by the EU are codified in three main EU social policy directives that set out to preserve and protect workers’ rights in the event of the employers’ insolvency.

The first is Council Directive 2001/23/EC¹² which provides for specific provisions for the protection of employees by providing for prohibition on unfair dismissal of employees and variations to employees’ terms and conditions of employment because of the business sale or transfer of the undertaking. The Directive also provides for the continuity of employment by requiring automatic transfer of employees’ employment contracts on a business sale or relevant transfer subject to specific insolvency exceptions. This Directive was transposed into UK law via the Transfer of Undertakings (Protection of Employment) Regulations 2006.¹³

9 A ‘risk-averse’ company is one that chooses to invest in business transactions with known risks that may provide low returns than unknown risks with higher predictable returns.

10 These are approaches a company may take to review its organisational, operational or capital structures. See, Oliver Hyams, Employment Aspects of Business Reorganisation (Oxford, OUP, 2006).

11 Ian Brinkley, “Flexibility or Insecurity? Exploring the Rise in Zero-hours Contracts” The Work Foundation (1 August 2013) <www.theworkfoundation.com/Reports/339/Flexibility-or-insecurity-Exploring-the-rise-in-zero-hours-contracts> (accessed 10 June 2019).

12 Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses [2001] OJ L 82/16.

13 Transfer of Undertakings (Protection of Employment) Regulations 2006 (SI 2006/246). (TUPE 2006).

The second is the Collective Redundancy Directive – Council Directive 98/59/EC.¹⁴ This Directive sets out provision for standards to be followed by employers for consultations with employees’ representatives when employers are contemplating collective redundancies and dismissals. Where an employer intends to lay off 20 employees over a period of 90 days or the lesser of 10 percent or 30 employees over 30 days, that employer must provide relevant information to employees’ representatives and also, consult with employees’ representatives to reach agreements over ways and means of avoiding projected collective redundancies or reducing the number of employees to be affected among other mitigating circumstances.¹⁵

This is to afford employees in Member States a certain level of protection against collective dismissals while taking in...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgements
• List of abbreviations
• Table of cases
• Table of legislation
• Table of government reports, guidance reports and other documents
• 1 Corporate rescue and employment protection – concepts, policies and processes
• 2 Bankruptcy legal theory: the traditionalist and proceduralist theoretical models
• 3 Employee rights under US Chapter 11 bankruptcy reorganisations
• 4 Institutional challenges – the federal vs state law conundrum
• 5 Interpretation as a balancing tool in the US – applying Dworkin
• 6 Employee rights and protection in the UK – TUPE transfers and business sales
• 7 Balancing corporate rescue and employment protection in the UK – applying Dworkin
• 8 Conclusion – latest legislative developments and substantive matters
• Index