Charity redundancy payments

suemm2011

We are a small charity run pre school who are sadly having to close soon, thus making 2 members of staff redundant. We know they are entitled to redundancy pay but we do not have sufficient funds to pay them fully. However we have had conflicting advice given to us as to how they can claim their pay. As we are a charity, NOT A BUSINESS, we do not think that they can claim from the government and that they instead have to take the trustees (us!) to tribunal to personally claim it from us. Any advice we have found has referred to insolvency- however we will not be insolvent, aiming to close with no other outstanding debts, and able to make a small but not full payment to staff.
We do not debate the staffs right to redundancy but we need to know whether or not they can infact claim from the government or us, or us via the government. PLEASE HELP :eek:

getmore4less

Outstanding notice, pay holidays and redundacy payments are debts if you can't pay them you are insolvent.

How much can these be redundacy is capped at £400 per years service over two. notice is one weeks full pay per year

How long have you been insolvent?

how are you paying the employees now.


If your employees are on flexable hour contacts there are ways to reduce the costs of redundacy and notice pay but this takes time.


What contract terms are you employees on?

suemm2011

We are currently still operating and have sufficient funds to cover salaries. Sufficient notice has been given. All holiday pay will have been made. We have known we would have to shut since January but have been in financial difficulty for a couple of years- we are at the mercy of demographics as well as other factors.
Our redundancy costs are about £8,000 (off the top of my head) long serving staff! Staff not on flexible hours but their contracts allow us to reduce hours- I believe it is called a 'zero hour' contract. We have made all cuts/reductions possible (with their consent) and still cannot continue.

getmore4less

Ok if you have flexable hours contracts then one trick is to reduce the hours to just above Zero for 12 weeks, reduces notice and redundancy pay a lot since they are both based on average pay over the preceeding paid weeks(non paid weeks don't count).


http://www.direct.gov.uk/en/Employment/Employees/Pay/DG_175997

SarEl

Whilst it is true that this "trick" may produce the result you want (although not if I was representing the staff - I would have you for unfair dismissal as soon as you tried it, because it is a deliberate attempt to avoid statutory obligations. You have already given staff notice, so you cannot argue that there is any other reason for such a reduction), it is a very dishonourable way to treat long serving staff in a any line of work.

It is not true that the government scheme only deals with "businesses" - you are a business in this sense of the word because you have employees. Your charitable status is not important in this context. You are an unincorporated body, so your trustees are individually liable if you act unlawfully or negligently, but not generally. So provided that you act properly in accordance with the law then you will not be held liable. The problem is that you are currently not doing this - you are trading whilst insolvent. If you know that there is not and will not be anough money to cover what you owe, then that is trading whilst insolvent.

What you need to do is to contact the Charity Commission urgently and explain to them what the position is, what the problems are, and seek advice from them. Your local council will probably also have a community development team of some sort who may be able to advise; as would a local Council for Voluntary Service or Voluntary Action Council.

[Deleted User]

Do you have any funders? Do you receive any funding from your Council? Early Years and such like often step in in these situations.

WestonDave

As I understand it the government scheme only applies if (and to the extent) that the employer cannot meet the redundancy payments. In the case of an organisation such as a partnership or charity, that means that it will only pay once the personal resources of the partners or trustees are exhausted (this is a generalisation as for a charity you'd have to be doing something against the law - but continuing to "trade" without the means to meet your obligations could fall into this). This is why becoming a charity trustee is not something to be taken lightly. If I were you I would see if you can find any free legal advice (check your household insurance etc) to confirm this position. It is almost certainly not going to be in your interests forcing the employees to go through an expensive legal process to recover the money, as you could then be liable for legal costs on top. ACAS may be able to help you as another port of call.

SarEl

WestonDave wrote: »

As I understand it the government scheme only applies if (and to the extent) that the employer cannot meet the redundancy payments. In the case of an organisation such as a partnership or charity, that means that it will only pay once the personal resources of the partners or trustees are exhausted (this is a generalisation as for a charity you'd have to be doing something against the law - but continuing to "trade" without the means to meet your obligations could fall into this). This is why becoming a charity trustee is not something to be taken lightly. If I were you I would see if you can find any free legal advice (check your household insurance etc) to confirm this position. It is almost certainly not going to be in your interests forcing the employees to go through an expensive legal process to recover the money, as you could then be liable for legal costs on top. ACAS may be able to help you as another port of call.

I should point out helpfully that they now have - that I what I told them and I am a lawyer. Although I deal with employment law I have a special interest in this area of law because I often do pro-bono for charities - and my advice to speak to the Charity Commission was based on quite a lot of experience of charities in this situation.

Googlewhacker

SarEl wrote: »

Whilst it is true that this "trick" may produce the result you want (although not if I was representing the staff - I would have you for unfair dismissal as soon as you tried it, because it is a deliberate attempt to avoid statutory obligations. You have already given staff notice, so you cannot argue that there is any other reason for such a reduction), it is a very dishonourable way to treat long serving staff in a any line of work.

It is not true that the government scheme only deals with "businesses" - you are a business in this sense of the word because you have employees. Your charitable status is not important in this context. You are an unincorporated body, so your trustees are individually liable if you act unlawfully or negligently, but not generally. So provided that you act properly in accordance with the law then you will not be held liable. The problem is that you are currently not doing this - you are trading whilst insolvent. If you know that there is not and will not be anough money to cover what you owe, then that is trading whilst insolvent.

What you need to do is to contact the Charity Commission urgently and explain to them what the position is, what the problems are, and seek advice from them. Your local council will probably also have a community development team of some sort who may be able to advise; as would a local Council for Voluntary Service or Voluntary Action Council.

Devils advocate.......why would it matter to the company if they are shutting down and become insolvent if they get a judgement against them....can they just refuse to pay it if they only have enough to cover certain payments and after that they are insolvent.

And yes dishonourable (and I wouldn't do it myself) but there are plenty of things that are immoral that employees do as well so I don't blame any employer for trying it if they did.

suemm2011

Sarel- thank you for your comments. We had already sought free legal advice from a business specialist with regards the reductions we had to make in hours etc- and although we did have to cut hours we always did so with staff agreement- we have only acted within the bounds of contracts and would NOT risk being pursued for unfair dismissal which would happen if we had done otherwise. We have been trying to follow all correct proceedure. However we have NOT been told that operating without redundancy reserves is trading whilst insolvent- that is a new one on us.
The Charity Commission is aware that we are closing but I do not know if they are aware that we do not have redundancy funds in place. We had always been told that as we were a charity we were not covered by the government scheme and that staff had to take us to tribunal- no one seems to be able to give a straight answer as to how the whole process works and it is very frustrating! We have been in contact with various people and it has not been flagged that we shouldn't keep running without the reserves in place.

SarEl

Googlewhacker wrote: »

Devils advocate.......why would it matter to the company if they are shutting down and become insolvent if they get a judgement against them....can they just refuse to pay it if they only have enough to cover certain payments and after that they are insolvent.

And yes dishonourable (and I wouldn't do it myself) but there are plenty of things that are immoral that employees do as well so I don't blame any employer for trying it if they did.

Advocate away. You have missed the point. Charitable law is a specialist area. No reason for you to know (except to remember never to become a trustee of one!). This charity is not a company. Charities can, and many do, incorporate to avoid personal liabaility of their trustees (at which point they are no longer trustees in this sense of the word and many incorprated charities have either no trustees - only Directors - or have honorary titles only). OK, still with me?

So, if you are the trustee of an unincorporated charity (and this is something half of them have no idea about!) they are personally liable for the charity, whether or not they are involved in the management of it directly - many are not. This means that if the charity folds leaving debts, then the creditors can chase the assets of the individual trustees, individually or severally. That means their houses, funiture, cars, income etc is at risk.

Broadly speaking, few creditors actually do this because it is a charity. But that doesn't mean they can't, and often the crix of whether this happens or not is whether the trustees or management committee have acted in good faith when incurring those debts - i.e. they have not "traded whilst insolvent" or incurred debts they knew they could not repay. That is what makes this case difficult - because the trustees have known for two years that they were in financial difficulty and for the last 5 months that they were going under. That means that they should have - in charitable terms - liquidated and made every effort to pay their debts rather than continue "trading".

Whilst I applaud people who do these sorts of things for free, they have the same legal obligations to act responsibly and in a fair manner towards their staff. In this case it is, I think, something that has not happened, largely due to naivity combined with hope. In many cases, I regret to say that charities are often some of the worst employers you could get and their attitude towards the staff leaves much to be desired when compared to their avowed principles.

One of the things that I do pro-bono is to help small charities convert incorporated status to avoid exactly the risk that these trustees now find themselves in.

Does that explain the point?