What happens to the employees of Thomas Cook?

Thomas Cook is all over the news today, after its collapse into administration this morning (at 2am).  Here’s the statement: “Thomas Cook UK Plc and associated UK entities have entered Compulsory Liquidation and are now under the control of the Official Receiver.”

It’s important to note that a Compulsory Liquidation means that the situation is terminal, unlike Company Administration, which is intended to give space and time for potential business rescue and recovery so that the company can avoid insolvency.

This will be distressing and inconvenient for travellers (600,000 worldwide, of whom 150,000 are British citizens, including at least one close friend of mine) but they’ll get home eventually and carry on with their lives as before.

It’s worse for the town of Peterborough, and for the many hotels, shops and restaurants abroad that rely on the travel company for their business.

But it’s a hammer blow for the employees of Thomas Cook and their families, and I feel very bad for them.

So – if you’re a Thomas Cook employee – what happens next?

Thomas Cook will make some employees redundant, and will ask others to keep working. There is still a huge repatriation exercise to complete, and the company will need to be managed through the winding-up procedure.

Employees affected by a company entering liquidation can still legally claim for any of the following if they are owed it:

  • Any wages that have gone unpaid
  • Payment in lieu of any notice period
  • Holiday pay
  • Redundancy pay.

Compensation for the above claims (for residents of England, Scotland and Wales) is handled by the Insolvency Service. It will be the responsibility of the appointed liquidator to inform employees of their rights and send the appropriate forms giving advice on what allowances they can claim. There is a cap on redundancy payments, set at £525 a week for each element of the claim (arrears of pay, holiday pay, redundancy etc).

What happens if you’re a contractor?

If you’re working at Thomas Cook on a temporary basis, you should check your contract as soon as you can. For reference, here’s the order in which creditors get paid when a company becomes insolvent:

  • Liquidator’s fees
  • Secured creditors with a fixed charge (e.g. banks with security in the form of a mortgage over premises, land etc, factoring companies).
  • Preferential creditors – including employees who are owed arrears of wages and holiday pay up to certain limits, and outstanding pension contributions.
  • Secured floating charge creditors
  • Unsecured creditors – i.e. trade suppliers, contractors, HMRC, suppliers, and customers.
  • Connected unsecured creditors – e.g. members of a director’s family, or staff members who have loaned money to the company on an unsecured basis.
  • Finally – shareholders.

If you’re directly employed by an agency (i.e. on a ‘contract of service’), the relevant contract is the one between you and them. Same if you’re working via an umbrella company.

If you have your own limited company and you’re working on a contract via a recruitment business, you should check the terms you’ve agreed. Most contracts will terminate immediately because of the insolvency of the end client, and you should get paid for the work you’ve already done. But in some cases (if you’ve opted out of the Agency Regulations) you might have a contract clause that allows the agency to withhold payment to you pending payment by the client. In this case they (and you) will be some way down the list, so payment in full is nowhere near guaranteed, and insolvencies can take a long time to complete. This also applies if you’re a direct contractor and not an employee (i.e. a supplier).

The recruitment company itself may also be at risk, if Thomas Cook was a key client of theirs.

Note: we factor our contractor debts, and are covered by insurance in case the end client goes under – which has happened once. Our contractors were paid on time and our fees (minus our excess) were recovered. We don’t have a ‘pay when paid’ clause in any of our contracts.

Next steps

If you’re an employee you should hear from the liquidator, if you haven’t already. If you’re a contractor, check your contract to see where you stand.

If you’re being kept on, do the best job you can. Anecdotally, many Thomas Cook employees are continuing to do a very good job in the face of immense pressure and job uncertainty.

Look for alternative work. Your experience may be in the travel industry, but don’t let that restrict you. Focus on your transferable skills, and take advice from a reputable recruitment company if you need to. Opportunities for work do exist, but it will be very challenging for some. I see that TUI are holding a recruitment fair at their Luton Office.

Finally, good luck.

(Note: this is guidance rather than legal advice, so don’t rely on it.)

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