The Body Shop: caught in the conflict between employment and insolvency rules


In recent weeks media outlets covered extensively the abrupt collapse of The Body Shop, the famous British cosmetics, skin care and perfume company, and the alleged mismanagement by the appointed administrators (FRP Advisory) of the dismissal of 270 of its head office employees.

The Press reported that The Body Shop's administrators admitted breaching employment law obligations by laying off staff over a video call where the employees were told they would not be paid beyond the end of the day and that they would not receive a redundancy package. The Times reported that more than 175 employees were advised to pursue 'wrongful dismissal' claims in the Employment Tribunal.

This caused particular outrage due to the company's reputation of being an ethical organisation which valued its employees' wellbeing. But is this outrage entirely justified?

Consultation obligations

Where an employer proposes to make 20 or more employees at one establishment redundant within a period of 90 days or less (referred to as 'collective redundancies'), they must: 

  1. notify the Secretary of State (BEIS) of the proposed redundancies (failure to do so is a criminal offence); and
  2. inform and consult with the appropriate representatives of the affected employees.

The law provides that consultation must begin 'in good time' and that where 100 or more redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect. (For fewer than 100 redundancies, consultation must begin at least 30 days before the first dismissal.)

Failure to inform and consult can lead to claims to an employment tribunal for a protective award of up to 90 days' actual gross pay for each employee affected by the collective redundancies. The employer may also face the risk of claims for unfair dismissal.

Administrators' duties

FRP Advisory claimed that there was insufficient time to consult employee representatives before implementing the collective redundancies, because a swift reduction of payroll costs was required. They reportedly cited their statutory duty to act for the benefit of The Body Shop's creditors as the reason why collective consultation was not carried out in good time before the dismissals. 

Indeed, once a company goes into administration, the appointed administrators have a duty to act in the best interests of the company's creditors (as a whole) and to fulfil one of the statutory objectives of administration; in this case seeking to ensure greater return to creditors than would be likely if the company were to immediately cease trading and enter liquidation. In entering administration and trading the business pending any sale, rescue and/or restructuring process, the administrators will seek to reduce costs to an absolute minimum, which in turn may include reducing staff numbers. In doing so they are unlikely to offer those employees being laid off any enhanced redundancy packages.

Administrators have only 14 days from the commencement of the administration to assess and decide whether they are going to keep the company's employees and, if so, whether there is a need to reduce non-essential headcount.

Conflicting positions

The administrators' duties towards the creditors and the tight timing given to them to make essential decisions in the creditors' best interest creates an inherent conflict with the employer's obligation to consult in good time before collective redundancies can take place. This inevitably results in a high number of claims being brought before the Employment Tribunal for failure to properly inform and consult employees and possibly for unfair dismissal. In any case, administrators should notify BEIS of the proposed redundancies.

In light of this inevitable conflict in law, it seems unfair to depict the dismissal of The Body Shop's employees by the administrators as unethical or as a deliberate action against the company's commitment towards its staff's wellbeing. It will nevertheless give rise to claims for failure to inform and consult and for unfair dismissal.

What can employees recover?

Understandably, the affected employees – some of whom had been working for The Body Shop for many years – are devastated by the sudden termination of their employment and the company's failure to provide notice pay, the statutory redundancy payment or any other form of compensation for loss of income.

Eligible employees will however be able to recover unpaid wages and commission (but only up to 8 weeks of the money they are owed), holiday pay (up to 6 weeks of holiday days, with holiday pay currently capped at £700 a week) and the statutory redundancy payment from the Redundancy Payments Service as well as any loss of statutory notice pay (also in this case, payments are currently capped at £700 a week).

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Administrators argued in their response on behalf of the Body Shop, seen by The Independent, that they had not properly consulted employees because “a swift reduction” in head office payroll costs was judged to be required, citing their statutory duty to take actions to benefit all of the company’s creditors.
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