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A decision made 4 December 2009 regarding: Report to the States: white paper - insolvency payments scheme.

Decision Reference: MD-S-2009-0067
Decision Summary Title :	DS Insolvency Report to States 2Dec09		Date of Decision Summary:	2 December 2009
Decision Summary Author:	Policy Principal		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	WR Insolvency Report to States 2Dec09		Date of Written Report:	2 December 2009
Written Report Author:	Policy Principal		Written Report : Public or Exempt?	Public
Subject: Report to the States: White Paper – Insolvency Payments Scheme
Decision(s): The Minister decided to present to the States a Report outlining the background to the release of a White Paper that proposes a statutory Insolvency Payments Scheme.
Reason(s) for Decision: A commitment was given by the Social Security Minister that proposals for a statutory scheme, as set out in the White Paper, would be outlined by the end of 2009 and that progress would be reported to the States. The introduction of an Insolvency scheme has been a matter of public and political debate in Jersey since 1993 and was widely consulted upon by the Employment Forum in 2006. A limited Temporary Insolvency scheme has been in operation since early 2009. Firm proposals are now being put forward by the Social Security Minister via a White Paper.
Resource Implications: It is proposed that the scheme will be self funding by applying a small increase (0.032%) to the Social Security contributions paid by employers. This would provide an insolvency fund of approximately £350,000 per year. The estimated cost to the States (as an employer) is approximately £40,000 per annum. The Temporary Scheme will continue to operate until the statutory scheme is implemented. It may be necessary to request additional funding to continue to provide payments under the Temporary Scheme.
Action required: Policy Principal to submit the documents to the Greffe for presentation to the States as a Report on 7 December 2009.
Signature:		Position: Minister
Date Signed:		Date of Decision (If different from Date Signed):

Report to the States: white paper - insolvency payments scheme.

REPORT TO STATES

WHITE PAPER - INSOLVENCY PAYMENTS SCHEME

Introduction

The purpose of the Insolvency Payments Scheme White Paper is to seek responses via public consultation on proposals from the Social Security Minister to introduce a statutory insolvency scheme.

The intention of the scheme is to ensure that employees promptly receive a reasonable proportion of the monies owed to them by their former employer, including; unpaid wages, holiday pay owed statutory notice pay, unpaid pension contributions and statutory redundancy pay (when the new law giving employees redundancy rights is introduced in 2010).

The introduction of such a scheme was widely consulted upon by the Employment Forum in 2006. A limited Temporary Insolvency scheme has been in operation since early 2009. On the basis of previous reviews and States debates, firm proposals are now being put forward by the Social Security Minister.

Background

The Employment Forum had consulted on the introduction of an insolvency scheme in 2006 and recommended to the Social Security Minister in 2007 that an insolvency fund should be established. The Minister proposed that a scheme should be developed as part of a forthcoming Social Security review.

Political interest in insolvency increased in December 2008 when Woolworths Plc. went into administration. The staff in Jersey lost their jobs but, unlike their counterparts in the UK, they did not have any right to statutory redundancy pay or to receive compensation from an insolvency scheme. Further to a Proposition from Deputy Southern (P.9/2009), the States of Jersey decided in February 2009 to provide compensatory payments equivalent to statutory notice pay entitlements to the former Woolworths employees.

On the basis of a further proposition (P.34/2009) from Deputy Southern, the States decided in March 2009 that the Woolworths payments constituted a precedent which must be followed in similar cases of redundancy through insolvency in Jersey. So, in April 2009, the Minister for Social Security presented the details of a temporary insolvency payments scheme (“the Temporary Scheme”) to the States as a Report (R.44/2009).

States Members have shown support for a statutory insolvency scheme to be brought forward without delay and a commitment was given by the Social Security Minister that proposals for a statutory scheme, as set out in the White Paper, would be outlined by the end of 2009.

The proposed statutory scheme accords with the aim of the States of Jersey to support the community through the economic downturn, as set out in the latest draft Strategic Plan 2009-2014. It also accords with the ongoing States strategy (3.1.1 of the 2006-2011 Strategic Plan) to promote a safe, just and equitable society by giving legal rights to employees and employers in line with best practice worldwide – and extends existing legislation to provide a comprehensive range of basic rights to employees by moving into the second phase of employment law reform, as approved by the States in P.99/2000.

Proposals

It is proposed that the statutory insolvency scheme will:

1. Follow the principles of insolvency schemes operating in the UK and the Isle of Man.

2. Be based largely on the current Temporary Insolvency Scheme, but extended to compensate employees for a number of other outstanding payments owed by the employer.

3. Entitle an individual to claim a payment from the statutory insolvency fund if they meet five specific qualifying criteria.

4. Cap the maximum payment from the statutory insolvency scheme at the same cap applied to the Jersey Employment Tribunal (£10,000).

5. Provide a mechanism to transfer the employee’s rights in insolvency proceedings to the Social Security Minister so that he can take steps to recover as much as possible of the amount paid out.

6. Be subject to a right of appeal to the Social Security Tribunal.

Financial and Manpower implications

It is anticipated at this stage that protection for employees in insolvency situations will be achieved by an amendment to the Social Security legislation, as most of the amendments to existing legislation will be in regard to the collection of Social Security contributions.

It is proposed that the scheme will be funded by applying a small increase (0.032%) to the Social Security contributions paid by employers. This level of contribution increase would provide an insolvency fund of approximately £350,000 per year. This includes a cost to the States (as an employer) of approximately £40,000 per annum in respect of the increased contributions paid on employees’ wages.

The total funding required has been estimated in reference to the proposed cap on payments (£10,000) and an estimated 30 individuals being made redundant due to their employer’s insolvency each year (in a typical year). The total fund also includes sufficient funding for administration costs at 5% of the total expenditure.

The Temporary Scheme will continue to operate until the statutory scheme is implemented. £91,000 has been paid out to date of the £200,000 allocated to provide the Temporary Scheme and 35 individuals have received a payment in respect of the six employer insolvencies to date (Feb to Nov 2009). It may be necessary to request additional funding in order to continue to provide compensatory payments until the statutory scheme is in force.

Further Information

Stakeholders and any interested members of the public to comment on the proposals set out in the White Paper and to submit their views by Friday 5 February.

The White Paper is available on the States website http://www.gov.je/ChiefMinister/PublicConsultations/Past+consultations/

Copies of the White Paper may also be obtained from Kate Morel, k.morel@gov.je or 447203.