Tribunal: Firm was insolvent
The former director of a law firm and his wife have won increased awards for unpaid wages and redundancy from the government because the practice was insolvent.
Employment Judge Hutchings agreed with Richard and Suzanne Clegg that GMS Law, which ceased to exist in November 2020, met the statutory definition of insolvency and awarded Mr Clegg £15,700 and Mrs Clegg £4,900 as ex-employees.
Judge Hutchings said Mr Clegg was employed by GMS as a personal injury solicitor from 2003 and was its sole director from 2012 – after founder Godfrey Morgan was struck off – until it ceased to exist. Mr Clegg was later struck off too.
Mrs Clegg worked as a paralegal from September 2013 until February 2018.
The Cleggs submitted claims to Norwich Employment Tribunal in October 2020, seeking to recover redundancy pay, arrears of pay, holiday pay and compensation for loss of notice.
The Redundancy Payments Service’s National Insurance Fund makes payments to ex-employees of an insolvent employer where the statutory conditions are met.
The Department of Business, Energy and Industrial Strategy (BEIS) contested the claim, arguing that GMS was not insolvent according to the statutory definitions.
Mr Clegg told the tribunal that he started work in 2003 and by 2014 was paid £45,000, rising to £50,000 by 2018. Mrs Clegg was earning £20,000.
In April 2012, GMS issued a debenture to its founder, Godfrey Morgan, borrowing £2m, secured by a floating charge on the firm’s work in progress (WIP).
Mr Clegg said Mr Morgan took control of the company’s assets, including its WIP, computers and office furniture, because of the impact of the LASPO reforms on the firm’s profitability.
Mr Morgan enforced the debenture by instructing Mr Clegg to recover the WIP by selling client files through the specialist company Recovery First, and paying the proceeds to him.
The Solicitors Regulation Authority confirmed the closure of GMS Law “for financial reasons” in May 2018, and Mr Clegg’s employment was terminated later that month “when all the files had gone”. All other employees had been made redundant in February 2018.
Judge Hutchings said the statutory definition of insolvency under the Employment Rights Act included the situation where possession had been taken by the holders of debentures, secured by a floating charge.
The judge gave his first ruling in the case in September 2022, awarding Mr Clegg £6,600 and his wife £1,400. BEIS was not represented either at this hearing, or the one that followed.
However, given “the issues raised by the claimants with the calculation of holiday pay and interpretation of the pay slips” and the fact that Mrs Clegg was unable to attend the first hearing due to work and childcare commitments, the judge decided to reconsider his judgment by video hearing in March this year.
He increased Mr Clegg’s award for three months’ notice pay, holiday pay and redundancy pay to a total of just under £15,700. Mrs Clegg was awarded £4,900 for pay arrears, notice pay, holiday pay and redundancy pay.
Mr Clegg was struck off in December 2018 after naming a client as the defendant in a claim against the firm by an expert witness has been struck off, a decision upheld by the High Court the following year.
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