Self-employed were left exposed, say MPs
Call for insolvency rules overhaul following collapse of City Link
City Link’s owners have been accused of deceiving their workers about the state of the company’s operations ahead of its failure which led to 3,000 job losses in Christmas week.
The Scottish affairs committee said that City Link and its private equity owner Better Capital encouraged contractors to take on additional staff even though the firm was heading for trouble.
“We are dismayed that, although it was clear for some time there were serious questions over the ability of City Link to continue trading after December 2014, small businesses and self-employed drivers working for City Link were encouraged to take on additional costs despite a strong possibility that they would not receive payment for a significant part of their work in December,” the report says.
City Link had decided not to inform employees and contractors about the state of the firm which, according to the committee.
The MPs want the government to overhaul rules governing insolvencies to better protect agency and self-employed workers. Insolvency laws provide protection only for direct employees.
When firms collapse, self-employed workers often lose out because they are counted as unsecured creditors and are paid only if there is money left once debts owed to banks are settled.
The report says: “We accept that there will always be those who lose out when a company goes into administration and cannot cover all of its debts. We do not agree, however, that the current system, where those who have given secure credit to a company are cushioned from the full impact of an insolvency because of the losses borne by those who work for a company on a self-employed basis, or as contractors or suppliers, represents the appropriate balance,”
Jon Moulton, the founder of Better Capital, denied that Better Capital had been involved in the deliberate deception of workers.
In a statement, Better Capital described as “ill-founded” the accusation that the company had made a deliberate decision not to inform employees of City Link’s troubles.