Redundancies in the dotcom world are on the rise. So if push comes to shove, knowing what you are entitled to could make a real difference. Katie Hawkins explains

From dotcom to dot bomb. Another one bites the dust. When it comes to talking about dotcom casualties, the clichés have been rolling thick and fast. It seems that every day another startup runs out of money, and such revelations no longer startle. But for the employees involved, the story is very different.

The cynics would say that anyone who agrees to work for a dotcom knows what they are letting themselves in for, risks and perks alike. But naive though it may seem now, many of those involved had little idea of what was really in store when they first accepted the job offer. Juicy stock options were waved like carrots, and those seeking fame and fortune eagerly followed like rats to the Pied Piper.
"I was working a 60-hour week in the month up to the launch date with the idea that we would be rewarded come the end of year bonus," says Andrew Tope, an ex employee of Illustratedlibrary.com.
"I have never worked so hard," agrees Alison Crombie, ex PR manager of Boo.com.
Dotcom founders, desperate to ensure the success of their business, had every reason to work themselves into the ground. And finding employees with the same attitude was not a problem either. By giving shares in the company to employees, the workers had their own motivations for putting in the hours.
Yet for many dotcom employees, the financial rewards have never materialised. Not only have the stock options become virtually worthless, but the threat of redundancy looms large. And what happens if it all goes pear shaped? What rights do the employees have?
According to Tom Flanagan, employment law partner at City law firm Stephenson Harwood, many dotcom employees encounter problems if they are made redundant because they failed to sign a contract of employment.
Flanagan explains that employees without written contracts are only entitled to either reasonable notice (meaning whatever is reasonable within the industry or company for the position held) or to a statutory minimum-notice period, whichever is greater. If there is no evidence for a longer reasonable notice then statutory payment will apply. This amounts to one week's notice for every completed year of employment up to a maximum of 12 weeks, while those who have worked for less than one month are entitled to nothing.
Horror stories abound of employees arriving at work to be told that they must clear their desks and leave. Are companies not obliged to forewarn their employees about impending redundancies?
"Employees have a right to warning and consultation if they're going to be made redundant," says Charlotte Hamer, professional support lawyer in employment and pensions at Stephenson Harwood. However, she goes on to explain that in many cases the circumstances persuade the companies not to comply with their duty to inform and consult if, for example, consultation could result in plummeting share prices, or the staff could lose confidence and leave. "If, for example, a company knows it has got three months left then it should tell employees as soon as it reasonably knows. But if the only way to keep afloat is to keep staff then it is unlikely to [say anything]," she explains.
Not all ex-employees feel hard done by. Jay Jackson, ex network manager at the European office of sports site quokka.com, signed a contract that stipulated a two-week notice period.
"The outcome was good," he said. "I was notified at the beginning of November and by January we were out. We got paid right up until the end of January and were then given a month's extra on top of that."
If your company is not this generous, only those employees who have been working for two years or longer are entitled to redundancy. The am- ount paid out depends on age, salary, and the length of time an employee has been working for the company, up to a maximum of 20 years.
In the case of insolvency, the government picks up the bill. "If the employer is bankrupt, then the government guarantees that it will pay only the employee's statutory redundancy entitlement irrespective of what's in the employment contract," says Hamer. "If the contract provides a greater entitlement, then if the company stays afloat the employee may still receive any additional contractual redundancy pay. If the company is bankrupt the employee gets statutory redundancy pay from the government and becomes an unsecured creditor for the remaining part."
Increasingly, bricks-and-mortar companies buy dotcoms and employees are often unsure as to their positions. Hamer explains that in this instance the transfer is usually covered by the terms of the Transfer of Undertakings (Protection of Employment) Regulations 1981.
"Employees transfer to the new employer with the same terms and conditions as they had with the previous employer," she says. This means that they are entitled to their contractual redundancy provisions. Hamer adds that the dismissal of any employee at the time of the transfer is automatically unfair dismissal, unless it meets one of the exemptions.
What should potential employees consider before signing up with a dotcom? First, to consider a dotcom package in the same way as any other. "A dotcom or startup is just another employer. There is no magic about what they do in comparison to any other employer," says Flanagan.
However, employees should also pay particular attention to restrictive covenants, or clauses that prohibit employees from leaving the company to join a competitor, or poaching staff or clients.
Mike Emmott, advisor on employee relations at the Chartered Institute of Personnel and Development, suggests that prospective dotcom employees negotiate a long notice period. "Many dotcoms have proved to be high risk employers, who have offered high returns but, if the business fails, employees are in the same position as those in any other business. If employees have got contractual entitlement to several months notice, they can cash this in as long as the company has sufficient assets."
But for some, dotcoms remain attractive places to work. Andrew Swift, managing director of Pricejamieson recruitment consultants says that recruiting for dotcoms hasn't been a problem. "We haven't seen any signs of vacancies being harder to fill," he says. But he acknowledges that while many people want to make the move, they tend to be more cautious.
It seems that the financial perspective has changed too. Swift says that whereas in the past some candidates were prepared to take pay cuts because they were receiving generous stock options, now they are reluctant to compromise on their salary. He suggests that these days people are choosing to move to dotcoms for other, perhaps healthier, reasons. "People are doing it because they really want to."

A Dotcom Experience
Alison Crombie, formerly of Boo.com, now PR manager of ShopSmart.com
How much notice did Boo give you?
Nothing. We were told we were going into liquidation but were given a few days when we could come in to use our computers and clear our stuff out.
Were you offered a redundancy package?
Nothing bar the government money.
Did your experience at Boo make you wary about joining another dotcom?
Obviously not, as I wouldn't be at ShopSmart if that were the case, but I did want to be with one that had a strong business model and management team.
What advice would you give to somebody moving from the Old Economy to the New Economy?
Now probably isn't the best time, but if you do, go for one with a bricks-and-mortar backer or strong funding and not a pure-play start-up.

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This was first published in May 2001

 

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