The Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) came into force some 20 years ago. Under its provisions employers who plan to make more than 20 employees redundant must notify the Secretary of State of the proposed redundancies, via an HR1 form. The amount of notice depends on the number of redundancies being made. Employers are also required to commence consultation with their staff about the proposals, at least 30 days before the redundancy takes place where between 21 and 100 employees are affected or at least 45 days where over 100 employees are affected. Failure to comply with these requirements can result in a protective award being made by the employment tribunal of up to 90 days’ gross pay (uncapped) per affected employee.
Recent conduct on the part of some high profile employers has also served as a useful reminder that a failure to notify the Secretary of State is a criminal offence and that a criminal sanction can be applied. Until now, the possibility of criminal prosecution has perhaps received less attention than it should have done. The cases have come to light at the same time as the Government has commenced an investigation into the issue of redundancy consultations in insolvency situations and the potentially clashing demands of employment and insolvency law.
In an insolvency situation, the Government’s National Insurance Fund will often be left having to pick up the bill and pay out compensation to employees who have brought claims against insolvent employers who have failed to comply with TULRCA. Perhaps understandably (particularly in the current economic climate), the Government seem to have got rather frustrated with this state of affairs and two criminal prosecutions have recently been brought against three former directors of City Link and also the Chief Executive of Sports Direct (in relation to USC).
USC (the fashion retailer owned by Sports Direct) made warehouse staff redundant earlier this year the case against the Chief Executive of Sports Direct is due to be heard in March 2016.
City Link made around 3,000 employees redundant following its collapse last Christmas. City Link failed to notify BIS of potential redundancies when it went into administration on 22 December 2015. At the time it was widely reported that this decision was made to keep employees at work last Christmas. The City Link directors were in court earlier this month and found not guilty on the grounds that the decision to go into administration was not the same as forming an intention to make employees redundant, as the directors gave credible evidence that they thought that administrators may have been able to find a buyer for the business and avoid any redundancies. This evidence was accepted by the court.
The reasons for the not guilty verdict were fact specific and should not diminish the importance of complying with TULRCA’s obligations to collectively consult. The Judge who heard the case was at pains to make this point saying: “no employer should take that finding to be a precedent that an employer can avoid its responsibility under section 193 simply by going into administration. My finding in this case that no proposal had been made is based on the evidence in this case, not on a general principle in relation to administration generally.”
In the case of City Link the maximum fine they faced was £5000. However, since 12 March 2015, level 5 criminal fines are unlimited. Further, if the failure can be shown to have been committed with the consent or connivance of or to be attributable to the neglect on the part of any director, manager, secretary or other similar officer of a company, that individual may also be criminally liable, with conviction leading to disqualification under the Company Directors Disqualification Act 1986 for up to 15 years.
The implications for the individuals concerned, i.e. having a criminal record, the adverse publicity, potential disqualification as a director and the dim view the FCA (Financial Conduct Authority – the financial services regulator) may take of the matter should the concerned individual want to be an “approved person” in future, mean that this is not something to be taken lightly. Within financial services there are designated roles that can only be undertaken by an approved person The FCA states that “Anyone who deals with customers will probably need approval. Most advisers (eg financial and retail advisers, investment managers) will need approval.” Therefore the removal of this status can have a crippling effect upon an individual’s career.
These cases are a timely reminder of the importance of employers complying with their legal obligations and the correct procedures when looking to lay off large numbers of staff. Directors, insolvency practitioners and HR need to ensure that they are all aware of the requirements of collective redundancies and that they work together as necessary to ensure full compliance. If these cases are indicative of a greater willingness on Government’s part to prosecute such matters, adhering to the formal requirements will take on greater significance.
The Stephens Scown employment team works in partnership with organisations to improve their HR practices and advise on employment issues. To discuss this or any other HR issue call 01392 210700 or employment@stephens-scown.co.uk.