Three former directors of failed UK parcel delivery company City Link have recently been delivered the bad news that they will face criminal charges over redundancies made during the Christmas period last year. They have been charged with failure to notify the Secretary of State of the proposed redundancy of City Link’s employees as required under section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992. Notification is normally given to the Government by submitting an HR1 form to the Insolvency Service. Ouch – a clear demonstration of teeth where previously there were thought to be none.
The original rationale behind the notice to the Secretary of State was that (generally) the Government likes to be notified of proposed redundancies so it is able to help the threatened employees if possible. However, its clear failure to do so over many years has undoubtedly contributed to a general employer view that the notice is pointless and so can be dispensed with fairly safely. In addition, employers will not always welcome Government help. Notifying the Service will alert employees and may suggest to customers and suppliers that the company is struggling with debt and perhaps on the verge of going bust. The commercial consequences of this might be enough to push it over the cliff of insolvency to the craggy rocks below.
As a result, it is common for companies on the brink of insolvency neither to consult with employees nor to notify the Secretary of State about proposed redundancies. Any subsequent claims from employees will either be an expense in the administration (good luck with that!) or met by the National Insurance Fund (i.e. the Government).
With spectacularly unfortunate timing City Link entered administration on Christmas Eve 2014 and announced that more than 2,000 employees would be made redundant seven days later, on New Year’s Eve. At no stage did the directors submit an HR1 form. Under TULRCA s.194 the maximum penalty is a fine not exceeding £5,000 for offences before 12 March 2015 (and uncapped for offences on or after that date) and, if found to be “with the consent or connivance of, or to be attributable to neglect” on the part of a director, manager or similar officer of the company, personal criminal liability for that individual too.
The Insolvency Service has not stated why it has decided to suddenly start bringing charges against these former directors, but it may be as part of a Government attempt to stop the taxpayer having to pick up the bill for compensation and redundancy payments to employees of bust companies where the employer has made no effort to comply with the legislation. If so, it seems misguided, for telling the Insolvency Service achieves nothing in terms of averting the redundancy decisions (unlike consulting with staff, but failures there are dealt with through the protective award regime, not by criminal sanctions). Perhaps it is a simple political gesture to help its new Government-of-the-people credentials?
These charges raise a number of questions about the enforcement of s.193 of TULRCA:
- Firstly, the legislation requires notification to the Secretary of State for each establishment where there are proposed to be redundancies of 20 or more employees within a 90-day period. It would appear that the failure to notify the Secretary of State for each separate establishment is a separate offence. So for example, City Link had 4 locations with over 100 employees and 45 locations with between 20 and 99 employees and failed to notify in each instance. Could the former directors therefore face a total of 49 separate offences and a total fine of up to £245,000?
- Second, s.193(6) of TULRCA requires that where employee representatives are to be consulted, the employer is to provide a copy of the HR1 form to these representatives. However the sanction of s.194 only relates to failure to give notice to the Secretary of State, not failure to send a copy to the employee representatives. Theoretically directors could take the risk of submitting the HR1 form to the Insolvency Service to avoid criminal liability, but not provide a copy to the employee representatives in order to hide the financial state of the company for as long as possible.
Finally, it remains to be seen whether this enforcement will have the desired effect, whatever that actually is. Company directors may think twice before proceeding with collective redundancies without notifying the Secretary of State to avoid criminal liability. In the long run this will make it much harder for directors to keep employees, customers and suppliers in the dark over proposed redundancies and any financial difficulties of the company, which may in turn push companies to the wall even more quickly.