As reported in a previous Onpoint three former directors of the collapsed parcel delivery firm City Link have been prosecuted relating to their failure to notify the Secretary of State of the redundancies which resulted from its demise. They have now been acquitted of those criminal charges.
Under the Trade Union and Labour Relations (Consolidation) Act 1992, where an employer proposes to dismiss as redundant 20 or more employees at one “establishment” within a 90 day period, the employer must provide certain prescribed information about the proposals, using form HR1, to the Secretary of State. The amount of notice depends on the number of proposed redundancies - for 20-99 redundancies, 30 days’ notice is required; this increases to 45 days’ notice where 100 or more redundancies are proposed.
The HR1 form must also be provided to the relevant representatives of the affected employees - a trade union if one is recognized or if not appropriately elected representatives. Failure to notify the Secretary of State as required is a criminal offence punishable by an unlimited financial penalty but, until this City Link case, no individual had faced actual prosecution.
The three directors denied the charges of failing to file the required HR1 form in relation to over 2,500 redundancies taking place after City Link’s collapse on Christmas Eve 2014. The prosecution alleged that the directors were aware of redundancies being inevitable on 22 December 2014, yet only filed the HR1 form with the Secretary of State on 26 December 2014, thereby breaching their notification obligations.
At Coventry Magistrates Court, Deputy District Judge David Goodman found that, despite administration being the only viable option as at 22 December 2014, the directors believed at that stage that there was the possibility of a sale of the business and that the business could be saved. As this was found to have been their state of mind on 22 December 2014, there was no "proposal” to make redundancies at that stage. Consequently, it was found that their later notification on 26 December 2014 was sufficient.
The District Judge has been reported as making the following comment - “Retrospective use of a crystal ball is a concept I struggled at the time to understand … A director cannot be expected to put a crystal ball on his or her desk at a time of huge shock and turmoil, and predict the likely consequences of an action, unless a consequence is either the only foreseeable one or is the only consequence that can be reasonably envisaged.” He also said that “the defendants each gave evidence that they genuinely believed a sale in administration was not only possible but quite probable.”
This decision has not been popular with the union movement - General Secretary of the RMT Union Mick Cash said that the verdict was “a bitter pill to swallow for the thousands of City Link staff brutally dumped out of their jobs on Christmas Day last year”.
Whilst this judgment may provide some comfort for employers facing potential insolvency and large-scale redundancies, nonetheless the risk of potential criminal liability and the consequent reputational damage for individuals would appear to have become far more real notwithstanding these acquittals. With inevitable uncertainty often surrounding when precisely the duty to consult arises, especially when a business is in crisis and events are fast moving, employers should perhaps take the risk of prosecution more seriously than before. Clear documentary evidence showing when a redundancy proposal is formed and the thought processes of management is now more key than ever to protect against both civil and criminal proceedings. It will be interesting to see what happens in the similar criminal proceedings against the former chief executive of Sports Direct arising out of the closure of USC which are due to be heard in March 2016.