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Collective Redundancy: Have you committed a criminal offence?

It is a statutory requirement that, in addition to the obligation to inform and consult with affected staff over redundancies, employers must also…

It is a statutory requirement that, in addition to the obligation to inform and consult with affected staff over redundancies, employers must also inform the Secretary of State (using Form HR1) if a sufficient number of redundancies are proposed.

However employers are often unaware that failure to comply with these notification requirements is a criminal offence, attracting an unlimited fine. This provision has hit the headlines in the past few days with the news that a number of senior figures in failed businesses may face personal criminal liability for the shortcomings of the collective redundancy process.

What happened?

Reports in the media this week have revealed that three former directors of delivery company City Link have been charged with criminal offences in relation to the collapse of the company in late 2014, which reportedly led to the loss of 3,000 jobs. The former managing director, finance director and a non-executive director are reported to have been charged with failure to notify the business secretary of plans to make staff redundant.

It is also reported that the current Chief Executive of troubled retail chain Sports Direct will face a similar criminal charge in relation to a failure to notify the Secretary of State in relation to the closure of the Scottish warehouse of the company’s fashion brand USC.

What does this mean for me?

The obligation to collectively consult with employees, and to notify the Secretary of State, is triggered where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a 90 day period. The amount of notice required depends on the number of proposed dismissals:

  • For 20-99 redundancies in a 90 day period: at least 30 days before the first dismissal
  • For 100 or more redundancies in a 90 day period: at least 45 days before the first dismissal 

If you have plenty of time to consult with employees and to plan out a redundancy exercise, the date on which you commence consultation is a milestone you are unlikely to miss. However, it is crucial to prioritise formal notification to the Secretary of State which may potentially be overlooked at a stressful and busy                

The situation may be very different if a business is insolvent or facing closure, as circumstances may change very quickly. For example it may be necessary to reduce staff numbers rapidly to save costs and preserve the business as a ‘going concern’ or a sudden collapse may be triggered by the withdrawal of investment. Unfortunately even an unforeseen crisis does not affect the statutory obligation to submit the HR1 within the required timeframe. Directors, HR Managers or insolvency practitioners in this situation may be unable to postpone dismissals or to meet the stringent notification timescales.

Even if business reality means that matters progress too quickly to give full and proper notice it is still important to protect your position by being as proactive as you possibly can. Engage with employees regarding dismissals and inform the Secretary of State at the earliest possible opportunity. Build in as much consultation time as possible, even if the redundancy process will inevitably be cut short. Such steps may impact on the level of fine payable for failure to notify the Secretary of State and the level of any award payable to the affected employees.

Comment

These are alarming reports for employers and insolvency practitioners, which have come as something of a ‘bolt from the blue’. The three former City Link Directors were the first former directors of any company to be charged with this offence since the relevant legislation came into force more than 20 years ago.

The charges brought against these individuals are a salutary reminder that failures in the redundancy consultation process can not only expose businesses to employment claims but can also expose individuals to personal criminal liability. That possibility means that legal obligations should never be ignored, even in insolvency situations. We are able to help and advise both with the HR obligations as well as other insolvency-related obligations which may be faced by you and your directors.

It appears that the Government is adopting a new, much tougher stance on failure to file a HR1. This is perhaps in response to recent high profile business failures, such as the closure of the electronics retailer Comet, which have resulted in very large pay-outs to employees from public funds. If this pattern of robust enforcement is to continue Directors, HR staff and insolvency practitioners involved in effecting redundancies will need to be extremely watchful.

If you have any concerns about these developments, from either an employment or insolvency perspective, please do not hesitate to get in touch.

Phil Allen (phil.allen@weightmans.com) is a Partner in our Employment, Pensions and Immigration Team.