The Department for Business, Innovation and Skills ("BIS") has instigated proceedings against three former directors of parcel delivery company City Link for their part in City Link's failure to give statutory notice to the Secretary of State of plans to make staff redundant in accordance with their obligations under Trade Union and Labour Relations (Consolidation) Act 1992 (the "Act"). The case marks a change of approach by the BIS and reminds 'directors, managers, secretaries and any persons purporting to act in any such capacity' of their personal obligations.
The "City Link" case
Directors David Smith and Robert Peto and non-executive director Thomas Wright will go on trial in November becoming the first former directors of any company to be individually charged with such an offence, more than 20 years after the Act came into force. Coventry-based City Link, owned by investment firm Better Capital, called in administrators on Christmas Eve 2014 after "substantial losses". On New Year's Eve 2014 it announced 2,356 job losses after a bid to buy the company failed. A week later it announced a further 230 redundancies.
What the law says
When an employer is proposing to dismiss 20 or more employees within a 90 day period a collective redundancy regime is triggered under the Act. As well as collective consultation with employee representatives, this requires employers to notify the Secretary of State in a prescribed form of its proposal before giving notice to employees at least 30 days before the first of those dismissals takes effect (increasing to 45 days where the collective redundancy involves 100 or more employees). A copy must also be provided to the appropriate employee representatives.
The Act states that an employer who fails to give notice to the Secretary of State commits an offence and is liable on summary conviction to a fine of up to £5,000. This provision, and the ability for Employment Tribunals to make punitive protective awards of up to 90 days' actual pay per affected employee for breaches of the collective consultation process have traditionally been the focus of employers and their advisers.
The Act also provides that where the employer's failure to provide the statutory notification to BIS is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity, he as well as the company will be guilty of the offence and liable to be proceeded against and punished accordingly. This will mean that those prosecuted risk being convicted of a criminal offence, with potentially serious consequences for them.
There are only very limited exceptions to the requirements to comply with the provisions of the Act.
The law has not changed. However, the City Link case and a similar case against Sports Direct Chief Executive David Forsey indicate that there has been a real change in approach by BIS and that this prosecution of individuals may not be a one-off. Although the punitive regime of protective awards has always provided an incentive for employers to comply with the Act, this adds a new dimension to the obligations owed by employers and those responsible for any redundancy process.
If you have any further questions on this area of law or the impact that it may have on your business, Bird & Bird would be happy to assist.