Criminal charges for failing to submit HR1: City Link directors acquitted

27 November 2015


Criminal prosecutions under employment legislation are rare. Under previously scarcely used provisions in the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), 2015 has seen two separate prosecutions instigated for alleged failure to notify the Secretary of State of proposed collective redundancies - the City Link and USC cases. The prosecutions in the former being against three directors and in the latter against a director and an insolvency practitioner.

Obligations to inform and consult with staff regarding large-scale redundancies are well known, as is the need to notify the Secretary of State via the Redundancy Payments Service. Failure to properly consult staff under section 188 TULCRA has been the subject of numerous tribunal claims with employers for the most part aware of the potential penalty of a hefty protective award being made in favour of the employees. However, the obligation to notify the Redundancy Payments Service by using the HR1 form is largely seen as an administrative task with employers unaware of the potential criminal penalty for failing to do so.

Failure to give the Secretary of State the requisite notice is a criminal offence under section 194 TULRCA. Individual directors, company secretaries and managers are personally liable for offences committed by the employer if it can be shown that the offence was committed with their 'consent or connivance' or if it was attributable to their neglect. If convicted each individual can face an unlimited fine (prior to 2012, fines were capped at £5,000).

The obligation to notify the Secretary of State is triggered when the employer first 'proposes to dismiss' as redundant 20 or more employees within any period of 90 days or less. The same wording is used in relation to the obligation to inform and consult employment representatives under section 188. But when does an employer first "propose" to make redundancies?

The City Link case

Following a failed attempt to restructure, the directors of loss making City Link realised on 22 December that the company would become insolvent by mid-January. On the same day, they decided to place the company into administration. The directors believed that placing the company in administration would make a sale more attractive and highly probable. The administrator traded the company briefly, but as a quick sale failed, he filed the HR1 on 26 December.

The Government considered that the requirement to notify the Secretary of State arose when the board of directors decided to put the company into administration on 22 December. The prosecution case was that that decision to put the company into administration made large-scale redundancies inevitable or almost inevitable, triggering the notification requirement.

On 12 November, the three directors of City Link were acquitted of the criminal charges. The directors were found not guilty as the court accepted that the directors genuinely believed as at 22 December that a sale of the business was probable and that accordingly there would be no redundancies.

Rejecting the charges, the judge stated:

"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 reasonably be envisaged in the circumstances."

Different trigger dates?

The test for 'proposes' to dismiss as redundant established in relation to section 188 is not only inevitability but also foreseeability. An employer may 'propose' redundancies even though alternatives to redundancy are actively being pursued and hoped to be achieved. The Magistrates Court has arguably applied a narrower test as to the meaning of 'proposes to dismiss as redundant' under section 194 than an employment tribunal would apply under section 188 in the context of a protective award claim.

As the duty to notify the Secretary of State is separate to the duty to inform and consult with employees, it is possible that the trigger dates for each obligation may be separate. Indeed, it will be interesting to see the outcome of the protective award claim currently pending in relation to the collapse of City Link due to be heard next April.

What does this mean for any future prosecutions?

The verdict cannot be taken as diminishing the importance of complying with the notification requirements. It also does not significantly diminish the possibility of prosecutions being successful in future where the evidence suggests that redundancies were inevitable and the required notification is not given. As the judge concludes in his judgment:

"I would add only that 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."

Notwithstanding the failure of the prosecution in the City Link case, the Government appears increasingly willing to pursue potential criminal sanctions against directors of failed corporate entities which have left taxpayers picking up a hefty tab for their failure to comply with employment legislation.

You wait years and then two come along together

The spotlight will now be on the pending prosecutions in relation to the closure of a USC warehouse for which staff were given 15 minutes' notice of their redundancy. Last month, a full 90 day protective award was made. In granting the maximum award, the tribunal criticised the employer for "disgraceful and unlawful employment practices". It will be interesting to see what, if any, the impact of a protective award already having been made will have on the USC prosecutions.

The prosecutions of former director David Forsey and administrator, Robert Palmer are due to be heard by the Chesterfield Magistrates Court 14 to 16 March next year.


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