Criminal sanctions under TULRCA 1992: The Forsey saga

11 minute read
26 March 2024

After nearly nine years and a couple of visits to the Supreme Court, the attempted prosecution of David Forsey was dismissed on 23 February 2024 as "no evidence offered". Mr Forsey was being prosecuted under section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) for failing to notify the Secretary of State of 20 or more planned redundancies at one establishment within a specific time period.

Unfortunately, we do not have any information as to why "no evidence" was offered. 32 years and there has not been a successful prosecution of an individual director under s194. Does this indicate that the potential criminal penalty is more a risk in theory and lacks any likelihood of enforcement? Or perhaps it means the threat of personal criminal liability is working as a deterrent. Alternatively, it may indicate that the requirement to notify the Secretary of State via a HR1 form (and the requisite time period before dismissals take effect) is a relatively simple administrative task, approached by employers as merely part and parcel of the wider collective information and consultation obligations under section 188 TULRCA. As such, the threat of a potentially hefty protective award is in reality the driving force for compliance. Nevertheless, the potential risk of a criminal sanction against an employer and certain individuals (including directors) remains.

Here, we consider the end of the long-running Forsey saga in detail.

Collective redundancy consultation obligations

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 (RPS). Under section 188(1) of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), if an employer proposes to make 20 or more employees redundant at one establishment in a period of 90 days or less, it must inform and consult with a recognised trade union, or, if there is no union, with employee representatives. There is a potential penalty of a large protective award (maximum of 90 days' uncapped actual pay) being made in favour of each employee if employers fail to properly inform and consult staff. The fact that an employer company has gone into administration does not obviate the need for compliance with s188 TULRCA.

HR1 form and the criminal offence

Under section 193 of TULRCA, an employer has an obligation to notify the Secretary of State using a HR1 form. This is triggered when the employer first 'proposes to dismiss' as redundant 20 or more employees within any period of 90 days or less. It must be submitted giving notice of termination to employees, and at least 30 days (or 45 days if it is 100 or more redundancies) before the first of those dismissals take effect.

The obligation to notify the Secretary of State is sometimes seen as an administrative task with employers unaware of the potential criminal penalty for failing to do so. However, failure to give the Secretary of State the requisite notice before the dismissals take effect is a criminal offence for the employer under section 194 TULRCA. Furthermore, individual directors, company secretaries, managers or similar officers of the company (or anyone 'purporting to act' as such) 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".

The penalty is now an unlimited fine, although in Mr Forsey's case it would be a maximum fine of £5,000 because the alleged offence was committed before 13 March 2015.

Statutory defence

As is the case in relation to the duty to collectively inform and consult under s 188, there is a potential 'special circumstances' defence to a failure to give the Secretary of State the requisite notice under section 193(7) which essentially mirrors section 188(7). There will be no liability where there are special circumstances which mean it is not reasonably practicable to submit the form on time. However, it is well established in relation to the corresponding section 188(7), and it is reasonable to draw across the same principles here, that this has to be something 'unexpected' or outside of the ordinary run of events, such as the destruction of the plant or sudden withdrawal of supplies by a main supplier. The fact of insolvency in itself will not offer protection, nor will a desire to keep a precarious financial position confidential to avoid further reducing the value of the assets or the business.

The case against Mr Forsey

In October 2015, criminal charges were brought against both Mr David Forsey, the former chief executive of Sports Direct, and Mr Robert Palmer, the administrator of fashion retailer West Coast Capital (USC) Limited (USC) (a Sports Direct group company for which Mr Forsey was the sole director). The case concerned a large number of redundancies made in Glasgow when a USC warehouse was closed. The Glasgow employment tribunal has previously awarded the maximum 90-day protective award per employee against USC for a failure to consult with employees and criticised it for "disgraceful and unlawful employment practices" during its pre-pack administration in which some employees were given only 15 minutes' notice of their redundancy.

The case has been long and drawn out. Between 2016 and 2021, both Mr Forsey and Mr Palmer brought numerous challenges to the legality of the proceedings largely on technical process points, which failed. However, in November 2023, Mr Palmer, the administrator, was successful in having his prosecution dismissed. The Supreme Court ruled that administrators do not fall within the meaning of a "director, manager, secretary or similar officer of the company" under s194(3) TULRCA. As such, administrators are not subject to the threat of criminal sanction if they fail to comply with the statutory notification requirements triggered where an employer is proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less as contained in TULRCA 1992. However, this still left the prosecution of Mr Forsey, as director of USC pending.

The 2015 CityLink case

As set out above, the fact of insolvency in itself will not amount to a "special circumstances" defence. At the same time if a decision is made to put a company into administration, this does not immediately signify guilt unless:

  • The decision to put the company into administration means that redundancy is an inevitable consequence or so nearly inevitable as to render it a proposal.
  • The company then does not notify in accordance with its obligations.
  • This failure was due to the director's consent, connivance or neglect.

In 2015, the prosecutions of three former directors of City Link for their part in City Link's failure to give statutory notice to the Secretary of State failed. The directors were acquitted as the Magistrates Court accepted that the directors did have hope of a quick sale out of administration and so where not "proposing to dismiss" at the time the company was put into administration.

For employment law purposes, "proposing" means more than a mere contemplation of the possibility of redundancies but is still generally found to occur at an earlier stage than an actual decision by the employer to make redundancies. In City Link, the judgment refers to the reasoning of the Employment Appeal Tribunal in the case of UK Coal Mining Ltd v National Union of Mineworkers [2027] which confirmed that an employer must consult about a strategic decision that would foreseeably or inevitably lead to collective redundancies such as a site closure. However, the magistrates in City Link seem to have focused on whether redundancies are 'inevitable' rather than 'foreseeable' and so arguably has applied a narrower test for criminal liability purposes than an employment tribunal would apply under section 188 in the context of a protective award claim.

Where does this leave s194 TULRCA?

The prosecution of Mr Forsey was dismissed on 23 February 2024 as "no evidence offered". Unfortunately, the Memorandum of Entry in the register of the Magistrates Court does not record the reasons for this. What is apparent following the City Link case is that despite the similarity in wording for breaching the s188 duty to inform and consult under s189 TULRCA and for failing to submit an HR1 under s194 TULRCA, the threshold for establishing a breach is very different. This may be understandable given the potential penalty for the former being a civil "protective award" and the latter being a potential criminal conviction.

Nevertheless, there remains a risk for employers and directors (and the other relevant individuals) to face personal criminal liability for failure to notify the Secretary of State of large-scale redundancies. Although a successful criminal prosecution of a director under s194 TULRCA has been elusive, the obligations on employers to (1) inform and consult about large scale redundancies under s188 and (2) notify the Secretary of State under s193 remain vital with significant financial implications for the employer. A company, even one in administration, is subject to the obligations to inform and consult with staff regarding large-scale redundancies under s188. A company who fails to comply, faces a potential hefty penalty of a protective award (maximum of 90 days' uncapped actual pay per employee) being made for failure to properly inform and consult staff. The fact that an employer company has gone into administration does not obviate the need for compliance with sections 188 and 193.

Where a company is placed in administration, the significance of a protective awards for secured creditors is that they may be treated as preferential debts (subject to the £800 cap per employee) where the protected period includes the four-month period before the "relevant date" of the insolvency proceedings (as defined in section 386 IA 1986). As such, preferential debts rank ahead of floating charge realisations, an award could have a significant impact where there are large numbers of employees. Amounts due under a protective award may also be treated as "arrears of pay" for the purposes of the RPO's guaranteed debt liability (subject to the cap of eight weeks' wages at £643 per week (£700 from 6 April 2024 – revised annually).

For more information on this case or TULRCA 1992, contact Connie Cliff and Anna Fletcher

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