Three former directors of collapsed delivery company Citylink are to be prosecuted in respect of its breach of the UK's collective redundancy consultation requirements – the former managing director, the former finance director and a non-executive director, a representative of the private equity owner of the business.
On 15 October 2015, the chief executive of Sports Direct entered a not guilty plea in respect of charges relating to the demise of the USC business – a full trial to determine liability is scheduled for March 2016.
The possibility of personal criminal liability for directors and senior managers now appears much more real than previously assumed.
Where an employer proposes to make 20 or more redundancies at one 'establishment' in a 90-day period, it is required to provide prescribed information about its proposals and to consult with appropriate employee representatives. If a trade union is recognised the employer must deal with the union – if not then it must deal with suitably elected or appointed representatives. The minimum consultation period is 30 days, increasing to 45 days where the number of redundancies proposed is 100 or more. Breach of these obligations can lead to protective awards of up to 90 days' pay per affected employee and therefore sizeable liabilities.
The employer must also notify the secretary of state of the proposed redundancies in advance using an HR1 form. This form must be sent before the dismissals are effected and the same period ahead of when dismissals are envisaged as the applicable minimum consultation period. Therefore the timing of the HR1 is crucial – if submitted too early employee representatives will argue that collective consultation should have commenced sooner; if submitted too late the employer will be in breach of its statutory obligations.
Failure to notify the secretary of state as required is an offence punishable by an unlimited fine. For such a criminal charge to be brought against an individual rather than the employer company, the offence must be shown to have been “committed with the consent or connivance of, or to be attributable to the neglect of” any director, manager, secretary or “other similar officer” of the employer. This potential criminal liability is therefore a concern not only for directors but also senior managers.
The redundancies mentioned earlier attracted considerable media and political attention. In the USC case around 200 staff were given about 15 minutes' notice by the administrators of their dismissal. In the Citylink case some 3,000 staff lost their jobs over the 2014 Christmas period and there was considerable controversy surrounding the timing of the dismissal notices.
The historical lack of prosecutions in this area may have led employers and their advisers to consider the risk of prosecution negligible. These recent prosecutions demonstrate that the possibility of criminal liability is not theoretical, particularly perhaps in high-profile cases. They should act as a wake-up call to the fact that breach of the redundancy consultation legislation can have serious personal and reputational consequences for directors and senior managers.
Compliance is nonetheless often far from straightforward. Among other things, in order to ensure that the HR1 form is submitted at the appropriate time it remains crucial to consider various issues. These include when the duty to consult kicks in (as a result of collective redundancies of the requisite scale being 'proposed') and what counts as an 'establishment' (for the purposes of applying the legislation). These concerns will be particularly acute in the insolvency context, where compliance with the collective redundancy regime is particularly challenging given that redundancies are usually made quickly after an employer goes into administration.
Charles Wynn-Evans is a partner at international law firm Dechert