The recent collapse of USC and City Link have been widely reported in the media and serve as a salutary reminder to companies of the need to follow the correct redundancy notification procedures. We look at what employers can learn from these events.
What the law says
Under Section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULR(C)A) employers have a duty to notify the Secretary of State for Business, Innovation and Skills (BIS) where they are proposing to dismiss as redundant at one establishment 20 or more employees within a 90 day period.
The timescale for this notification is:
- 30 days before the first dismissal takes effect where between 20 and 99 employees are potentially redundant; or
- 45 days before the first dismissal takes effect where 100 or more employees are potentially redundant.
Notice is made to BIS in writing usually by filing an HR1 form. A failure to comply with this notification requirement is a criminal offence punishable by a fine. Since 12 March 2015 level 5 criminal fines for those employers who fail to comply with the HR1 filing requirements have been unlimited. This potentially exposes employers to huge losses. Previously, the maximum fine was £5,000.
The previous approach taken by BIS was fairly lenient with regards to the filing of the form. Although the law has not changed, it would appear that BIS is taking a much firmer standpoint on pursuing organisations who fail to file their HR1 form on time, as seen in the cases of the fashion retailer USC and the parcel firm City Link. This change of approach comes after the government has been forced to pay out millions in compensatory payments to staff made redundant without proper consultation.
The collapse of City Link
City Link was placed into administration on Christmas Eve 2014 and shortly afterwards, made an announcement on New Year's Eve to just over 2,500 staff that they were being made redundant. It was alleged that the firm's former managing director, finance director and a non-executive director became aware that the redundancies were inevitable on 22 December 2014, but the Secretary of State was not notified until 26 December 2014.
The judge found on the evidence that there was no proposal to make redundancies on 22 December and that the three directors genuinely believed that they could save its workforce by placing the company into administration. When it became clear that this was not a viable proposition, the proposal to make the workforce redundant was made and communicated at the earliest opportunity by the administrator on 26 December.
As a result, three former directors were acquitted of the criminal offence of failing in their statutory duty to give 45 days' notice of potential staff redundancies to BIS.
However, note that the judge commented that no employer should take the finding to be a precedent that the employer can avoid its responsibility under section 193 of TULR(C)A.
The collapse of USC
David Forsey, the Chief Executive of Sports Direct, and a USC administrator has also been charged with a criminal offence relating to the collapse of fashion retailer USC, a subsidiary of Sports Direct.
In this case, no HR1 form was filed at all and USC entered liquidation following the announcement of the redundancies. Workers were allegedly only given 15 minutes' notice before being told that they had lost their jobs.
It is claimed that the USC board did not know about the administration until the day before it happened on 7 January 2015. However, there are various reports which suggest David Forsey began consulting with administrators in November 2014. The full trial is scheduled for March 2016.
The outcome of the case will be highly anticipated, in light of the recent result of the City Link trial and given that this will be the first time that an insolvency practitioner has been prosecuted for an offence of this nature.
What can employers learn from these cases?
If you envisage making 20 or more employees redundant:
- Ensure that the HR1 form is provided to BIS at least 45 days before the first of the dismissals if you propose to dismiss 100 or more employees, or at least 30 days before the first of the dismissals if you propose to dismiss between 20 and 99 employees
- If there are any delays in filing the HR1 you should ensure that there are written records of reasons as to why there has been a delay
- Make sure your senior personnel are aware of the obligations to notify BIS as the ultimate responsibility for following the correct notification procedures will lie with them.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.