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Redundancy: managers and administrators risk criminal liability

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In R (on the application of Forsey and Palmer) v Northern Derbyshire Magistrates' Court the High Court confirmed that directors and administrators may be prosecuted where the employer has failed to comply with the obligation under section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) to notify the Secretary of State of 20 or more planned redundancies at one establishment within a specific time period.

Background

If an employer is planning to make 20 or more employees redundant at one establishment within a 90- day period it is required to give certain information to employee representatives and carry out collective consultation. 

The employer is also under a statutory duty to notify the Secretary of State by completing and submitting an HR1 Form. 

Both these steps need to be done at least 30 days, and depending on numbers sometimes 45 days, prior to the dismissals taking effect.

Failing to inform and consult with employee representatives can lead to proceedings in the Employment Tribunal and the employer may be ordered to pay compensation to each of the redundant employees.

There is no similar claim that can be brought in the Employment Tribunal in respect of the failure to notify the Secretary of State. It is instead provided that it is an offence in respect of which proceedings may be commenced against the employer or a director, manager or similar officer responsible for the failure.  

In practice whilst claims in the Employment Tribunal have been commonplace prosecutions have been rare and to date there appears no be no record of any proceedings resulting in a conviction. 

However the decision in R (on the application of Forsey and Palmer) v Northern Derbyshire Magistrates' Court is an important reminder that there can be serious personal consequences for senior managers and others if they fail to take steps to ensure these statutory obligations are met. 

What happened 

Around 200 warehouse staff were made redundant when USC went into administration in 2015. Some of the employees had only been given 15 minutes’ notice of their redundancy. An Employment Tribunal found that USC had failed to comply with statutory information and consultation obligations and awarded employees the maximum 90-day protective award. 

However, that was not the end of the matter as it was decided that both Mr Forsey, a Director of the company, and Mr Palmer the appointed administrator, should be prosecuted for their role in the failure to provide advance notification to the Secretary of State. 

Incredibly those proceedings have been ongoing since 2015 as various procedural challenges have been mounted and have failed. 

In the latest hearing it was confirmed that the Northern Derbyshire Magistrates court had the power to decide on sanctions even where the alleged offences took place in Scotland.

More importantly it also decided that Mr Palmer acting as an administrator of the company, could be potentially liable as he had been acting as a 'director, manager, secretary or similar officer of the company' at the relevant time.

Next steps – deciding liability

The High Court conclusion that both criminal prosecutions could continue will mean that absent a further challenge in the Court of Appeal the Magistrates will now be asked to determine whether the two individuals are guilty of the offence. 

That will depend on whether it can be shown that the employer’s failure was attributable to their ‘neglect’; ‘consent or connivance’? This will basically depend on whether they were involved in the management decisions made at the relevant time.

A statutory defence that it had not been reasonably practicable to comply with the notification duties because of ‘special circumstances’ might ordinarily be an issue. However, it appears unlikely as insolvency alone is not generally regarded as amounting to special circumstances. The statutory defence is usually limited to situations where something completely 'unexpected' or ‘out of the blue’ has caused the redundancies. 

If found guilty of the offence a fine may be imposed which is not subject to any limit. 

Key points

The case highlights how directors, managers and even administrators might be personally liable in respect of a company’s failure to comply with statutory employment obligations.  

There could clearly be conflicts between the duties towards acting in the best interests of the company and creditors. 

Whilst it may appear that this places both Directors and Administrators in an impossible situation it should be noted that in another prosecution started in 2015 involving the insolvency of City Link it was held that the former Directors had to be acquitted of the offence as the decision to go into administration did not make the redundancies inevitable and so did not amount to a proposal which would trigger the statutory obligations under TULRCA.

Each case will need to be decided on its own facts before the offence can be established so the prosecution will still need to produce evidence to prove the individuals were guilty of the offence which may not be straightforward.  

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