Why are former directors of City Link facing criminal charges?

It has been announced that the Secretary of State for Business, Innovation and Skills is bringing a criminal charge against former directors of City Link which made large-scale redundancies after going into administration last Christmas, for allegedly failing to notify the Insolvency Service of planned large-scale redundancies via the form HR1 (found here).

What legislation applies? 

The alleged offence is under Section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992, of failing to notify the Secretary of State (via the Insolvency Service) of proposals to make large-scale redundancies (those affecting 20 or more staff over a 90-day period at one establishment).

The offence carries a fine at level 5 (up to £5,000). What’s more, this is not just a technical offence that a company might commit, the law allows for individuals working for a Company or LLP to face personal criminal liability, if the offence is “proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or other similar officer of the body corporate, or any person purporting to act in any such capacity.”

There is another feature of this offence that might also not immediately be obvious, which is that the definition of ‘redundant’ is not simply making people redundant, but it also applies to ‘dismissing’ employees and offering them new terms and conditions (e.g. to introduce a new bonus scheme, or to change working practices) where the reason for ‘dismissal’ i.e. ending the contract has nothing to do with the individual employees, but is business-related. (E.g. dismissing 20 staff at a food factory for having a tomato fight on the shop floor would not count, but changing their contracts for new shifts would trigger the obligation to notify the Secretary of State, even if they were being offered longer hours).

It may come as a surprise to some such an offence exists, but it is not the only offence that an inadvertent employer might commit in the course of managing staff.

Redundancy payments

Employers making redundancy payments to employees are also legally obliged to give to the employee a written statement indicating how the amount of the payment has been calculated. Unless the employer has a reasonable excuse for not providing the calculation, then the employer is liable to a fine at level 1 (up to £200).

If an employer fails to provide a calculation and the employee demands one, there is a further offence of failing to comply with the employee’s demand and that carries a fine at level 3 (up to £1,000), and again for both these offences, individual managers and directors may be held personally responsible. The good news is that such prosecutions are rare, and good practice would ensure that no offences are committed.

If you would like to know more about redundancy, get in touch with: [email protected] and find out how a Deminos advisor could help your business