It has been widely reported that the CEO of Sports Direct and three former directors of City Link have become the first directors to be charged with the criminal offence of failing to notify the Secretary of State of proposals to make collective redundancies under the Trade Union and Labour Relations (Consolidation) Act 1992 (“TULRCA”). In addition, the employees who were affected by the proposals are bringing claims in the Employment Tribunal for a failure to collectively consult with employee representatives regarding the redundancy proposals as required by TULRCA.
Section 193 of TULRCA provides that employers must notify the Secretary of State if they are proposing to make collective redundancies.
If the employer is proposing to dismiss as redundant 20 or more employees within a 90 day period then notification must be made at least 30 days before the first of the dismissals takes effect. If the number of proposed redundancies is 100 or more then notification must be made at least 45 days before the first of the dismissals takes effect. Notification must also be made before notice of termination is given to any of the affected employees.
Failure to comply with section 193 of TULRCA is a criminal offence under section 194 TULRCA. This section also provides that individual directors are personally liable for offences committed by the employer if it can be shown that the offence was committed with their ‘consent or contrivance’ or if it was attributable to their neglect.
In addition, under section 188 of TULRCA, employers must consult with representatives of all employees affected by the proposals for a set period before the dismissals take effect.
In each case, it is alleged that the defendants failed to notify the Secretary of State of proposals to make collective redundancies. If convicted they will each face a fine of up to £5,000. The fine is capped at this level as the alleged offences were committed before March 2015. However similar offences committed after that date could now attract an unlimited fine.
In addition, both companies are facing claims in the Employment Tribunal under a separate section of TULRCA for failure to consult with employee representatives about the redundancies. Each affected employee could be entitled to a protective award of up to 90 days’ gross pay.
These cases are relatively unusual as in both the employees were given very little notice that they would be losing their jobs. However, they highlight the clear tensions between employment and insolvency law. In a fast moving insolvency situation, it is not always possible to comply fully with the requirements of TULRCA and employers should be mindful of the risk of being found to have traded while insolvent.
There is a ‘special circumstances’ defence if the employer can show that it was not reasonably practicable for it to comply with its requirements under TULRCA but it has been established that insolvency is not, of itself, a ‘special circumstance’.
So, how can employers reduce their risk in these circumstances? It is important to attempt to comply with your obligations as soon as you are able, even if ultimately not all of those obligations are fulfilled. For example, consider carrying out at least some consultation even if it is not strictly to the extent required by TULRCA. Employment Tribunals will usually take this into account and the value of any claims by employees may be reduced. The Secretary of State should always be notified of the proposed redundancies as soon as possible, although it should be noted that an offence will still have been committed if the relevant timescales are not adhered to.
In March 2015, the government launched a consultation to try to address some of these issues. The Call for Evidence concluded in June 2015 and a policy review is expected, although it is not currently clear when the outcomes will be published.