Locke Lord QuickStudy: Multiple Staff Layoffs In The UK - The Scope For Criminal Liability For Directors
November 12, 2015
Background
Within the UK and throughout the European Economic Area employers are subject to express obligations to inform and consult with staff in advance of making multiple redundancies. This is as a result of a European directive, the Collective Redundancies Directive, which is implemented into the legislation of European Member States. Failure to comply with this legislation in the UK can lead to Employment Tribunal litigation and, as a result, significant fines for an employer of up to 90 days’ pay per employee. In certain EU jurisdictions, such as France, it is also necessary to obtain consent from the appropriate Government Department before multiple redundancies can be implemented.
What is sometimes forgotten is that there is also an additional statutory obligation under UK law to notify the Secretary of State for Business, Innovation and Skills of multiple redundancies. Moreover, a failure to comply with this obligation amounts to a criminal offence and can lead to criminal charges against company directors.
In recent weeks two high profile examples of alleged failures to comply with this legislation have hit the headlines in the UK. In the first, it has been reported that the Chief Executive of Sports Direct PLC has been charged with a criminal offence arising out of an alleged breach of the obligation to notify connected to the administration of a subsidiary, USC, earlier this year. In the second it has been reported that three former directors of City Link have been charged in connection with an alleged failure to notify in relation to the insolvency of City Link.
The Obligation To Inform and Consult with Staff
The obligations to engage in collective consultation work as follows in the UK.
Where an employer is proposing to dismiss as redundant 20 or more employees in one establishment, (a key issue but effectively the particular geographical unit to which staff are assigned) within a period of 90 days or less, the employer is required to collectively consult with employee representatives.
That consultation is required to begin “in good time” and, in any event:
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where the employer is proposing to dismiss 100 or more employees, at least 45 days before the first of the dismissals take effect;
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otherwise (i.e. where the employer is looking to dismiss 20 or more but less than a 100), at least 30 days before the first of the dismissals takes effect.
At the outset of the consultation period the employer is required to provide specified details in writing regarding the reasons for the proposals, the numbers and descriptions of employees it proposes to dismiss, the proposed method of selecting employees who may be dismissed, the proposed method of calculating any redundancy payment and a number of other factors.
Consultation is also required to be genuine and to include consultation about ways of avoiding the proposed dismissals, reducing the number of employees to be dismissed and mitigating the consequences of the dismissals.
The timetable for complying with this legislation will often be lengthened because of an additional requirement on an employer to have elected employee representatives in advance of starting this information/consultation process unless appropriate employee representatives are already in place.
The sanction for failing to comply with this obligation is up to 90 days’ pay per employee. Employment Tribunals apply a punitive approach to compensation and so, if there has been a complete failure to comply, then the starting presumption is that a full award of 90 days’ pay will be awarded, regardless of any loss suffered by the employees.
The Additional Duty to Notify
This is contained in the same UK Statute and works to the same timetable. An employer, therefore, is required to notify the Secretary of State:
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at least 45 days before the first dismissal takes effect, where proposing to dismiss as redundant 100 or more employees;
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at least 30 days before the first dismissal takes effect, where proposing to dismiss 20 or more but less than 100 employees.
Notification is to be given using a particular form, “HR1”. The real potential sting in the tail, however, as highlighted in recent weeks, is that, where there is a failure to comply, firstly the employing entity commits a criminal offence and can be liable to an unlimited fine. Also however, where the offence is committed with the consent or connivance of a director of the employer, then the director will also be guilty of the offence and liable to such a fine.
Impact
It may well be that, up until now, many employers, when implementing multiple redundancies, have fully focused on the obligations to inform and consult, with a view to avoiding potential financial sanctions but, have paid less attention to the additional obligation to notify, seeing this as an administrative matter. The above examples illustrate that such an approach is no longer tenable. Failure to comply could lead to individual directors facing criminal charges which could also have an impact on their ability to remain as directors of a company given UK legislation regarding disqualification of directors.