The recent case of BIS v Smith, Peto and Wright serves as a reminder of the requirements for handling collective redundancies writes Alan Meek.

The case of BIS v Smith, Peto and Wright concerned the criminal prosecution of the Directors of City Link Limited, a national parcel delivery company, for an alleged failure to notify the Secretary of State of proposed redundancies in breach of the Trade Unions and Labour Relations (Consolidation) Act 1992 (TULRCA).

Section 193 of TULRCA provides that employers must notify the Secretary of State if they are proposing to make collective redundancies. If an 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.

Failure to comply with section 193 of TULRCA is a criminal offence. Individual directors are personally liable for offences committed if it can be shown that the offence was committed with their “consent or contrivance” or if it was attributable to their neglect.

City Link Limited had been trading at a loss for some time. KPMG were appointed in October 2014 to advise on potential options including a trade sale or a restructure. As no sale resulted, the Directors focussed on a potential restructure. The restructure required significant investment but on 22 December 2014 proposed funding was withdrawn. It was clear to the Directors that the business would become insolvent by mid- January 2015 and urgent action was needed. A board meeting took place that day and the Directors decided that the business should go into administration.

The central issue in the case was whether there was a requirement to notify the Secretary of State on 22 December 2014. Did the decision by the Directors amount to a proposal to dismiss the workforce, over 2,700 staff, as redundant?

The prosecution case was that the Director’s decision made large-scale redundancies inevitable or almost inevitable, triggering the notification requirement under TULRCA.

In their defence, the Directors claimed that they thought jobs could be saved by administration. The Directors genuinely believed that a sale in administration was not only possible but quite probable. There had been interest from national companies. Indeed an offer had been made prior to the administrators being appointed. The decision of the Directors was to put the company into administration. They appointed administrators on 24 December 2014 and the Director’s responsibilities ended at that stage.

The Court concluded that no proposal to make the workforce redundant was formed by the Directors on 22 December 2014 or indeed at all. The Judge warned sternly however that “no employer should take that finding to be a precedent that an employer can avoid its responsibilities under section 193 simply by going into administration”. This decision was based on the very specific facts.

Directors should be mindful of their personal liability under TULRCA as if convicted, Directors are liable for unlimited fines.