Considering the need to make redundancies?

You may be aware that the outcome of prosecutions of company directors have been awaited in two high profile cases (USC and City Link) for failure to notify the Secretary of State of proposed workforce redundancies – a criminal offence for which the potential fine is unlimited since 12 March 2015.

The law is complex in this area (though subject to minimum limits) but notification of the Secretary of State of impending redundancies is the employer’s responsibility. Timely submission of the statutory Form HR 1 is essential in relevant cases where there are 20 or more potential redundancies envisaged. It is a further mandatory requirement to provide as much information to the Secretary of State as is possible in the circumstances.

In City Link, following the unsuccessful consideration of various options for a sale of the business, a turnaround plan for the company had been developed. However, on 22 December, the directors were informed by the principal shareholder that the plan had been rejected and that the necessary funding for implementation would no longer be forthcoming. The directors, realising that the company would become insolvent by mid-January, took the immediate decision to place the company into administration. The administrator traded the company briefly, received only one offer which was considered unacceptable, and took the decision to make the workforce redundant. The Administrator notified the Secretary of State at the earliest opportunity, that being 26 December.

The verdict now having been delivered in the City Link case, the directors have been found not guilty of failing to comply. However, in delivering judgement, the judge took the opportunity to make it clear that the verdict in City Link is dependent on the facts of the case, and cannot be taken as diminishing the importance of complying with the notification requirements.

The USC case is due to be heard in March 2016.

These cases underline the importance of seeking appropriate professional advice at an early stage. If you are a director contemplating the possible need for workforce redundancies, contact us.