The headlines following the recent collapse of USC and City Link have been hard to miss: “Directors facing criminal charges following firm’s collapse!”, “Chief Executive charged over administration!” The newspapers have been quick to highlight what is seen to be a victory for the “common man”, those workers affected by the collapse of their employer, who were made redundant with little or no notice. But what exactly is the reasoning behind these criminal charges?
In 1992 the Government brought in the Trade Union and Labour (Consolidation) Act. Under this Act, any employer who proposes to make 20 or more redundancies within a period of 90 days or less at one establishment must inform and consult with employee representatives. In addition to this, the employer must notify the Secretary of State for Business, Innovation and Skills (BIS) using a form called an HR1, at least 30 days (for between 20-99 employees) before the first redundancy. The relevant part of this legislation, and the basis of the criminal charges mentioned above, is that where a director, manager, secretary or other similar officer is proven to have neglected their duties to file an HR1 on behalf of the company, they can face criminal penalties, attracting an unlimited fine and disqualification from holding the post of director for up to 15 years.
With regards to the collapse of the two companies mentioned above, it is reported that no HR1 form was filed in either instance and both companies quickly entered liquidation following the announcement of redundancies. In instances such as liquidation, it is often the Government who has to pick up the bill for compensating staff through the National Insurance Fund, which in this case is estimated to have cost the taxpayer over £750,000. It is clear, therefore, why the Government wishes to clamp down on such actions before it becomes common place.
What does this mean for you or your business?
Whilst many businesses are seeing the end of the recent recession woes, there are many companies who are still feeling the affects of falling oil and steel prices and difficult trading conditions. It is imperative that any company who foresee that future redundancies may total 20 or more follow the correct procedures for consultations and filing of the HR1 form.
What do you need to be doing now?
Whilst much of the legwork involving redundancies may be carried out by HR, it is the ultimate responsibility of the directors and chief executive to ensure that proper procedures have been followed. Failure to do so can not only lead to financial penalties, but also threaten the very career of those at the top. Directors need to be made aware of their obligations in this area.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.