City Link: red tape requirement serves as a warning to directors

Posted on Dec 3, 2015

It’s bad enough that your business is having to make redundancies, which means you are probably in a tricky place commercially to say the least. But what if you overlook submitting the HR1 to the Secretary of State?

Recently the Secretary of State prosecuted three former directors of City Link for failure to do just that – probably because it was looking at paying out millions in compensation to the staff made redundant without proper consultation.  Until this point, there had been no prosecutions for what seemed to be very much an admin failure, but this is serious stuff for directors. This criminal offence is punishable by an unlimited financial penalty, but more than that, it can impact on somebody’s ability to be a director at all.

So when does the duty to notify arise?

Where an employer proposes [my emphasis] to make 20 or more redundancies within a 90 day period, certain information about the proposals, using form HR1, must be provided to the Secretary of State and relevant representatives of affected employees. The amount of notice depends on the number of proposed redundancies:

  • For 20-99 redundancies, 30 days’ notice is required
  • For 100 or more, 45 days’ notice is required

The prosecution alleged that the directors had become aware of the inevitable redundancies on 22 December, but hadn’t filed the form until the 26 December, breaching their notification obligations. City Link was placed into administration on 24 December.  The prosecutor’s case was that there must therefore have been a proposal by 22 December to make redundancies, triggering the need to file the form.

However, the District Judge in this case found that the directors genuinely believed that the business could be saved by placing the company in administration and looking for a sale. Due to this being their state of mind on 22 December, there was no proposal to make redundancies at that stage, making their later notification sufficient.

What does this mean for employers?

OK, so the City Link guys were lucky but ask yourselves this: Do the directors of the company want to run the risk of potential criminal liability, a risk that appears to be far higher than ever before? As soon as there is a proposal in place, file the form. Even if matters subsequently change, that doesn’t matter. Have evidence to demonstrate when a redundancy proposal was formed and the thoughts of management at the time to back up your timing.

The prosecution of the Chief Executive of Sports Direct arising out of the closure of its subsidiary USC is another high profile prosecution that is ongoing. We are hoping for more clarity from that case, but the message for now is clear, and here is a link to the HR1 should you need it…