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Directors face criminal proceedings for redundancy notification failures

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Japan, United Kingdom

Prosecutions are being brought for the first time against company directors for failings by their companies in following the correct procedures when dismissing redundant employees.

Prosecutions are being brought for the first time against company directors for failings by their companies in following the correct procedures when dismissing redundant employees. 

Dealing with redundancy is complex, and it is well known that companies need to follow the correct procedures and act fairly in order to avoid claims by affected employees.  But it is perhaps less well known that companies can commit a criminal offence if they get things wrong and that company directors can also be prosecuted.

Where an employer proposes to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less, it must consult on the proposed redundancies with a recognised trade union or, where no trade union is recognised, with representatives of the affected employees and also notify the Redundancy Payments Service (part of the Department for Business, Innovation and Skills).  Failure to consult can lead to claims for "protective awards": payments to affected employees, which are intended to punish the employer for not complying with the obligation to consult rather than compensating the employees for any loss.  However, failure to make a timely notification to the Redundancy Payments Service is a criminal offence.

The offence will be committed both by the company itself and by any director who is found to have consented or connived in the offence or to whose neglect the offence can be attributed.  The maximum penalty, for both the company and directors, is an unlimited fine.

Although it is more than 20 years since these provisions came into force, there have been no prosecutions.  But that is changing.  In quick succession, criminal charges have been brought against Dave Forsey, the Sports Direct chief executive, and three former directors of City Link: managing director David Smith, finance director Robert Peto and non-executive director Thomas Wright, who represented private equity firm Better Capital on the board of City Link.

Mr Forsey is alleged to have failed to make the appropriate notification in relation to 80 or so workers at a Scottish warehouse when USC, one of its retail arms, went into administration.  Some of the affected workers were apparently dismissed with just 15 minutes' notice and have since won compensation.  Mr Forsey has pleaded not guilty to the criminal charge against him and his case has been adjourned until March 2016.

The action against the former City Link directors relates to the redundancy of about 3000 workers over the 2014 Christmas period.  Their trial is due to start in November 2015.

With the taxpayer footing a rising bill for redundancy payments relating to collapsed companies, these prosecutions may be evidence of a new enthusiasm by the Government to use these criminal sanctions.  This will be an added incentive, if one were needed, for directors to ensure that the proper procedures are carried out when redundancies are in prospect.

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