I am often asked “what do you do”? If I reply “a regulatory solicitor”, this inevitably elicits a blank expression from the enquirer (be that a non-lawyer or lawyer), so I go on to the more long-winded version, that I am a criminal solicitor who advises business owners and other stakeholders on how to stay on the right side of the criminal law, and defends them when they get it wrong. Health and Safety is perhaps the best known of the ‘criminal/regulatory’ laws, but any of my colleagues will tell you that my practice pervades a great many areas of business life, including insolvency and employment.
Take the recent City Link case: this is a good example of how the tentacles of the criminal law invade business life – and sometimes rather unexpectedly. The case involved three former City Link directors facing criminal prosecution following a business decision not to notify the Department for Business, Innovation and Skills (BIS) of proposed redundancies prior to placing their companies into administration.
The facts have been widely reported but in a nutshell it involved three defendants, David Smith, Robert Peto and Thomas Wright, directors of City Link Limited and City Link (Properties) No.1 Ltd, both of which entered administration on Christmas Eve 2014. On Boxing Day, the Administrators gave notice to BIS that over 2,500 redundancies were in prospect, after attempts to rescue the companies seemed to have failed, and the redundancies took effect on New Year’s Eve. Let’s face it – the timing of events could not have been much worse.
By way of background, under Section 193 (1) and (2) of the snappily titled Trade Union and Labour Relations (Consolidation) Act 1992, an employer “proposing to dismiss as redundant” 20 or more employees at one establishment within a period of 90 days or less must notify BIS in the prescribed form of its proposal before giving notice to terminate contracts of employment and at least 30 days before the first of the dismissals takes place. This time limit increases to at least 45 days where there are 100 or more employees under threat of redundancy. Importantly, section 193(7) says “If in any case there are special circumstances rendering it not reasonably practicable for the employer to comply with any of the requirements of subsections (1) to (6), he shall take all such steps towards compliance with the requirements as are reasonably practicable in the circumstances…”.
Section 194(1) of the Act makes it an offence for an employer to fail to give notice to BIS in accordance with Section 193. The offence is summary only (which means it can only be dealt with by the Magistrates’ Court) and on conviction, the maximum penalty is an unlimited fine. Further, as with many other regulatory offences, there is a provision that where the offence is committed by a “body corporate” and it is proved that a director, manager, secretary or similar officer or anyone purporting to act in such capacity consented to the offence, turned a blind eye or was neglectful, then that director or senior manager will be guilty of the offence alongside the company.
What is meant by “proposing to dismiss” has been ventilated in several cases over the years and looks like it will be revisted again by the Court of Appeal next year. Suffice to say interpretation of the phrase “proposing to dismiss” and also what will be accepted as “special circumstances” invoking the “get out of jail free” card in Section 193(7), whilst extremely interesting (particularly for a regulatory solicitor like me), are topics for discussion in themselves and outside the scope of this blog.
With the City Link case, the three former directors were charged by BIS under the ‘consent, connivance or neglect’ provisions of the 1992 Act (and as a point of note were the first individuals to be prosecuted under that provision). They pleaded not guilty and were acquitted after the Deputy District Judge trying the case found that the directors genuinely believed that the sale of the company (in such manner as would preserve the jobs) was “quite probable”. Lawyers acting for BIS had argued that had the directors looked even a few days into the future, they would have seen as at 22 December 2014, when they concluded that an administration appointment was necessary, that the company’s collapse was ultimately inevitable and that it was therefore practicable for them to notify at that time. However, the Judge was of the opinion that “a director cannot be expected to put a crystal ball on his or her desk at a time of huge shock and turmoil, and predict the likely consequences of an action, unless a consequence is either the only foreseeable one or is the only consequence that can be reasonably envisaged in the circumstances.” It was observed that the companies went into administration on 24 December and that the administrators elected to keep trading until 26 December with a view to sale, with the option of redundancies if no buyer had been found by New Year’s Eve. It is not known if BIS will appeal.
So, with my regulatory solicitor’s hat on, what are my thoughts on the City Link case and its implications for us all going forward?
Should you wish to discuss any issues arising out of the City Link prosecution or any current or future collective redundancy situation, whether or not involving the employer’s insolvency, please contact Cliff Morris, or key contacts David Roath (Employment Partner) or Mike Pavitt (Corporate Restructuring and Insolvency Partner).
This blog was written by Sarah Wheadon who left the firm on 31 January 2016.