16 October 2015 #Employment
It has been reported this week that the Chief Executive of Sports Direct, Dave Forsey, is to face criminal charges for the failure on the part of a company of which he was company secretary, to inform the Department for Business, Innovation and Skills (BIS) of proposed redundancies. The case serves as a timely reminder of how the mishandling of collective redundancies, typically in an insolvency situation, can land company directors/secretaries and company insolvency practitioners with criminal fines and disqualification from office.
According to The Guardian, at a hearing this week, Mr Forsey and an accountant, Robert Palmer, who was involved in the administration of USC (part of Sports Direct), both pleaded not guilty to charges under section 194 of the Trade Union Labour Relations (Consolidation) Act 1992 (TULRA) of failing to notify BIS of redundancies at a USC warehouse site in Scotland. This is the requirement to give at least 30 or 45 days’ notice to BIS (depending on the numbers of proposed redundancies involved) on form HR1.
The redundancies in question were made in relation to the controversial pre-pack administration of fashion chain USC in January 2015. It is alleged that around 200 workers at the USC site were given just 15 minutes notice by administrators that they would be losing their jobs, before the company was shut down. Mr Forsey was company secretary of the company. The business of USC was acquired by another part of USC, according to a BBC report.
This is likely to be a high profile prosecution, partly because criminal prosecutions for failure to notify BIS of redundancies under TULRA are extremely rare. Indeed, it is not well known that the offence exists or that company officers can be prosecuted for the failings of their company. It thought to be the first time a FTSE100 chief has been charged under the Act. If found guilty, Mr Forsey could be fined up to £5,000.
However, it is also not well known that for offences committed after 12 March 2015, level 5 criminal fines, such as under TULRA, became unlimited in value (section 85, Legal Aid, Sentencing and Punishment of Offenders Act 2012). For offences committed before that date the maximum fine was £5,000.
Plus, the Insolvency Service has the power to ban an individual from holding directorships for up to 15 years for improper conduct. It is understood that in the USC case, the insolvency Service are conducting an investigation into the conduct of USC directors.
At a Glasgow tribunal earlier this year, USC were found to have breached TULRA by not informing and consulting with staff. Fifty former USC employees received a “protective award”, the equivalent of 90 days’ pay.
There is a "special circumstances" defence under section 188(7) of TULRA for breach of these obligations. However, it is well established that insolvency is not of itself a special circumstance, although special unforeseen circumstances may arise during an insolvency situation
In March 2015, the Insolvency Service published a call for evidence on how directors and insolvency practitioners comply, in an insolvency context, with the requirement under section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992, to consult employees about large scale redundancies.