Ignorance No Defence for Company Directors: An Unseasonal Reminder

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How many of you know what Section 194 of the 1992 Trade Unions and Labour Relations (Consolidation) Act says? I certainly didn’t until I saw that criminal charges had been brought against company directors in what is thought to be the first prosecution under this act.

Charges Brought for Abbreviated Redundancy Notices

The less-than-seasonal background to this is that on Christmas Day 2014, the courier company City Link collapsed with many of the company’s employees only receiving much-abbreviated notice periods. The collapse affected almost 3,000 employees.

The act makes it a criminal offence to fail to give statutory notice of redundancies to the company employees affected.

The act makes it a criminal offence punishable by a fine of £5,000 for a company director to fail to give statutory notice of redundancies to the company employees affected. The notice periods vary according to the numbers involved. If 90 or more stand to lose their jobs 100 days’ notice is required both to the individuals concerned and to the Secretary for State for Business.

It is thought to be the first time prosecutions of this type have been brought. Part of the reason for that may be that, in an insolvency context, it is often difficult to comply with this statutory requirement at the same time as making last-minute attempts – often with the company’s bankers – to keep a company afloat. Indeed the government is consulting on whether the insolvency laws need to be changed in this area.

Political Motives?

It is hard to avoid the conclusion that politics may have played a part in all this. Where employees are not given statutory redundancy notice and the company goes insolvent, they are entitled to compensation out of the public purse. This is what also happened with Woolworths and Comet when those companies failed.

The outcry at the collapse of City Link exactly a year ago at Christmas will have put pressure on the government to be seen to be doing something. It calls to mind a similar tale involving Farepak, the Christmas hampers company, about which I blogged at the time. In that case, the claim against the directors’ disqualification claim (eventually) collapsed utterly.

The Christmas Decision

The good news for the directors in this case came in time for Christmas 2015. They were acquitted of the charges under Section 194 on the basis that the judge accepted that by placing the company into administration on 22nd December 2014 they had in fact hoped to save it and avoid the need for redundancies. On that basis, failure to give the redundancies notices was not a breach of Section 194.

All’s well that ends well but it does show just how important good legal advice and the ability to pay for it is.

It also shows that even if you do the right thing as a company director there is no guarantee that someone may not seek to challenge your conduct when things turn sour.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
Categories: Directors & Officers, Executive Risk | Tags: , ,

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