Risk of criminal liability for administrators who breach employment law

In the case of R (Palmer) v Northern Derbyshire Magistrates' Court [2021] EWHC 3013, the High Court held that administrators can be personally liable for a company's failure to notify the Secretary of State for Business, Energy & Industrial Strategy (BEIS) of proposed redundancies under s.194 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA").

Duty of employer to notify Secretary of State of proposed redundancies

Under s. 193(1) and (2) TULRCA, employers have a duty to notify the Secretary of State when they are proposing to make redundancies of 20 employees or more within a period of 90 days. Where the redundancies affect between 20 and 99 employees, the notification must be made at least 30 days before the first of those dismissals takes effect. Meanwhile, where the redundancies affect 100 or more employees, the notification must be made at least 45 days in advance. In practice, companies comply with this duty by completing an HR1 form and sending it to the Insolvency Service, acting on behalf of the Secretary of State.  

A corporate employer who fails to give the notice required under s.193 TULRCA commits a criminal offence under s.194(1) TULRCA and may be liable for an unlimited fine. Similarly, any director, secretary or other similar officer of the corporate employer can also be held personally liable for an offence under s.194(3) TULRCA, if the failure by the corporate employer to give the required notice was committed with that officer's consent, or because of their connivance or negligence.

Facts of the case

Mr Forsey ("the Director") was the sole director of West Coast Capital (USC) Limited ("the Company"). The Company received a statutory demand for more than £1.25m on 17 December 2014 and the Director resolved to place the Company into administration on 23 December 2014. On 5 January 2015, the Director signed a notice of intention to appoint administrators and the Company then went into administration on 13 January 2015 with Mr Palmer ("the Administrator") being appointed as one of the joint administrators. On 14 January 2015, the Company's employees were handed a letter signed by the Administrator which informed them that they were at risk of redundancy and invited them to make suggestions at a meeting (to be held that day) about ways to avoid redundancies. Around 15 minutes after receiving the first letter, the employees were then handed a second letter which informed them that, following consultation, "the Company was unfortunately unable to identify any alternative to your redundancy" and that they were dismissed with effect from that day.

Importantly, the joint administrators had not completed the required HR1 form before the dismissals were made. Following media reports of the redundancies, the Insolvency Service contacted the joint administrators on 30 January 2015 and on 4 February 2015 the joint administrators sent the HR1 form to the Insolvency Service by email. Proceedings were later brought against the Administrator and the Director for failing to notify the Secretary of State of the proposed redundancies in advance.

s.194(3) TULRCA applies to administrators

Amongst other defences, the Administrator argued that he could not be prosecuted under s.194(3) TULRCA because he was not an officer of the Company. However, the Court dismissed this argument, citing that as a matter of ordinary language, the words "similar officer" in section 194(3) TULRCA would naturally be understood to refer to a person who carries out the types of functions which are normally undertaken by the directors, managers and secretaries of the company. Applying Home Treat Ltd [1991] 1 WLUK 791, the Administrator was an officer of the Company because he managed the company by virtue of the office and had the specific power to dismiss its employees. Further, the Court concluded that Parliament's intention with s.194 TULRCA must have been that, in principle, anyone with responsibility for the day-to-day management and control of the company should be capable of being fixed with a personal liability for the employer's failure to give the statutory notices which they had brought about.

Conclusion

The decision in the High Court gives the green light for the criminal proceedings in the Magistrates Court to go ahead. Whether or not the Director and/or Administrator are ultimately convicted of the s.194 offence, the fact that criminal proceedings have been brought against them in this context should be taken as a warning by all company officers (including insolvency practitioners who find themselves as officers of a company by virtue of their appointment as administrators). The prosecution is a stern reminder that breaching statutory duties can have serious, and potentially criminal, consequences.

In the case of R (Palmer) v Northern Derbyshire Magistrates' Court [2021] EWHC 3013, the High Court held that administrators can be personally liable for a company's failure to notify the Secretary of State for Business, Energy & Industrial Strategy (BEIS) of proposed redundancies under s.194 of the Trade Union and Labour Relations (Consolidation) Act 1992 ("TULRCA").