When an employer is insolvent and administrators appointed, job losses are often an inevitable consequence. In this blog we look at the legal obligations arising where redundancies meet the threshold for collective consultation, and the implications for administrators arising out of the recent Supreme Court in the case of R (on the application of Palmer) v Northern Derbyshire Magistrates Court and another.
When does the legal obligation to collectively consult apply?
Employers who are proposing to dismiss as redundant 20 or more employees at one establishment within a period of 90 days or less must comply with specific collective consultation obligations under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).
Whether or not this test is met is not always straightforward, particularly as ‘dismiss as redundant’ has a wide meaning to include any dismissals not related to the individual employee, so would include ‘fire and rehire’ dismissals in the context of facilitating a change to terms and conditions. Also, certain dismissals (e.g voluntary terminations) are counted, but others (e.g. expiry of a fixed term contract) are not.
Further, where the employer operates across multiple sites, the question of whether the dismissals are in ‘one establishment’ will need consideration, particularly where there are fewer than 20 dismissals proposed at any given site, but more than 20 across the whole organisation. A single establishment is generally considered on a geographical basis with each local site treated separately, but depending on the organisational and functional set-up, there may be occasions where an establishment is an amalgamation of two or more sites.
What are the collective consultation obligations?
Where the duty to collectively consult arises, the employer is required to provide prescribed information to, and meaningfully consult with, appropriate representatives of any of the employees affected by the proposed dismissals or may be affected by measures taken in connection with those dismissals. There must be a minimum period (of 30 days where there are 20-99 proposed redundancies, or 45 days for 100 or more proposed redundancies) before the first dismissal can take effect.
There is also a duty to notify the Secretary of State on form HR1 of the proposals. This should be done 30/45 days before the first dismissal takes effect (depending on the numbers of proposed dismissals).
What are the consequences of failing to comply with these collective consultation requirements?
As well as inadequate or inappropriate collective consultation being likely to render any dismissal unfair (and associated compensation payable), an employment tribunal can also make a protective award of up to 90 days gross actual pay per affected employee for failing to collectively consult. Depending on the number of redundancies, and the extent of the failures, this can be expensive.
In addition, it is a criminal offence (with a potentially unlimited fine) not to notify the Secretary of State on form HR1 of the proposed redundancies.
Can administrators be criminally liable for failing to complete and send form HR1?
No. This is the issue which has made its way to the Supreme Court in the case of R (on the application of Palmer) v Northern Derbyshire Magistrates Court and another.
Robert Palmer, who was appointed as joint administrator of West Coast Capital (USC) Limited, was prosecuted for failing to send form HR1 until after dismissals had started. However, the Supreme Court has now determined that an administrator appointed under Part II of the Insolvency Act 1986 is not a “similar officer” of the company within the meaning of the phrase “director, manager, secretary or other similar officer of the body corporate” so as to fall within s194(3) of TULRCA, meaning that they cannot be personally liable for failing to file a HR1 form.
What does this mean now for administrators?
The Supreme Court’s decision will be a welcome one for administrators. Although criminal prosecutions are rare, the Palmer decision now clearly removes any risk that they personally face criminal liability for failing with the obligations around submission of the HR1 form.
That said, the decision does not mean administrators should rest on their laurels when it comes to the collective consultation requirements. Although the Palmer decision might create temptation for some to ignore the HR1 form, the company in administration may (at least in theory) still be liable for any HR1 failings, and the risk of unfair dismissal and protective award compensation claims through the employment tribunal remain where there are shortcomings with the wider collective consultation rules. A prudent administrator should therefore continue to comply with TULRCA with timely filing of the HR1 form, and the proper information and consultation exercise with representatives of affected employees.