The City Link case – BIS v Smith, Petro and Wright

The City Link case is a reminder that timing is essential when proposing collective redundancies.

The law

Under section 193 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) the Secretary of State must be notified of any proposed collective redundancies at least 45 days before the first of those redundancies.  Failure to comply with this duty is a criminal offence and carries a potentially unlimited fine.

For the defendants to be found guilty, the prosecution would have to prove that City Link committed an offence under section 194(1) TULRCA, and that the offence was committed with the consent of each defendant or that each defendant connived at the offence or that each defendant committed the offence by his neglect (s.194(3)).

Facts

City Link had been trading at a loss and, as a result, KPMG were appointed on 13 October 2014 to advise them on their options.

A number of options were considered including a trade sale, but no such sale materialised.  The company therefore adopted a turnaround plan.

The turnaround plan depended on the ability of City Link to secure funding from its principle shareholder, Better Capital.  Ultimately the directors were informed on 22 December 2014 that the necessary funding would not be provided.  Without the funding the directors were aware that the company would be insolvent by mid-January 2015.

The directors made the decision to place City Link into administration on 22 December 2014.  The administrators briefly traded the company but formed the view that if a buyer could not be found by 31 December 2014 then there would have to be substantial redundancies.

No acceptable offer was made and the workforce was made redundant on 24 December 2014.  The administrators notified the Secretary of State at the earliest opportunity, which was 26 December 2015.

Prosecution

The prosecution relied heavily on the case of UK Coal Mining Ltd v NUM 2008 IRLR 4.  This case held that "any plan where dismissals will inevitably, or almost inevitably, result will amount to proposals to dismiss employees as redundant, provided the plan is fixed and clear, albeit provisional".

The prosecution argued that the decision of the directors on 22 December 2014 to put City Link into administration made large-scale redundancies inevitable or almost inevitable and thereby triggered the notification requirements.

Decision

The judge concluded that no proposal was formed on 22 December to make the workforce redundant, nor was there an inevitable or near inevitability that redundancies must flow from the plan to go into administration.  There was a potential for a sale in administration and that this was a realistic, if not probable, outcome.  The notification requirements under section 193 TULRCA were therefore not triggered.

Conclusion

Deputy District Judge David R. Goodman OBE found the directors not guilty of failing to notify the Secretary of State of proposed collective redundancies.

It is worth noting that the verdict was very much dependent on the facts in this case and the following statement was added by the judge:

"I would add only that no employer should take that finding to be a precedent that an employer can avoid its responsibility under section 193 simply by going into administration. My finding in this case that no proposal had been made is based on the evidence in this case, not a general principle in relation to administration generally."

For more information, help or advice on this or any other turnaround issue please contact Kelly Jordan on 0191 211 7899.