BHS redundancies and consequences of failure to consult

A group of former employees from the head office of former department store, British Home Stores (BHS) (the Company) have been awarded £1 million in compensation by the London Central Employment Tribunal for the Company’s failure to follow a proper redundancy procedure. The retailer went into administration in April 2016 and ceased trading in August the same year, leading to 11,000 job losses. 110 ex-employees collectively brought claims against BHS’s administrators for the manner in which they were dismissed from the Company.

The Employment Tribunal awarded the ex-employees the maximum available compensation ordering the Company to pay up to 90 days’ gross wages for what the Tribunal described as “a complete failure to consult” for at least 45 days prior to the employees’ dismissal. The Government’s National Insurance Fund will have to compensate the claimants the equivalent of 40 days’ pay and the defunct Company’s estate will be liable for the remaining 50 days’ pay. Payments will vary in size depending on salaries but the Government’s contribution is capped at £3,800 per person.

Importantly, despite the fact that the Company had already collapsed at the time that the employees were dismissed, BHS still existed as a legal entity and consequently the duty to consult with staff prior to redundancy persisted.

Employers should be aware of the proper process under the Trade Union and Labour Relations (Consolidation) Act 1992 when considering redundancies. Where there are between 20 and 99 proposed redundancies at a single establishment within a 90-day period, employers have an obligation to carry out a collective consultation for a minimum period of 30 days. Representatives of the affected employees must be provided with certain prescribed information and a proper consultation must occur. Where 100 or more redundancies are proposed, the minimum period for consultation increases to 45 days. Failure to conduct an adequate consultation could lead to Employment Tribunal claims and a resulting protective award of up to 90 days’ gross pay per affected employee. As illustrated above, such an award can amount to a substantial penalty.

In any collective redundancy scenario, there is an additional duty to notify the Department for Business, Energy & Industrial Strategy (BEIS) of the proposed redundancies. There is a risk of criminal sanctions for failure to do so, including an unlimited fine. As a strict liability offence, failure to inform the Secretary of State requires neither intention nor dishonesty for criminal charges to arise. A company can be charged with this offence. However, where it is proved that a company has committed the offence with the consent or connivance of, or due to neglect on the part of any director, manager, secretary or other similar officer of the company, that individual can also be guilty of the offence and liable to face prosecution.

A number of high profile cases in recent years have demonstrated the potential challenges that employers may face when conducting large scale redundancies. The speed at which a business restructuring can progress can be particularly challenging in insolvency scenarios, especially where insolvency practitioners have limited involvement in workforce planning at the time that crucial business decisions are taken. The Comet liquidation in 2014 served as a glaring reminder of collective redundancy consultation obligations. The administrators committed serious breaches of their legal obligations in relation to 7,000 redundancies creating a potential liability of up to £26 million.

Where possible, employers should seek legal advice at an early stage in respect of any potential collective redundancy scenario in order that they may make appropriate plans and timetables for dealing with their workforce.

Leyton Legal