Impact of the closure of City Link on Employment - Business, Innovation and Skills and Scottish Affairs Contents


3  Communication with staff and contractors

25. City Link went into administration at 7pm on 24 December 2014. Jon Moulton suggested that the timing was because the RMT "jumped the gun" and put out information earlier that day to say that City Link was already in administration.[20] The RMT acknowledge that they had contacted their members and the media on 24 December, but suggested that this was a result of a lack of information and communication from City Link. Steve Hedley, Assistant General Secretary, RMT, told us that:

[City Link] were just stonewalling us. They said they had no plans to do that [go into administration], but then we found out when we put it in the media. […]At that time we did not even know who the administrators were, so it was impossible to ask them the question directly before it went into the media.[21]

26. When asked about the chaotic way in which staff and suppliers discovered that City Link had gone into administration, Jon Moulton told us that: "that there were very extensive plans carefully laid out. All the contingencies were covered. They did not survive contact with Christmas day."[22]

27. Hunter Kelly, lead administrator for City Link, expanded on this in his evidence, telling us that the original plan had been to put City Link into administration on 26 December. He said that:

The plan I had in place was that, when the company returned from the holiday on Christmas day, employees would be notified of the insolvency on Boxing Day with a phased approach. […] We would have been able to disseminate information. The normal basis on which the company disseminated information would be via senior management and down into their respective teams.[23]

28. All our witnesses acknowledged that the way that workers found about the administration on Christmas Day was unacceptable. The RMT were also critical that City Link continued to trade after the decision to go into administration was made on 22 December. Steve Hedley told the Committee that:

on 22 December they [City Link] had taken the final decision […]; they were going into administration. Two days later, on the 24th, they were still denying they had done this and saying they had no plans to go into administration and no plans to lay people off. They did know it.[24]

Hunter Kelly told us that, on 22 December, when it became clear that City Link was going to go into administration, he took the view that formally putting City Link into administration on 26 December "would represent the best recovery for the creditors."[25]

29. David Smith clarified the reasoning behind continuing to trade after 22 December and not informing staff that a decision had been taken, telling us that:

for the creditors as a body the best answer—a better answer than to tell them on the 22nd, "You're out of a job and you're leaving today"—was to trade through until close on the 24th. The reason for that was, first, we had paid them that money; and, secondly, we also brought in income of about £3.4 million in the same time period. We would not have done either of those two things, so in the round those creditors would have actually been in a worse position than they were afterwards.[26]

30. In the period leading up to 22nd December, it is clear that the strong assurances given by Mr Smith to contractors and suppliers failed to reflect the seriousness of the company's financial position, of which Mr Smith would have been well aware.

31. From 22nd December, the company took a deliberate decision not to inform employees and contractors as to the true intentions and position of the company, and this was done for the financial benefit of City Link and Better Capital. This amounts to a deliberate deception by omission.

32. It is also clear to us that employees and contractors feel they were deliberately deceived by the company in the weeks and months leading up to the closure of City Link.

33. In the absence of any firm information, and with rumours about the future of City Link swirling, it is clear that the RMT felt it needed to act in the interest of its members. The lack of clear and timely information for staff and contractors made an already difficult situation worse. We urge the Government to support dialogue between unions, employers and insolvency professionals to develop best practice guidance for sharing information with employees and unions when an administration order is likely.

34. While in the immediate aftermath of an administration order being granted, individual staff and creditors are given information on their situation and how to make a claim, there is a lack of information about the situation as a whole that allows misunderstanding and rumour to gain traction.

35. We recommend that the Government works with insolvency professionals to agree a format for a short initial statement, to be made publically available no later than a week after an administration order has been made, which sets out a high-level summary of the events leading up to the administration. This statement should also include the details of i) who to contact with concerns over the conduct of company directors and evidence to support those concerns, ii) when the last payment to staff and suppliers was made and the period it covered, and iii) an early assessment of whether there would be any funds available to make a payment to unsecured creditors (excepting the prescribed part).

CONSULTATION PERIOD

36. When a company intends to make more than 20 staff redundant there is a statutory period for consultation of not less than 30 days for redundancies affecting between 20-99 staff and not less than 45 days for redundancies affecting 100 staff or more. This did not happen in the case of City Link.

37. The RMT told us that they believed that the consultation process should have started in November, saying:

They [Ernst and Young] were preparing contingency plans from November. Surely at that point they should either have made the thing public, in which case it would have given more prospective buyers time to come forward, or at least given the Government bodies and the union time to consult properly with their members and represent their interests. None of this was done.[27]

38. Jon Moulton suggested that a consultation period was not appropriate in situations where redundancies were a consequence of a company going into administration. He suggested that: "The purpose of the consultation period was consultation. These are circumstances where no consultation is reasonably possible."[28]

39. David Smith raised another consideration, telling us that, due to the loss City Link was making, it would have been less costly to pay a fine for non-consultation than to keep the business going during the potential consultation period. Mr Smith also raised the difficulty faced by company directors in the event of an administration in trying to balance their responsibility to a company's staff and their responsibility to a company's creditors. He told us that:

there is a clear challenge for us as directors when you get to the position of potential insolvency and consultation with staff. […] In the period post-22 December our responsibilities as directors switched quite markedly towards the body of creditors in the round, rather than in normal times when our normal duty would be consultation with the staff. […] I think something for the Committee to look at and consider is the interplay between normal consultation and how that changes when you go into an insolvency or administration world. As a director, it is very clear that the two are pulling you in different directions, potentially.[29]

40. The RMT suggested that the cost of not consulting on redundancies in the case of administration is not a consideration for companies, because those costs are met by the taxpayer and not the company itself. Mick Cash, General Secretary, RMT, told us that "they deliberately flouted that [the consultation period]. They can do that, because you and I as taxpayers pick up the tab for the Insolvency Service. It is absolutely disgraceful."[30]

41. It is clearly in the financial interest of a company to break the law and dispense with the statutory redundancy consultation period if the fine for doing so is less than the cost of continuing to trade for the consultation period and this fine is paid by the taxpayer. However, while the financial calculation is simple, ignoring the consultation period has a high human cost that appears not to have featured in the decision making process. Employees are denied a reasonable notice period in which to seek alternative employment and instead, at a time of financial uncertainty, must pursue a court claim for lack of consultation if they wish to be compensated.

42. We are greatly concerned that the existing system incentivises companies to break the law on consultation with employees.

43. Once a company has gone into administration, it is likely to be the case that they will be, or will be about to become, insolvent and the administrator will not have the option to allow the company to continue to trade for the consultation period.

44. When considering the consultation period in relation to a redundancy, company directors may feel they have competing duties. We recommend that the Government review and clarify the requirements for consultation on redundancies during an administration so that employees understand what they can expect and company directors and insolvency professionals have a clear understanding of their responsibility to employees.

SUPPORT FOR EMPLOYEES AND CONTRACTORS

45. In the case of an administration, information for employees is provided by the Insolvency Service, with payments made by the Government through the Redundancy Payments Service. Employees can access support for finding new employment through the Jobcentre Plus in England, the Redundancy Action Scheme II (ReAct II) in Wales and Partnership for Continuing Employment (PACE) in Scotland. Insolvency practitioners also have a role to play as information is distributed by the administrator.

46. In order for these parties to be able to coordinate their response and provide timely support where numerous redundancies are expected a protocol exists between insolvency practitioners, the Insolvency Service and the Redundancy Payments Service. Hunter Kelly told us that this protocol:

is to give advance notice that there could be an insolvency involving substantial numbers of people, so that people can get geared up and get their minds around the number of leaflets and forms that are needed. In the event that insolvency does happen, things can then be dealt with swiftly and promptly so that there is no unnecessary delay, particularly for the employees. [31]

47. The RMT argued that the protocol had not worked in this case. They described the provision of support for employees as "very patchy", saying "a lot of members did not receive the PACE documents."[32] Some former employees suggested that not only had they not received information on PACE (the Scottish Government's redundancy support service) but that some staff had not received their RP1 form to claim their redundancy payments.[33]

48. Hunter Kelly disputed this and told us that all staff had received an RP1 form and that original copies of the leaflets (PACE leaflets for Scotland, ReAct II for Wales and Jobcentre Plus for England) were included in the envelope with it when the forms were sent to employees.[34] He also told us that Ernst and Young set up a Facebook page to inform City Link employees of job vacancies in their local areas.[35]

49. We commend Ernst and Young for using a range of communication tools, including social media, to try and assist former City Link workers with job searches. However, we are concerned that the current practice of sending leaflets on support available (PACE, ReActII or Jobcentre Plus, depending on the location) through the post does not appear to be particularly effective. Information on support for employees and contractors should be provided through a range of methods to ensure that all those affected are aware of the help available to them. We are concerned that data protection legislation appeared to block PACE from being able to contact workers impacted by the City Link closure. We are certain that this was not the intention of the legislation and recommend this situation should be re-examined

50. We recommend that the Government review the arrangements for information sharing in the event of a company going into administration to ensure that those affected receive timely advice and support. The Government should consider whether Government agencies should have a role in contacting affected workers directly to advise them of the help available.


20   Q 248 Back

21   Oral evidence taken before the Scottish Affairs Committee on 13 January 2015, HC (2014-15) 928, Q 34 Back

22   Q 257 Back

23   Q 496 Back

24   Q 39 Back

25   Q 496 Back

26   Q 780 Back

27   Oral evidence taken before the Scottish Affairs Committee on 13 January 2015, HC (2014-15) 928, Q 5 [Mr Hedley] Back

28   Q 221 Back

29   Q 835 Back

30   Oral evidence taken before the Scottish Affairs Committee on 13 January 2015, HC (2014-15) 928, Q 13 Back

31   Q 472 Back

32   Oral evidence taken before the Scottish Affairs Committee on 13 January 2015, HC (2014-15) 928, Q 49 Back

33   Members of the Scottish Affairs Committee, Ann McKechin MP and Margaret Curran MP met informally with workers, contractors and union representatives in Glasgow on 13 January 2015.  Back

34   Q 514  Back

35   Q 515 Back


 
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Prepared 23 March 2015