Key employment law cases: May 2020

Furlough and insolvency: administrators can furlough employees as alternative to redundancy

Re Carluccio's Ltd [2020] EWHC 886 (Ch) – High Court

In this first case regarding the furlough scheme (or CJRS), the High Court has ruled that the scheme can be used by administrators as an alternative to redundancy, provided that there is a reasonable likelihood of the employees either returning to work for the company or for another employer which acquires the business.

Carluccio’s went into administration on 30 March 2020. The administrators sought a sale of the business rather than winding up order, which required it to retain its employees - if the costs could be covered by the Government furlough scheme. Consent to furlough was sought from the employees. The administrators made an urgent application to the Court to clarify how the CJRS could be implemented in an insolvency situation - primarily to ensure that any grant money could go to the employees directly and not to the insolvent estate of the company.

In relation to consenting employees, the High Court said that the act of making an application or payment under the scheme by the administrators in respect of an employee was deemed to amount to an adoption of the varied contract of employment, which meant that super-priority payments could be made to the furloughed employees using the monies from the government. However, there could be no inferred consent for those who had failed to respond.

Furlough and insolvency: employment contracts adopted by administrators where company furloughs employees before start of the administration

Re Debenhams Retail Ltd (in administration) [2020] EWHC 921 (Ch) – High Court

In a second case regarding the furlough scheme, which is largely consistent with Carluccio’s (above), the High Court gave further guidance on the implementation of the scheme by administrators where the company has placed employees on furlough before the start of the administration.

Debenhams had placed its employees on furlough under the CJRS. When the arrangements were initiated, consent from the employees was not sought. Debenhams then went into administration and administrators were appointed. The administrators were concerned that they would be deemed to have adopted the contracts of employment and therefore that the super-priority given to the payments due to employees would include not only the amount paid under the CJRS but also any additional payments of salary, sick pay or holiday pay. The administrators therefore sought express consent from the employees capping their entitlement to wages at the amount recoverable under the CJRS.

The administrators sought urgent directions from the Court as to whether they could continue with the CJRS arrangements without being deemed to have adopted the contracts of employment. In line with Carluccio’s, the High Court held that the administrators would be deemed to adopt the contracts of employment when they made an application and/or payment under the scheme to furloughed employees. Whilst this potentially exposed them to priority liabilities, the administrators had successfully mitigated their exposure by obtaining consent from the employees to a cap on their entitlements.

Duty to take reasonable care to protect post-employment financial interests

Rihan v Ernst & Young Global Limited [2020] EWHC 901 (QB) – High Court

The High Court has ruled that, in limited circumstances, there is a duty of care on employers to provide an ethically acceptable working environment free from professional misconduct and to protect against financial loss (in the form of loss of future employment) by failing to do so.

Mr Rihan was a former partner for accountants Ernst & Young based in Dubai. During his employment, he conducted an audit of a Dubai-based precious metals dealer and discovered serious irregularities which pointed to money laundering. Despite being subject to pressure from the local regulator to cover it up, he blew the whistle to EY and fled back to the UK fearing for his safety. EY failed to act upon his concerns, and rather than support him, he was put under pressure to change his report. When he refused to do so, he was warned of the repercussions and threatened with dismissal. EY replaced him and, after liaising with the client and regulator, then issued misleading financial audit reports. Mr Rihan resigned and made a public disclosure, which was widely publicised including in a BBC Panorama programme.

Mr Rihan was unable to bring a whistleblowing claim because he did not ordinarily work in Great Britain. However, he brought claims in the High Court for past and future loss of earnings due to breaches of the duty of care in tort. The High Court held that EY were in breach of duty to take reasonable steps to prevent Mr Rihan from suffering financial loss by reason of the failure to perform an audit ethically and without professional misconduct. He was awarded almost $11 million in damages for past and future loss of earnings.

Obviously the facts of this case are very specific - the High Court accepted that it was an "outlier with a factual case that will rarely if ever recur". However, it does potentially provide whistleblowers who work outside of the jurisdiction with alternative recourse where their future earnings are damaged.

Discrimination: homophobic remarks made on Italian radio programme contrary to the Equal Treatment Framework Directive

NH v Associazione Avvocatura per i diritti LGBTI — Rete Lenford (Case C-507/18) - CJEU

In line with the Opinion of the Advocate General, the CJEU has ruled that homophobic remarks about hypothetically not hiring LGBT people are unlawful under the Directive since such statements might discourage people in a protected group from applying for jobs.

In an interview on an Italian radio programme, NH, a senior lawyer, stated that he would never recruit a homosexual person to his law firm nor to use the services of such persons in his firm. There was no active recruitment at the time. An association for LGBT lawyers in Italy brought proceedings alleging discrimination and seeking remedies including a press retraction, an action plan to eliminate discrimination and damages. The claim won at first instance, was upheld on appeal and €10,000 was awarded in damages. The case was appealed to the Supreme Court, which made a reference to the CJEU to determine whether in the absence of a direct victim, a hypothetical statement could fall within the Equal Treatment Directive.

The CJEU ruled that statements suggesting the existence of a homophobic recruitment policy fall within the concept of ‘conditions for access to employment … or to occupation’ in the Directive, despite there being no active recruitment at the time. However, the link between those statements and the conditions for access to employment or to occupation must not be hypothetical. This must be assessed by the national courts on the facts, taking into account for example the status of the person making them and whether that person may have an influence on the employer’s recruitment policy.

For more key employment law updates from us:

• read our Insights on key developments over the last month;
• stay Ahead of the Curve with our summaries covering the key aspects of employment law under review by the government;
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