Activists will be aware of the Coronavirus Job Retention scheme (‘the scheme’), which is the government scheme designed to allow employers to retain employees by providing grants of 80% of an employee’s monthly wages, up to £2,500, if that employee is “furloughed” – i.e. not doing any work for their employer because of COVID-19.
The scheme was announced on 20 March 2020 and created under the Coronavirus Act 2020. Employers could not apply for the scheme until 20 April 2020, with the scheme set up to cover claims for individuals in the period from 1 March 2020 to 30 June 2020.
In Carluccio’s Limited (in Administration)  EWHC 886 (Ch) the High Court had to provide its view on how the scheme would work in relation to an insolvency situation affecting approximately 2,000 employees of Carluccio’s restaurants. Administrators were instructed just after the scheme was announced and had to consider how best to retain employees while they tried to find a buyer for the company and ensure its survival.
The administrators applied to the court for guidance on the parameters of the scheme, as there was very little guidance and no legislative basis provided for it at the time. There was a particular time pressure in this case, as under insolvency law the administrator must decide whether to adopt the contracts of affected employees within 14 days of being appointed.
The hearing took place at very short notice, just before that 14 day period ended.
The court’s decision was made before the relevant details of the scheme were published or in force, so was said not to be binding on the employees or the government, but gave some comfort to the administrators, so that they did not feel obliged to sack all of the employees just to prevent further liabilities arising and attaching to them as the adopted employer.
In an insolvency all assets of the company are put towards paying off the company’s debts, so at the time of the hearing a strict reading of the insolvency rules would normally have meant that monies received under the scheme would be distributed as company assets, rather than towards payment of the furloughed employees. However, that would be in breach of the scheme’s stated requirement that all of the monies received under the scheme must be paid out to the furloughed employees.
The court held that the insolvency legislation should be interpreted to permit the rescue culture intention behind the scheme – so the administrators could pay monies provided under the scheme solely to the furloughed employees as a ‘super-priority’ above other debts.
Need for employees’ written consent
Those employees who had consented to be furloughed were eligible under the scheme. Those employees who explicitly refused to be furloughed had their contracts terminated and were made redundant.
On the facts of the case, around 70 employees who had failed to respond to the letter seeking their consent to the furlough terms could not be assumed to have consented. If they consented beyond the administrator’s deadline their contract would be varied, but it would not mean that (as with those who consented in time) the administrators had adopted their contracts, unless/until the administrators made an application for them under the scheme.
Those non-responding employees who simply continued not to respond would remain as employees of the insolvent company and become unsecured creditors in the administration in respect of any claim (eg for unpaid wages) under their contract.
The position regarding the requirement for an employee’s written consent has been a controversial issue, as it has been unclear what must be provided. The government’s own guidance apparently contradicts the legislative basis for the scheme set out in the treasury direction, which requires the employer and employee to agree the consent in writing. UNISON has produced guidance on this issue, and many other controversial points from the scheme.
Activists need to bear in mind that this case involved an insolvency situation before the legislative basis for the scheme had been provided. The ‘super-priority’ of the 80% wages is an important protection for individuals who consent to being placed on furlough by administrators of an otherwise insolvent business.