Coronavirus Job Retention Scheme

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by Sarah George, Barrister

The High Court has ruled on aspects of the Coronavirus Job Retention Scheme (or CJRS) and its interaction with insolvency law in a ruling handed down on 13 April 2020.  For reasons of speed, proceedings In the Matter of Carluccios Ltd [2020] EWHC 886 (Ch) had not been served upon all of the affected employees or on the government.  In giving judgment, Snowden J stressed that, for that reason, his judgement could not bind either the employees or the government.  Nonetheless, the judgment provides at least persuasive guidance about the following important issues:

  • The CJRS is, in principle, available to companies in administration subject to the proviso that “there should be a reasonable likelihood of the employees resuming work either for the company itself or after a sale of the business by the administrators”.
  • A letter sent by the Company had had the effect of amending the employees’ contracts of employment by reducing the amount of their contractual salary to that to be claimed under the CJRS where employees had returned emails expressly indicating their consent to the change.  This meant that the Company would not be liable to pay wages in excess of the grant paid under the CJRS.
  • Snowden J was not able to infer consent to the variation in terms concerning the payment of wages by employees who had not responded to the letter in the circumstances of the case, although, in principle, normal contractual principles did permit consent to be inferred from conduct.
  • The mere fact that the contracts between the company and the employees continued in existence for more than 14 days after the commencement of the administration did not amount to adoption of them by the Administrators.  However, as and when they made an application under the CJRS in respect of the employees who consented to be put on furlough or made any payment to those employees under their varied contracts, this would amount to adoption of the varied contracts of employment.  Consequently, those administrators would then be able to rely upon paragraph 99 of Schedule B1 of the Insolvency Act 1986 in order to make super-priority payments to the furloughed employees using the grant monies as and when they were received under the CRJS without risk of being criticised for acting inappropriately.
  • The contracts of employment of those employees who did not respond to the invitation to be furloughed would continue unamended unless and until terminated by the Administrators whereupon the employees would be unsecured creditors in the administration.