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High Court Rules That Administrators Can Place Employees on Furlough

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High Court Rules That Administrators Can Place Employees on Furlough

The High Court has held that administrators can furlough employees and pay them under the Government's Coronavirus Job Retention Scheme (CJRS). On 16 March 2020, Carluccio's restaurant chain has closed its doors in line with the Government's guidelines to combat the spread of Covid-19.

Sadly, on 30 March 2020, the company announced that it was going into administration.

The administrators appointed wished to sell the business as a whole and retain the employees in the meantime. However, as the 70 branches nationwide are currently closed, the administrators hoped to furlough the employees and ensure that they are paid in accordance with the CJRS. The concern was how the CJRS would interact with current insolvency laws - as any funds in the company's accounts would be considered a company asset and so would be used to discharge the company's liabilities and the fees of the administrators first and foremost, which would happen once those funds are paid into the company's accounts provided that Carluccio's employees are accepted onto the CJRS.

The administrators contacted the company's employees and sought their consent, suggesting that they would all be furloughed but remain employed by the business with a view for them to get paid the approved 80% or maximum of £2,500 once those funds are received under the CJRS. A majority of the employees did agree to the proposal, although some refused, otherwise preferring to be made redundant and some have failed to respond so far.

However, time was of the essence on the decision and the High Court heard the matter, remotely, resulting in the first judgement to be made concerning the CJRS. The judgement held that the variation letter that the administrators sent to the employees had validly amended the contracts of those employees that had consented to the change, only.

Within the judgement, Mr Justice Snowden also held that once the administrators make an application for the consenting employees under the CJRS, or makes payment to them under the amended contract, then they would be considered as having adopted those employees' contracts, for the purpose of insolvency laws. Therefore, those employees' wages, will have priority for payment over the administrators’ fees and expenses as well as any floating charge creditors and unsecured creditors which means that they ought to be paid as soon as funds are received by the administrators under the CJRS.

Positively, Snowden J had also confirmed that the group of employees who have not yet responded to the administrators' correspondence would be in the same position as the consenting employees, should they provide a belated consent to the CJRS and proposed amendments.

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This is not legal advice; it is intended to provide information of general interest about current legal issues.