11th May, 2020
Claims by shareholders and employees arising from Coronavirus
There is likely to be an increase in the number of claims made against companies by employees and shareholders in the wake of the coronavirus outbreak.
Company directors should remain aware that the difficult and unprecedented circumstances of the outbreak will not necessarily shield them from potential claims and their duties and responsibilities to their employees, the company and shareholders continue.
There are a number of variables related to the effects of the current pandemic on businesses and the workforce which may result in several different kinds of claims from employees.
The first of these may be akin to personal injury claims, where employees who have contracted coronavirus allege that it is as a result of being forced to work where it was not necessary to do so, or because their employer failed to put appropriate safety measures in place.
The furlough scheme, which has helped businesses to keep people on the payroll whilst saving money and maintaining cash flow, nevertheless could be the background to several types of claim. Employees on furlough keep their existing employment rights, so if they were put onto furlough in a way that breached their contract of employment (i.e. without consent to a change of the terms of employment) there is potential for such an employee to resign and claim Constructive Dismissal. If an employer has selected certain people for furlough and not others there is a risk that employees will perceive they have been unfairly selected. Potentially some will feel they would rather be put on furlough (for example, to cope better with childcare) and feel it is unfair they are obliged to continue working. If such an employee perceives that the reason they were or weren’t selected for furlough is related to a protected characteristic under the Equality Act 2010 (age, race, religion or belief, disability, sex, sexual orientation, marriage or civil partnership, pregnancy or maternity or gender reassignment) they may seek to make a claim for unlawful discrimination.
Health and safety will remain an ongoing concern. Employees who feel they are not being properly protected by their employer may resign and claim Constructive Dismissal. Also, employees are protected from detriment and dismissal for carrying out certain health and safety activities including raising concerns and leaving or refusing to return to work or taking appropriate steps to protect themselves in circumstances of “serious or imminent danger”. Further, workers are protected if they make protective disclosures (whistleblowing) including concerns relating to health and safety (and Data Protection issues).
Employers should remind their Managers and Team Leaders of the protections in place for workers and ensure that they are aware of their obligations to address any concerns appropriately, sensitively and in line with the employer’s relevant Whistleblowing Policy.
Despite the institution of the furlough scheme, many large employers have announced the commencement of collective consultation as they propose to make redundancies. It is reported that an estimated 2 million people may be made redundant.
Employers who intend to make redundancies must follow a fair consultation and selection process and consider any suitable alternatives to avoid liability for unfair dismissals.
Collective consultation obligations apply where an employer proposes to dismiss as redundant (or enforce changes to terms and conditions) 20 or more employees within a 90 day period. This triggers a number of statutory requirements including the obligation to inform the secretary of state, failure to do so attracts potential criminal and civil penalties.
We also expect to see an increase in requests for flexible working (to include working from home requests and potentially more flexible hours and days of work requests following lockdown). It is important to take a fair and consistent approach towards flexible working requests to avoid any potential claim for unfairness, grievances and/or potential discrimination claims under the Equality Act 2010. In particular, those with underlying health conditions and individuals over the age of 70 years of age have been provided with different guidance in relation to shielding compared to other groups of workers.
Finally, there are a number of potential data protection risks. If contact tracing apps are introduced in the UK, the Information Commissioner’s Office (‘ICO’) is likely to provide guidance on whether employers can insist on employees using apps, whether or not an employer will have access to any data collected (should employers wish to assess the risk to protect its workforce as a whole), the right of objection to the access and use of any such data from an employer.
Employers should be careful not to disclose the identity of individuals who have been infected with Covid-19 unless they are able to establish that it is absolutely necessary to ensure safety at work or to meet public health requirements. This “special category” data is unlikely to be disclosable by consent which now needs to be freely given.
A number of individuals have requested further information from their employers to ensure that their work colleagues are not symptomatic and/or have observed the Government’s direction to comply with social distancing (rather than taking “risks”) against Government advice. Employers will need to navigate the challenging requests from employees who seek transparency to be reassured that they are safe to “return to the workplace”. Where transparency and privacy rights collide, employers are faced with potential safety risks on the one hand and potential risks of breach of privacy rights on the other.
Shareholder claims may arise where there has been a failure to properly plan for and react to the effects of the outbreak, or where shareholders consider that the company has misled customers or shareholders about the impact of the pandemic. A number of shareholder lawsuits of this nature have already been filed in the US, as a direct consequence of the pandemic.
The basis of a shareholder claim will be an examination of whether the directors have breached their duties. A claim for breach of duty against a director is a claim brought by the company, so the company will get the benefit of it – although this should, of course, ultimately benefit the shareholders. As such, the first step in bringing any such claim will be to consider whether the directors in question can or should be replaced. If they are not replaced, they are unlikely to sanction a claim by the company against themselves.
If the directors cannot be replaced, a shareholder may need to make a claim by way of derivative action. Where certain specified types of wrong are committed by company directors, the court may permit shareholders to bring a claim in their own name on behalf of the company.
A company director who is concerned about an impending claim, or a shareholder or employee who is considering making a claim, should seek legal advice specific to their situation.
Aaron and Partners’ Dispute Resolution and Employment teams have extensive experience in company and employment disputes, whether acting for claimants, defendants, employers or employees. If you require legal advice on your position and your options, please contact us.
Dispute Resolution and Insolvency
Senior Partner and Head of Team
Partner and Head of Team
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