By Natasha Johnson, Neil Blake and Richard Mendoza

Law360 (May 15, 2020, 2:26 PM EDT) --

Natasha Johnson

Neil Blake

Richard Mendoza

As well as the human cost, the COVID-19 pandemic has led to massive disruption, both to the daily lives of individuals and to the global economy. Some businesses have been forced to suspend some or all of their operations due to lockdown measures. Those that continue to operate may nevertheless be struggling to meet contractual obligations due to direct or indirect effects of the pandemic.

All businesses need to ensure measures are in place to protect the health and safety of their employees and customers, as well as keep pace with the rapidly developing laws and regulations put in place to limit the spread of the virus. Many businesses may find themselves short of cash, and some may be fighting for their economic survival.

With all of these challenges, identifying and preparing for potential COVID-19-related class actions may not be an immediate priority for many business leaders. But it may well be a priority for claimant firms, claims management companies and litigation funders for whom class actions present lucrative opportunities. It has already been reported, for example, that a class action is being considered against an insurer in respect of its refusal to pay out on business interruption claims relating to the lockdown.

Class actions have been growing in prominence in the U.K. courts for a number of years, and the current landscape clearly has the potential to feed that trend. In this article, we consider some areas in which COVID-19-related claims may arise over the coming weeks, months and years.

Employee Claims

Employers are under a duty to ensure safe working conditions for their staff (with specific duties in respect of any disabled or pregnant staff), and most businesses will be doing all they can to meet this obligation. But where there are failures, so that employees are required to work in close quarters and/or with insufficient protection, for example, the risk of claims is obvious. And given that many of these issues will be common to groups of employees in a particular role or business unit, there is the potential for class actions.

Even if a business has suspended operations in the wake of the lockdown, with employees either "furloughed or on other leave arrangements, that does not put an end to the risk of claims. If employees are furloughed, for example, employers will need to be mindful of anti-discrimination legislation in putting such arrangements in place.

In addition, where employers make staff redundant — or seek to require them to alter their working hours, take unpaid leave or accept reduced pay, with the alternative being to risk losing their employment — any failings in the employer's consultation processes and decision-making (in particular, where collective consultation duties apply) could well lead to claims (again, potentially on grounds of discrimination, or for example for stress at work, breach of contract, unlawful deductions from wages or unfair dismissal (whether actual or constructive)).

Where such failings are widespread within the business, these may ground an employee group action.

Supply Chain

Given the current logistical and financial pressures many are facing, businesses at all levels of the supply chain are looking at their capacity to deliver on contractual obligations, and may be considering potential routes to suspend performance or terminate the contract. Many businesses are cancelling orders or delaying payment, leading to disruption across the supply chain.

The consequences of that disruption are being felt particularly acutely by suppliers in developing markets, where governmental support for businesses and their employees may be minimal. For example, garment factories in developing economies in South Asia have been greatly affected by retailer order cancellations.

How businesses treat their stakeholders and supply chain partners will be critical to the future assessment of their response to the COVID-19 crisis and to their claims to good corporate citizenship generally. Where there are failings, close attention is likely to be paid to public statements made by the relevant company (or other members of its corporate group) on business and human rights and environmental, social and governance issues, with potential arguments that the company has thereby assumed obligations to those in the relevant supply chain or others affected by alleged failings. Again, the potential for class actions is obvious.

Privacy and Data Security

The fact that a significant proportion of the workforce is now working from home — many using personal devices and networks which may not be secure and operating outside of the direct supervision of their employers — inevitably increases the risk of cyber and data security incidents, including personal data breaches and, by extension, the potential for group litigation.

Cybersecurity incidents that affect the integrity of information or lead to information not being available may also result in litigation. Customers may pursue firms and, in turn, firms may pursue those in the supply chain that are responsible for incidents.

Separately, with governments and public authorities increasingly turning to technology and data in their efforts to understand and contain the spread of the virus (including by using data to undertake large-scale monitoring of individuals), it is easy to foresee claims relating to potential misuse of individuals' private information.

Individuals' privacy rights will have to be balanced carefully against public health needs. Group claims, whether against relevant public bodies or those concerned with delivery of the relevant technology, are therefore possible.

Competition

The pandemic has generated high levels of demand for certain products, and businesses will need to ensure they are not falling foul of relevant competition rules. There are examples already of investigations into unfair pricing in Italy and France, with authorities from the latter imposing price controls on hand sanitizer and taking over the production of protective face masks.

The U.K.'s Competition and Markets Authority recently issued an open letter warning firms in the pharmaceutical and food and drink sectors against exploiting COVID-19 by inflating the prices of high demand products. Businesses found to be practicing anti-competitive behavior at this time may run the risk of class actions pursued by or on behalf of affected consumers.

Competition class actions have the added dimension that claims may be brought on an "opt-out" basis, subject to approval by the Competition Appeal Tribunal, under a procedure introduced in 2015.

This means that a claim can be issued on behalf of all affected claimants, without the need for individuals to come forward or be identified in the claim — in contrast to the group litigation order procedure used for other types of action, where individual claimants bring claims which are then managed together.

Where an opt-out claim is certified, it is much easier to get the action off the ground — particularly where a large number of consumers has been affected but individual losses may be small.

Securities

Given the volatility in the markets that COVID-19 has prompted, and the associated impact on oil price and uncertainty as to the future global economic outlook, we have entered a period of increased litigation risk for companies making public statements. Companies will be reluctant to make forecasts to the market in the current climate where they can avoid it. We have already seen FTSE 100 companies withdrawing forward-looking financial guidance in order to limit litigation risk.

Companies will need to consider carefully whether, for ongoing transactions, a supplementary prospectus is required because COVID-19 has introduced significant new factors or rendered information in an original prospectus inaccurate. COVID-19 has shown that some disclosure requirements lack the flexibility to enable companies to represent their anticipated future prospects fairly and accurately in light of the current uncertainty.

It remains to be seen whether, as a result of lobbying or otherwise, any additional safe harbors or protections will be introduced by legislation or changes to regulatory rules and guidance in order to increase the flexibility of the disclosure regimes. Subject to such measures, there is clearly an increased risk of securities class actions arising out of the pandemic.

Public Sector

The Coronavirus Act 2020 (and associated legislation) has introduced a range of emergency measures to address the COVID-19 outbreak, including new powers for the police and public authorities to help prevent the further transmission of the disease.

The introduction of these measures has been rapid and, with plenty of ongoing uncertainty around the scope of some of the measures, there is a risk of falling into error. For example, there is the risk of secondary legislation and other guidance falling foul of primary legislation, including the Human Rights Act 1988. There is also the risk of misapplication of the measures. Already, for example, there have been reports of individuals being wrongly fined under the new legislation.

The erroneous introduction or misuse of these powers could provide another ground for litigation. This could take the form of test case claims for judicial review, most obviously on the grounds of illegality, procedural unfairness or irrationality, with the result affecting the position of a wide class of people.

Also, where the errors give rise to private law claims, most obviously torts such as breaches of the Human Rights Act, this could give rise to class actions. For example, the prospect of COVID-19 outbreaks in state institutions — such as in prisons — could well give rise to claims if appropriate measures are not taken.

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Natasha Johnson and Neil Blake are partners, and Richard Mendoza is a senior associate, at Herbert Smith Freehills LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the organization, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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