Businesses are braced for a surge in contract disputes and in employment-related litigation when the government’s furlough scheme ends later this year, according to a new study.
Almost two-thirds of companies expect business litigation to remain at the same levels or to increase in 2021, according to newly published research by global risk management and insurance brokerage Gallagher.
Gallagher’s Business Litigation Index, a multi-sector study of 3,000 companies, found that in the past five years, more than 56 per cent of all businesses have faced an accusation, claim or allegation of unlawful behaviour — with consistent annual increases since 2016. Sectors facing the most lawsuits include IT and construction.
Many disputes involve lawsuits brought by employees against wrongful dismissal and discrimination, with complaints about injury, illness or stress as a result of work also on the rise since 2016, the study found.
Gallagher believes that employment-related litigation and redundancy claims are expected to rise later this year after the UK government’s furlough scheme ends on September 30, as employers make staffing cuts that the furlough scheme has enabled them to defer.
Some companies have struggled to meet their contractual obligations or had supply chain issues because of Covid-19, the report says.
Almost 60 per cent of businesses took legal action or threatened litigation against another business last year because money was owed or there was an alleged contractual breach or because intellectual property was infringed, it found.
So far the English courts have not seen a substantial rise in lawsuits relating to the pandemic. However, lawyers predict that more lawsuits will be brought and there are more litigation funders, which back legal disputes in return for a slice of any compensation, awash with cash.
One area of future litigation is likely to be over business interruption insurance and whether it should pay out over the pandemic. Although the Supreme Court ruled earlier this year in favour of many policyholders who have business interruption cover, not all insurance policies were included within the scope of its ruling.
Last week it emerged that some hospitality groups including Corbin & King, owner of The Wolseley, were planning legal action to prove that their business interruption insurance should have paid out during lockdowns.
The Gallagher study also found that there had been a rise in claims against companies because of data leaks — with data breach cases rising more than threefold between 2016 and 2020.
A number of data-related lawsuits are already going through the courts — including a group data breach claim against British Airways following an incident in 2018 that exposed details of more than 400,000 of its customers.
Gary Fletcher, south managing director of Gallagher’s retail division, said: “Litigation is being fuelled, in part, by supply chains, Covid-19 and Brexit but in addition to this, economic downturns also usually produce a boom in disputes.”