The global spread of coronavirus (now officially called Covid-19) presents a number of challenges to the UK business community. Whilst we hope that the outbreak is contained and does not become a pandemic, we recognise that businesses have to make contingency plans for a worst case scenario. Our briefing provides guidance on the steps you could consider taking to protect the health and welfare of your staff, your customers and other visitors to your premises, as well as measures to enforce contractual rights and protect your business against liability.

  1. Health and welfare of staff and others
  2. Supply chain disruption
  3. Commercial landlords - obligations towards occupants

1. Health and welfare of staff and others

Protecting the health and welfare of staff and visitors to their premises will be a key priority for businesses. Quite apart from the moral duty, businesses have a legal obligation to take reasonable steps to protect the health and safety of their employees and visitors. 

Many employers are therefore putting in place travel guidelines which prohibit all but essential business travel to affected regions, to minimise the risk of possible infection spreading in the workplace. Employers should also consider implementing procedures for staff to declare any recent or planned personal travel to affected areas, or any close contact with persons from affected areas. Depending on the areas concerned and the extent of contact, such workers may be required to work remotely, where possible, for 14 days, to cover the period during which any coronavirus symptoms are likely to become evident.

Where remote working is not possible, the worker could be required to remain at home to minimise any risk of possibly infecting other staff, customers or clients. Such a requirement would be justified on health and safety grounds; however, the employer would be required to continue full pay in these circumstances – this would not constitute sick leave unless the worker was actually ill.

Many businesses are putting in place other measures to minimise the risk of infection spreading to employees and visitors, including extra cleaning of communal surfaces (e.g. door handles, hand rails and lift buttons) and reminding staff to maintain good basic hygiene (e.g. by washing or sanitising hands frequently, especially after using public transport).

OBLIGATIONS TO CUSTOMERS AND OTHER MEMBERS OF THE PUBLIC

Businesses whose activities involve regular contact with members of the public, e.g. hotels, retailers etc should consider taking similar steps to protect their customers (see also Commercial landlords - obligations towards occupants below).

As a general point, following the advice and guidance from government and relevant authorities, such as Public Health England, will be important in discharging the organisation's general health and safety duties.

Note: If there is a rapid escalation of the virus in the UK, many businesses are also starting to think about the possibility of widespread remote working and whether the business has the capabilities for this.

2. Supply chain disruption

The global nature of many supply chains increases the risk of disruption due to the coronavirus. There are already reports that businesses which depend on suppliers based in affected areas of China are stockpiling products or considering closing some of their production facilities, not because of the virus itself but because they simply will not have the components they need to continue production at normal levels. 

RESPONDING TO SUPPLY CHAIN DISRUPTION

Some businesses seek to guard against supply chain disruption by using a multi-sourcing model, which should allow them to increase their orders from suppliers which are unaffected by the virus. Other businesses will need to consider whether they can find alternative sources of supply at short notice and whether their current contractual arrangements permit this. They should also consider whether force majeure clauses in contracts with their own customers will protect them in the event that supply chain disruption makes it difficult to fulfil orders to their customers.

Damages claims against suppliers for failure to deliver because of disruption caused by the coronavirus may not be straightforward. Some suppliers may be protected by force majeure clauses, which relieve a party of liability where the delay or failure to perform is due to an occurrence beyond their reasonable control. 

Force majeure clauses

When considering force majeure clauses, the scope of the provision will be key to determining whether it has been triggered by disruption arising out of the coronavirus:

FORCE MAJEURE CLAUSES: SCOPE

  • Broader clauses:  With more broadly drafted clauses, even if there is no express reference to "outbreaks of disease" or "epidemics", the coronavirus may, depending on the circumstances, be regarded as beyond the reasonable control of the supplier (in which case it will be a force majeure event).  However, just because one party in the supply chain is protected by a force majeure clause, that does not mean that all suppliers will be (because different contracts will contain different wording).    
  • Narrower clauses: More narrowly drafted clauses will confer less protection, but the majority of force majeure clauses in contracts governed by English law contain express references to government action. As a result, if delays or failures to perform can be attributed to prohibitions on movement of people or goods in or out of certain areas by the relevant authorities, these may well be sufficient to trigger the clause.     
  • Supplier's suppliers:  Some customer-favourable force majeure clauses specifically exclude delays or failures to perform by the supplier's own suppliers or subcontractors.  This could mean that even if your own supplier is affected by the coronavirus (and is able to rely on a force majeure clause in its contract with you), that may not of itself be sufficient to excuse your own failure to perform contracts with your own customers.

Having established the scope of the force majeure clause, the following issues should also be considered:

  • Other events:  Recent case law indicates that if a force majeure event is just one of several reasons why a contract could not be performed in accordance with its terms, that will not be sufficient to relieve a party of liability.  It is therefore important to consider whether other factors besides the coronavirus (and which are not force majeure events) would have led to the delay/non-performance in any case.  
  • Termination: Many force majeure clauses merely provide for obligations to be suspended for the duration of the force majeure event. They rarely give rise to an immediate right to terminate, although it is not uncommon for customers to have a right to do so if obligations remain unperformed after a given amount of time.
  • Frustration: Even if there is no force majeure clause, suppliers may also be able to mount a defence based on frustration, although the English courts are generally reluctant to find that a contract has been discharged on this basis – see this briefing for a recent case on frustration linked to Brexit.  
  • Governing law: the above points relate to the position under English law. If the relevant contract is governed by, say, the law of the supplier's home jurisdiction, the position could be different and local law advice may be required.

Insurance

It would be worthwhile checking whether any insurance policies are relevant depending on the nature of any losses and the scope of cover.

EVIDENCE OF LOSS

Customers should also ensure that they keep documentary evidence of losses incurred due to delays or failures to supply, not just in case of possible contractual claims but also to support potential claims under policies of insurance.

Supply chain issues – your obligations as employer

Employers should also be aware that standing employees down temporarily without pay in the event of business interruption is likely to be a breach of contract, unless the employment contract expressly permits this.

Such "lay-off" clauses are rare in practice and, even where they exist, employees may be entitled to statutory payments, including statutory redundancy pay in certain circumstances. 

In extreme cases, where cessation of production is longer term, redundancy dismissals may be necessary. Employers should be mindful of their consultation obligations in these circumstances, including the duty to consult employee representatives for a minimum of 30 days (where 20 or more employees are impacted) or 45 days (if 100 or more employees are affected).