The far-reaching effects of COVID-19, otherwise known as the coronavirus, have not spared the business community or the global economy. This unprecedented epidemic is quickly growing into a health crisis with increasing risks that could disrupt business operations and affect trade and profits if the outbreak worsens.
In this article, we discuss the implications for businesses of COVID-19 and outline some important considerations and measures for legal departments and other business leaders.
As a relatively common feature of commercial agreements, “force majeure” clauses are designed to address the occurrence of extreme events beyond the control of the contracting parties that may impact their ability to perform agreed-upon obligations. All businesses, not just those that are concerned about their abilities to operate in the event of prolonged supply chain disruptions, should consider the contractual terms of their existing commercial arrangements with both suppliers and customers in developing strategies to mitigate potential business disruption.
Businesses that are in the process of negotiating new transactions should also carefully consider how to expressly allocate the risks associated with the COVID-19, be it the risk of force majeure in a supply agreement or “material adverse effect” in the context of an M&A transaction.
EMPLOYMENT AND EMPLOYEE PRIVACY
Canadian employers have an obligation to ensure the health and safety of their employees in the workplace. Businesses need to consider not only best practices for responding to the business risks posed by the COVID-19, but also how these measures may interact with their obligations to employees under applicable employment, labour and privacy legislation. If they haven’t already done so, employers should ensure that their existing HR policies and procedures are sufficient to address staffing and operational challenges that they could face as a result of COVID-19.
PUBLIC COMPANY DISCLOSURE
Public companies will need to assess the impact that COVID-19 may have on required public disclosure. COVID-19 may increase certain risk factors that potentially impact financial results. In addition, public companies planning their annual general meeting or other large gatherings should consider contingency plans and other precautionary steps to be taken.
BUSINESS INTERRUPTION INSURANCE
Businesses should review the terms of their insurance policies, in particular business interruption and travel cancellation insurance, to determine if potential disruption caused by the COVID-19 is covered. Business interruption coverage typically insures physical property damage, however, in some cases coverage may extend to interruption caused by non-physical events. Understanding what coverage may be available will also assist businesses in developing strategies to mitigate risks associated with disruptions caused by the COVID-19 outbreak.
BUSINESS CONTINUITY AND PANDEMIC PREPAREDNESS
While many businesses have existing business continuity plans, including specific pandemic preparedness plans adopted in the wake of previous outbreaks such as SARS or H1N1, it is a good time to review those plans to determine whether additional measures may be necessary or advisable.