The international spread of COVID-19, the disease associated with the coronavirus, is having a profound impact on the global economy. As businesses struggle to cope, managers are seeking clarification on major questions, such as:
- the company's duty to its employees, the employees' responsibilities to themselves and their firm, how employee medical concerns relate to data protection rules like GDPR, and
- what to do from a commercial law perspective if the crisis makes it impossible for a business to fulfil its contractual obligations.
For more information on your business responsibilities in the current crisis and what you can do from a commercial legal point of view to mitigate losses and protect your firm and interests, download publication.
What businesses need to do to protect employees and themselves The international spread of COVID-19, the disease associated with the coronavirus, is having a profound impact on the global economy. As businesses struggle to cope, managers are seeking clarification on major issues, such as ― the company's duty to its employees, the employees responsibilities to themselves and their firm, how employee medical concerns relate to data protection rules like GDPR, and ― what to do from a commercial law perspective if the crisis makes it impossible for a business to fulfil its contractual obligations. First of all, it's important to know that various European countries have labour and commercial laws in place that apply to the crisis and offer some relief. In addition, numerous countries have issued laws and regulations specifically related to the current coronavirus pandemic. For example, Austria has passed a law decreeing the virus an epidemic, and allowing self-employed and contract workers to claim loss of earnings from the state. In Belgium individuals may be able to claim unemployment allowances as a result of work disruptions caused by the crisis since the coronavirus might be interpreted as a force majeure event. In Germany companies that have suspended operations may be able to seek compensation from the state for two-thirds of forgone net wages and social contributions. In the Netherlands the government has implemented relief for businesses that have suffered a 20% drop in turnover. In Slovenia, based on a new intervention act (yet to be adopted), the employers will be able to seek compensation from the state for 40% of the compensation paid out to employees that are temporarily laid-off. Portugal has issued stringent restrictions on activities. Spain has issued official guidelines on how to respond. And in the U.K., as of last week companies with fewer than 250 employees can claim from the state up to 14 days of statutory sick pay per employee in a bid to reduce the effects of sickness and self-isolation on smaller enterprises. The most important question facing businesses, however, is what their responsibilities are regarding employees. Employer duties According to Caroline Froger-Michon, Partner and Global Co-Head of the CMS Employment Group, the level of care that employers must extend to their staff is regulated by EU Directive 89/391/EEX of 1989, which states that employers are "subject to a general duty of care regarding the health and safety of employees at work." In most countries in the EU, companies that fail to provide this care are liable for penalties and in some cases criminal charges. Froger-Michon states that the duty of care mandated by the Directive falls under two main obligations: to provide "preventive measures" to ensure employee safety and to "manage risk" should high-risk circumstances arise. Specifically, the preventative measures include: UK-637941761.1 Employer responsibilities, contract law and force majeure during the epidemic 2 ― Evaluating a company's situation and policies in a bid to diminish risks; ― Taking all preventative actions such as formulating in-house health and safety regulations; ― Making sure that employees know the rules and are trained to respond to emergencies. Furthermore, a company's obligation to manage any emergency includes: ― Providing support to affected staff members; ― Evaluating risks arising in the workplace; ― If workplace risks exist, doing everything possible to correct the situation. So how does this apply to COVID-19? According to Froger-Michon, before acting a company must carefully assess the situation, making full use of the expertise of its HR department. Employers need to determine which staff members might have the infection. For multinational companies, this means determining the exact whereabouts of all employees, including staff members on business trips and employees stationed abroad. If companies have staff members seconded to other firms, they must determine whether their employees are receiving appropriate care and suspend the secondment if they are not. In addition, company policies on sick leave and working from home should be reevaluated in light of the crisis. "The result of this assessment will allow you to determine precisely which measures needs to be taken in the company," said Froger-Michon. In some countries, this assessment must be formal and carefully documented, such as in France where each company must have a Risk Assessment Document that should now be updated to include a COVID-19 response. In the Netherlands, companies must also prepare a risk inventory and evaluation that identifies threats and the measures implemented to respond to them. In both countries, companies can be sanctioned for non-compliance. Once the assessment is complete, a company must implement preventative measures, using both HR and company's communications and legal departments to get the word out. These measures should include World Health Organisation (WHO) recommendations on preventative hygiene, such as hand washing and social distancing. Employees working at home or at other locations should be kept fully abreast of the situation, and "dedicated hotlines" should be kept open to respond to employee questions. To this end, Froger-Michon recommended the appointment of "a dedicated person or team [to be] in charge of tracking latest developments, collecting guidance and recommendations from authorities." No matter what measures your company has in place, the COVID-19 crisis will likely entail: ― Restricting or cancelling business travel; ― Using calls and video conferencing instead of face-to-face meetings; ― Issuing safety equipment to staff (e.g. medical masks, gloves, hand sanitisers) and arrange for workplaces to be regularly disinfected; ― Allowing employees to work from home in line with the laws and regulations of your home jurisdiction. In some countries like France, Austria and Spain, employers can order staff to work from home, while in Germany, Luxembourg and Belgium, employees must consent to do this. Other special COVID-19 measures should also include "extra protection" for employees with special health concerns, such as staff who are expecting babies or suffering from ailments or disabilities. Companies should also seek the expert advice of a physician associated with the company or government health authorities, and have an "action plan" in place to respond immediately should a worksite need to be disinfected or evacuated. UK-637941761.1 Employer responsibilities, contract law and force majeure during the epidemic 3 "Most global companies have contingency plans to fight cyber-attacks," said Froger-Michon. "A similar approach should prevail here with COVID." She added that any COVID-specific or infectious-disease action plan must be re-evaluated constantly and when necessary amended to meet the changing nature of the crisis. After putting sound preventative measures in place, companies should ensure their employees are trained to respond to COVID. Managers should be able to identify symptoms and know how to react should they believe an employee is ill. Lastly, companies need to provide direct support to employees who are infected or suspect they are infected. This raises the next question: do employees have obligations during this emergency? The answer is yes. The 1989 EU Directive also applies a "duty of care" to employees, who must attend to their health and safety and that of their colleagues. Specifically, they must follow all workplace health and safety regulations, inform their employer if they recognise a threat in the workplace, and cooperate fully with the employer to create a safe and healthy work environment. This means that, in the current situation, employees are obliged to follow all health recommendations of the WHO and their home country, which includes hygiene protocols such as hand washing and going into selfisolation for 14 days if they have been in contact with an affected person or travelled to an infection hot zone. Employees should communicate details of possible infection to their employer to determine if any other employees may have been affected. Above all else, Froger-Michon recommends caution. "It is important to retain social cohesion and peace in the company," she said, "and thus avoid any form of discrimination or false allegations", such as charges that employees may be infected based on their ethnicity or country of origin. Employers should also remember that even though workers have an obligation to look after their own health concerns, companies have a real and tangible duty to care for their personnel and could be found liable for breaching this responsibility. COVID-19 and GDPR Other laws and regulations will necessary affect a company's response to COVID-19. A notable example is the EU's General Data Protection Regulation (GDPR). To this end, companies are encouraged to inform their employees, perhaps through a brief or newsletter, of the exact information they are required to share with the company concerning the crisis. Employees should also be told what questions they are legally entitled to answer. According to Katja van Kranenburg, a partner with CMS Netherlands, employers can ask staff if they have visited a high-risk zone recently for business or pleasure. They can also enquire about private travel plans and about company-organised arrangements, such as travel insurance, which they will need for protection. Employers can ask workers if they have specific symptoms, but a company cannot ask a staff member if he has the coronavirus or share the outcome of a test. However, in countries like the Netherlands, if you know of an infection in your company, state authorities must be notified immediately. In many countries, companies cannot collect the personal health data of employees. But a company can refer employees to a company doctor who is entitled to ask any medical questions he considers relevant. Although an employee's specific medical data cannot be shared with the company in those countries, a doctor can tell an employer whether – in his professional opinion – a given employee should be asked to stay home. In fact, during this period, employees are expected to be more flexible in their working habits and should be agreeable to working from home if it will ensure that the company continues operations. According to van Kranenburg, your company's works council can help with this. "If you have a works council in place," she UK-637941761.1 Employer responsibilities, contract law and force majeure during the epidemic 4 explained, "involve the council as this also helps to share the instructions you want to impose on employees through the council's recommendations." If a company asks an employee to work from home, he should be given the tools to do the job (e.g. company laptops, phones, etc.) Van Kranenburg also recommends that employees working at home receive full pay, even if laws in your home country do not require this. Companies are also advised to consult local laws and services regarding assistance during periods of reduced operations. In the Netherlands, for example, companies can apply for a permit to reduce the working hours of their staff if they can substantiate that there will be a drop in working hours of at least 20%. After the company has received such a permit, it can apply for compensation of wages. Commercial contracts and the crisis As a result of the crisis and its impact on shipping, travel and production, a company may find it impossible to fulfil contractual obligations. In some instances, this lack of fulfilment could fall under the principle of force majeure, which applies when events take place beyond the control of the debtor; if the events were – within reason – unforeseeable at the time the contract was concluded; and if no appropriate measures taken by the debtor at the time of the events could have avoided the interruption. Many contracts already contain force majeure clauses that may apply to the COVID-19 crisis. However, whether force majeure can apply to a given situation depends on the law applicable to the contract, according to Aliénor Fevre, an associate with CMS France. For example, both the Dutch and French civil codes provide for a legal definition of force majeure. This is not the case in Italy and Switzerland. In the Netherlands, a party cannot be held responsible for non-performance of a contract if he is not to blame for it. But note, if a contract was signed after the appearance of COVID-19, a debtor who did not fulfil an agreement may not be able to claim force majeure since the virus and its impact were known quantities at the time of signing that should have been accounted for. To protect themselves, parties should fully understand any force majeure laws (or lack thereof) in their jurisdiction and know the implications of the force majeure clauses in their contracts. Factors that may support force majeure in regard to COVID-19 include the WHO's definition of the outbreak as a "pandemic"; the decision of the China Council for the Promotion of International Trade to provide force majeure certificates to Chinese companies; a 28 February 2020 declaration by the French Ministry of Economy and Finance that "the coronavirus is to be considered as a force majeure event for companies"; and the states of emergency declared by various affected countries, such as Italy. In regard to Italy, however, "there is no statutory definition of a force majeure," said Vincenzo Giangiacomo, a partner with CMS Italy, but added that the state of emergency issued by the Italian government could still represent "a good argument" for a force majeure event. Other international measures that might make a force majeure argument possible include: Italy's imposition of restrictions and business closures with only selected shops (e.g. food stores, pharmacies and banks) and some public transport still operating; China's decision to order "radical measures", such as quarantines, transportation suspensions and prohibitions on public meetings; and France's prohibition of events with more than 1,000 people and its decision to close schools in certain cities. Switzerland has also imposed measures and has repeatedly tightened them. The Netherlands is promoting preventative measures (e.g. social distancing and avoid handshakes), working from home and postponement of foreign trips, particularly to high-risk areas. To sum up, COVID-19 is not uniformly accepted as a force majeure event. force majeure can apply to certain contracts depending on the wording of the agreement, the laws applicable to the contract and the exact circumstances of the market where the debtor is operating (i.e. whether measures like quarantines and state UK-637941761.1 Employer responsibilities, contract law and force majeure during the epidemic 5 restrictions has been implemented). Additional factors might be relevant too, such as the Dutch legal principle of "reasonableness and fairness" that applies to all contracts,. Termination of contracts No discussion of force majeure is complete without exploring the following question: can a contract be terminated due to a force majeure event? France According to Aliénor Fevre, under French law the answer depends on whether the impediment is temporary or permanent from a legal point of view. If temporary, the obligation is suspended to the benefit of the party performing the obligation but also, in most cases and for good faith and contractual balance, the other party. If the force majeure impediment is deemed permanent under French law, the contract can be terminated and the parties freed from their obligations. (In this situation, the termination would be automatic, which means that a court would not need to mediate.) In both cases, an acceptance of force majeure insulates both parties from any liability. Netherlands Under Dutch law, force majeure can allow the counter party to suspend its obligation or terminate an agreement. However, termination is not automatic. Hence, according to Guus Lemmen, an associate lawyer with CMS Netherlands, in a force majeure event it is important to decide whether to terminate the agreement or to claim performance at a later stage. Switzerland Under Swiss law there is no statutory definition of force majeure, explains Philipp Dickenmann, a partner with CMS Switzerland. If there is no force majeure clause in a contract, the legal consequences depend on whether the inability to fulfil a contract is temporary or permanent. To the extent that the coronavirus will only temporarily obstruct compliance, the default provisions of the Swiss Code of Obligations (Articles 107 to 109) will apply. They provide that, in case a party is in default, the other party may set an appropriate time limit for the performance. If there is no performance during this limit, the other party may withdraw from the contract.. If a party withdraws from the contract, any payment already made must be returned, but no damage need be paid if neither party was at fault. This will likely be the case for contracts that remain unfulfilled due to the current crisis. Where the performance becomes permanently impossible, Article 119 of the Swiss Code of Obligations applies. The obligations under the contract are cancelled. The parties are released from their obligations not yet fulfilled and must return what they have already received. It should be noted that in Switzerland these rules are not mandatory. Contractual rules may differ, and in this case any rules set out in a contract ultimately prevail. Italy Italian commercial law closely resembles Swiss law regarding force majeure. Renegotiating contracts Although contracts are made to be kept, the law recognises situations where fulfilling an agreement becomes so difficult that performance is considered overly onerous. Due to the hardship principle, a contract's terms can be renegotiated if the following criteria are met: UK-637941761.1 Employer responsibilities, contract law and force majeure during the epidemic 6 ― A change in circumstances occurred that was unforeseeable when the contract was signed; ― Fulfilling the contract has become difficult to the point of being extremely onerous. Such an extreme and unforeseeable situation allows a party to request that the contract be renegotiated. The parties may agree on revised conditions, or agree to terminate the contract. If one party insists that the contract remains unchanged, the requesting party might seek a decision from the court ordering an amendment to the agreement or the termination of the agreement. Practical recommendations for commercial aspects For a company whose contract is impacted by the COVID-19 situation, CMS Switzerland's Philipp Dickenmann recommends that it do the following: ― Act quickly if you want to raise a force majeure situation; ― Determine whether your contract includes a force majeure clause (and check whether it includes disease or epidemics as recognised events); ― If there is no clause, check the rules under the applicable laws; ― Inform your co-contracting partner without delay that the company cannot fulfil due to a force majeure situation; and ― Minimise damage as much as possible. The company should also assess how this situation could impact its other agreements and determine if their counterparties likely to be so damaged by the crisis that they could go into bankruptcy. If these assessments reveal that the COVID-19 situation represents a risk to your company, you should update agreements to include hardship clauses that account for the current situation, keeping in mind that the COVID-19 crisis may no longer be considered a force majeure event since force majeure only represents happenings that are unforeseeable. Planning for the future from a contractual point of view is compounded by one fact: no one is able to predict how long the COVID-19 crisis will last. Hence, future contracts should include a clause similar to the following "It is specifically understood that an event beyond the reasonable control of a party related to the coronavirus situation shall amount to force majeure". For more information on how to protect your business during the COVID-19 crisis, contact your regular CMS advisor or one of the following CMS experts: For employment-related questions: ― Caroline Froger-Michon, Partner and Global Co-Head of the CMS Employment