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.
Overview
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.
For further advice on any of the issues mentioned in this article, please contact any of the authors or get in touch with your usual contact at the firm.
Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com
Adam Rice
Knowledge Counsel, Employment
+44 20 7295 3224
adam.rice@traverssmith.com
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).
For further advice on any of the issues mentioned in this article, please contact any of the authors or get in touch with your usual contact at the firm.
Richard Brown
Partner, Commercial, IP & Technology
+44 20 7295 3254
richard.brown@traverssmith.com
Jonathan Rush
Knowledge Counsel, Commercial IP & Technology and Competition
+44 20 7295 3471
jonathan.rush@traverssmith.com
Ed Mills
Partner, Head of Employment
+44 20 7295 3424
ed.mills@traverssmith.com
Adam Rice
Knowledge Counsel, Employment
+44 20 7295 3224
adam.rice@traverssmith.com
Commercial landlords - obligations towards occupants
If your business occupies leasehold premises, you have obligations as regards the health and safety of your staff and other visitors to your premises, as mentioned above. If you are a landlord of commercial property, however, you may need to consider your obligations towards your tenants.
A landlord has no explicit obligations at law with regard to the prevention or containment of coronavirus within its premises, unlike legionella for example, against which landlords can have explicit obligations to assess and protect their tenants. However, coronavirus is a biological agent and so falls within the Control of Substances Hazardous to Health Regulations 2002 (COSHH), which provide a framework to control the risk from a range of hazardous substances.
ARE YOU CAUGHT BY COSSH?
Whether a landlord has obligations towards its tenants under the COSHH largely depends on the level of control that they have over the property, which will itself be determined both by the terms of the leases it has granted and the physical characteristics of the property or properties involved. For example, if a landlord has granted a long lease of the whole of a building and has no ongoing obligations towards its tenant with regard to maintenance or services, then the landlord is unlikely to have any responsibility. If, however, it has granted a lease of just one floor in a multi-let office block, with shared air conditioning and other common services and areas, and it retains responsibility for maintaining and providing these shared areas and services, their obligations may be more extensive.
Steps to take if caught by COSHH
If a landlord is caught by the COSHH, then it should take steps to assess the risk of coronavirus and potentially take preventative measures. Obvious steps could include carrying out more thorough or more frequent cleaning of toilets, eating areas, door handles and hand rails, but it may also be prudent to carry out an assessment of how to isolate any areas in which coronavirus (if found present) could be spread from. For example, in a shopping centre, could one area be effectively sealed off from another if coronavirus was confirmed? However, it is worth bearing in mind that in a confirmed case of coronavirus, measures will primarily be dictated by Public Heath England rather than by the contractual relationship between the landlord and tenant. Public Health England is keeping a blog on coronavirus.
COST IMPLICATIONS
In carrying out additional services, a landlord may want to consider whether it can recover any additional costs through its service charge (although this will not alter its obligation to provide them). Many service charge provisions allow costs to be recovered provided that they fall within the ambit of 'good estate management', or are 'required by applicable laws'. It seems likely that relatively low-cost additional cleaning services would fall within 'good estate management', and anything additional prescribed by Public Health England and/or the COSHH would fall within 'applicable laws'. However, a landlord should also check whether their tenant has negotiated a service charge cap – if so, then they may face irrecoverable costs if the cap is exceeded.
Force majeure and insurance
Finally, it would be worth considering whether there are any force majeure provisions in any relevant lease which relieve the landlord from its service provision obligations (see above), and whether a landlord's existing insurance policies cover a tenant's claims for non-provision of services as a result of infectious diseases like coronavirus.
For further advice on any of the issues mentioned in this article, please contact any of the authors or get in touch with your usual contact at the firm.
Simon Rutman
Partner, Head of Real Estate
+44 20 7295 3379
simon.rutman@traverssmith.com
Doug Bryden
Partner, Head of Risk & Operational Regulatory
+44 20 7295 3205
doug.bryden@traverssmith.com
Sarah Faull
Knowledge Counsel, Real Estate
+44 20 7295 3175
sarah.faull@traverssmith.com
Tax
Business disruption may impact on the tax position of a company (or other form of enterprise) and this should be considered. It is likely that there will be issues having an immediate direct impact on how a business manages its tax affairs as well as longer term consequences. Examples of immediate issues may include:
-
does the business have enough cash to pay its upcoming tax bills? or
- if it is a company tax resident outside the UK (and otherwise not subject to UK tax) but has UK directors and executives, if those individuals are unable to travel abroad, to what extent can they make decisions from the UK without risking making the company UK tax resident or bringing it within the UK tax net?
Longer term matters could include the extent to which the business will be able to use tax losses arising from the current financial disruption in future accounting periods.
For further details on any of the issues mentioned in this article, please see COVID-19: Tax Measures, contact any of the authors or get in touch with your usual contact at the firm.
Emily Clark
Partner, Head of Tax
+44 20 7295 3393
emily.clark@traverssmith.com
Russell Warren
Partner, Tax
+44 20 7295 3227
russell.warren@traverssmith.com
Ian Zeider
Knowledge Counsel, Tax
+44 20 7295 3849
ian.zeider@traverssmith.com
The rapid global spread of the Covid-19 virus has resulted in significant market volatility and is placing an immense strain on the business community. Get guidance and practical advice on key operational and legal issues.
