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Contracts During a Public Health Pandemic - Legal Alert

Business Regulations, Law & Practice	1551 VIEWS
Business Regulations, Law & Practice
1551 VIEWS

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Wednesday, 22 April 2020 / 04:07AM / By Oserogho & Associates / Header Image Credit: Resolution Law Firm

Introduction

The World Health Organisation ("WHO") recently declared the outbreak of the Coronavirus, which is also known by the name of COVID-19, as a global health pandemic.

The resulting shutdown of Cities and land borders to human traffic as a result of the COVID-19 pandemic, have naturally impacted negatively on businesses and their employees, most of whom live from one pay check/cheque to another pay check/cheque.

The temporary closure of businesses will have significant financial consequences especially for Small and Medium Scale Business owners, and employees. Business owners, large or small, and employees must therefore now proactively explore as many legal options as may be available to them in restructuring their business models and payroll obligations post the COVID-19 pandemic. Some of such legal options are explored in this memorandum.

Related Article: Contracts Tainted With Coronavirus - What You Should Do Now -Banwo & Ighodalo

Employment Contracts

The first and most immediate major challenge to most businesses who are unable to generate any revenue during and after the COVID-19 lockdown or stay-at-home restrictions will be on how to settle their employees' payroll obligations. This is especially as a majority of the standard employment contracts do not have provisions which regulate periods when a City or Country is on lockdown as a result of a public health pandemic, and therefore unable to earn any income.

Voluntary Redundancy

Employers and Employees can through recognised Trade Unions or Workers representatives, if they have any, explore negotiating and entering into some voluntary redundancy agreements. Redundancy is the involuntary loss of employment as a result of excess man-power when compared to the actual profitable work available.

The Redundancy rules in most jurisdictions require that the last employees engaged will have to be the first employees disengaged. This is commonly known as the "last in, first out" labour principle.

Re-negotiate Contracts

In order to reduce massive retrenchment or loss of employment, Employers and their Employees can also re-negotiate their employment contracts to match present-day commercial realties, post COVID-19.

Related Article: Coronavirus (COVID-19): advice for employers and employees - ACAS

Force Majeure

Though Force Majeure or "acts of God", which is an unforeseen and unavoidable natural event which interrupts or terminates the performance or fulfilment of a valid contract, must be enshrined in the terms and conditions of a contract, any affected party can explore relying on this legal defense, combining it with other legal defenses like Frustration, to plead the unenforceability or the temporary suspension of a contract during the COVID-19 pandemic lockdown period(s).

Frustration of Purpose

A Contract would be said to have suffered from Frustration of Purpose and therefore unenforceable where a post-contract event like the COVID-19 pandemic occurs, which makes the continuing performance of the terms and conditions of such a Contract impossible or very difficult.

The defence of Frustration to the impossible continuing enforcement of a Contract will not however exempt any prior contractual obligations, especially where aspects of a Contract have been part-performed, before the unfortunate and unforeseen post-contract event like a COVID-19 pandemic, occurred.

Also, contracted sums with any reasonable overhead expenses will also not be exempted from being paid because the doctrine of Frustration only applies to post-contract intervening events.

Insurance

Businesses that have any subsisting Insurance Policy, like a Business Owner's Insurance Policy, which is a combination of numerous insurance policies like the Business Interruption Insurance Policy, General Business Liability Insurance Policy, Property and Motor Vehicle Insurance Policies; in addition to the statutory compulsory insurance policies like the Employee's Compensation Fund; will do well to review the fine prints of the insurance policies that they have vis-a-viz their applicability to a COVID-19 pandemic stay-at-home event.

This is especially as most incidents arising from virus and bacteria related claims may be excluded from most insurance policies executed post the last SARS epidemic.

Employee's Compensation

Contributors to the compulsory, statutory Employee's Compensation Fund will also do well to contact this Fund where any of their employees fall ill and or dies as a result of the COVID-19 pandemic.

Consumer Protection

FCCP

The Federal Competition and Consumer Protection Act, 2018 ("FCCP"), as with similar Consumer Protection legislations in your jurisdiction, may have consumer protection reliefs for damages arising from the COVID-19 pandemic. A good example of such a right is a Consumer's right to cancel any advance booking, reservation or order, of any goods or services subject to a reasonable cancellation charge deducted by the service provider.

Conclusion

Business owners must be aware that Contracts remain in force during a public health pandemic unless it is established that the public health pandemic has made the continuing performance of such a Contract temporarily or permanently impracticable or impossible to continue to remain in force.

Proactively preparing for and managing a crisis like the COVID-19 pandemic must be an integral function of any long-term business strategy. Business owners are therefore encouraged to carefully review and restructure their businesses using some of the legal tools proffered above.

Disclaimer:

This is a free educational material. It does not serve as a source of solicitation, advertisement or the offering of legal services or advice of any kind. No Client/Attorney relationship is therefore created. Readers are strongly advised to always seek from qualified Legal Practitioners, competent legal counseling to their specific factual situation.

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