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Coronavirus: General Legal Implications of a Global Pandemic

Note: The content herein is only for informational purpose and does not constitute any legal opinion or advice on behalf of Legal Minds LLP.

The unexpected outbreak of COVID-19 has massively disrupted global economic activity and is indicating a financial meltdown. Consequently, several critical issues confront all the stakeholders of the economy. 

We have prepared this information in response to numerous queries about the legal implications of ‘COVID-19’ on businesses.  

1. Government Initiatives

To contain the proliferation of COVID-19, the Government of India introduced several critical guidelines, protocols and advisories. Further, the Government of India launched several COVID-19 campaigns with the predominant objective of conceiving awareness and facilitating precautionary measures.

(Information on guidelines, advisories and protocols are available on www.mohfw.gov.in.)

2. General Guidelines 

The Board of Directors of every company ought to evaluate the material risk to the company and devise a framework to address those issues. The Board shall ensure a reporting mechanism to stay informed of the most advanced development, seek expert assistance to manage and relieve the risk, set out a predicament to combat foreseeable situations and monitor its decisions. Every Board shall acknowledge workplace safety, business interruption, financial distress, insurance coverage, contractual provisions and market dynamics. 

Action Plans. To mitigate risks, the Board shall assess the business continuity risk and seek prudent alternatives. 

3. Employment

An employer shall plan and behave reasonably. A failure to act reasonably in such testing times may result in legal claims and adversely impact future employee harmony. 

  1. Obligations. An employer is bound to ensure a safe and healthy work environment. He ought to keep abreast of the latest official developments and undertake every proactively reasonable action to combat the proliferation of COVID-19.  

  2. Travel. An employer is advised to stay informed of travel restrictions and review their travel insurance policies. In the event of employees travelling for work, an employer is encouraged to formulate measures concerning their repatriation or transfer with the paramount objective of protecting such employees. 

  3. Employment Agreement Review. An employer is advised to review employment agreements to evaluate the exposure to risk arising from clauses concerning travel, leave, medical and insurance policy and compensation and to seek legal help if required.  

  4. Leave Entitlement & Termination. An employer may prevent an employee suffering COVID-19 from accessing the workplace for the protection of other employees. However, it is not prudent to terminate any employee on the individual ground that the employee is or suspected to be a COVID-19 patient. Further, given the contagious nature of COVID-19, an employer may be advised to confer paid leaves.

  5. Work-from-home Policy. Given the epidemic nature of COVID-19, an employer may be advised to encourage employees to work-from-home and take such measures as may be necessary to accomplish such a policy decision.

  6. Reporting. As of date, an employer is not bound to report an employee to the Government. However, all hospitals, medical officers and registered private medical practitioners are directed to notify cases of COVID-19 to the concerned district surveillance unit and to procure a self-declaration form from individuals. 

  7. Privacy Obligations. Data concerning medical status/history shall constitute ‘sensitive personal data’. Ideally, the legally permitted collection, disclosure or use of such data shall require the express consent of the person concerned. However, sensitive personal data can be collected, disclosed or used independently of the legal constraints provided it is under the specific direction of the Government or the applicable law. 

  8. COVID-19 Policy. An employer shall consider devising a policy framework to address, amongst other things, the status of employees returning from work-related travel; employees diagnoses or suspected of COVID-19; self-quarantine and self-reporting; work-from-home guidelines and implications of a breach of such policy. 

4. Commercial Contracts 

Given the impact of COVID-19 on economic activity, a three-fold outcome may be anticipated. First, it is plausible that counter-party contractual performances may be delayed or cancelled. Second, as a result of the delay/cancellation of counterparty agreements, companies may not be able to meet their employment-contract obligations and may attempt to suspend and/or terminate such employment contracts. Third, parties may seek to renegotiate their key contractual clauses due to shifts in market economics. 

In such a scenario, the most relevant question is, can the force majeure clause be invoked vis-a-vis COVID-19 pandemic.

Force Majeure is a contractual provision agreed upon between parties to the effect that a party shall be protected from liability if it fails to perform its contractual obligations due to a force Majeure event. Such a clause intends to protect a party from consequences of something over which it has no control or which is not foreseeable, such as an Act of God, natural disasters, war, epidemics, pandemics etc. The Force Majeure legalese varies across contracts, and it is essential to review these clauses critically. 

Here’s a quick two-step test to determine if the force majeure clause can be invoked? 

  1. In a contract, a force majeure clause has to be expressly provided for, and the scope of protection will depend upon the language of the provision. Therefore, review the clause to determine if (a) it explicitly includes ‘pandemic’ in the contractual definition of a force majeure clause or (b) the force majeure clause covers extraordinary events or circumstances beyond the reasonable control of such parties. 

  2. If step 1 of the test is satisfied, it is essential to undertake a factual assessment of the scenario. The most fundamental question would be if COVID-19 pandemic reasonably prevented a party from discharging its contractual obligations? 

The application of a force majeure clause is a fact-specific determination that will depend on the nature of the party’s responsibilities and the particular terms of the contract. 

After that, the party invoking a force majeure clause is obligated to comply with the condition precedent to relief such as the prompt issue of notice. Further, it shall explain that it has taken all prudent measures to circumvent or mitigate the event and its effects. 

Remedies. Remedies in case of a force majeure event are circumscribed as per the language of the contract. In the absence of a force majeure clause, a party may claim relief under the doctrine of frustration or evaluate the scope of non-performance clauses, or material adverse change clauses.  Given the standing of the law, it is unlikely that COVID-19 is a valid defence for invoking the force majeure clause. Therefore, prudent legal risk management is advised. 

5. Insurance 

The Insurance Regulatory and Development Authority of India (IRDAI) has directed insurance companies to design a policy framework to cover COVID-19 treatment. 

Refusal of claimsAn insurance company may deny claims if the insurance contract expressly excludes cover for pandemics. In such a scenario, it is advised that companies critically review their business insurance policies to ascertain if financial consequences resulting from COVID-19 can be claimed. Although the extent of cover is subjective, it is pertinent to examine if the policy carries any exclusions for pandemic outbreaks.

It is recommended that companies notify the insurer of any material events and comply with the condition precedent to claims and stay updated with the insurance company guidelines. Further, companies may procure a written communication from the insurer concerning the coverage of the policy and the status of it becoming a notifiable event. 

6. Insolvency

The outburst of COVID-19 has unarguably imposed financial difficulty on companies and may compel insolvency filings. It is advised that companies contemplating solvency issues shall engage with their stakeholders and evaluate renegotiations or reconstruction/restructure of projects and debts. 

Conclusion. As of date, it is unmanageable to determine the impact of COVID-19 accurately. We advise each one of you to comply with the government health prescribed precautionary measures and stay safe. Life is so precious! 

If you would like to discuss any legal implication, please reach out to us on info@legalminds.co.in.