Coronavirus – Some Legal Considerations

Coronavirus is having profound practical, commercial and legal effects. This is the first in a series of articles about some of the legal considerations surrounding this issue. This article seeks to briefly summarise some of the key considerations in the following areas: Employment, Contractual Obligations, Insurance, Debts, Companies House Filing, Directors Duties and Property. This article is correct to the date of publication however the situation is fast evolving. If you require specific up-to-date advice the please call 0115 8371 430 and we will be happy to assist.

Employment

Volunteer Leave

Employees and workers will be able to take emergency volunteer leave in blocks of two, three, or four weeks’ unpaid leave. This is a new form of unpaid statutory leave. A UK-wide compensation fund will be established to compensate for loss of earnings and expenses incurred at a flat rate for those who volunteer through an appropriate authority. Staff working for businesses with fewer than 10 staff are excluded from the right. There is no right to refuse volunteer leave for operational reasons.

SSP

The Statutory Sick Pay (SSP) definition of incapacity has been amended to include those who are isolating under the 16 March 2020 guidance and are unable to work by reason of that isolation. This guidance includes the requirement for a household to self-isolate for 14 days if a member of the household has symptoms of coronavirus. It also appears that the government intended to catch those parties who are particularly at risk (i.e. those who appear in the below list) in the amended definition. It is not clear whether the regulations adequately reflect this intention. The particularly at-risk individuals are those who are:

• aged 70 or older (regardless of medical conditions)
• under 70 with an underlying health condition listed below (ie anyone instructed to get a flu jab as an adult each year on medical grounds):
  • chronic (long-term) respiratory diseases, such as asthma, chronic obstructive pulmonary disease (COPD), emphysema or bronchitis
  • chronic heart disease, such as heart failure
  • chronic kidney disease
  • chronic liver disease, such as hepatitis
  • chronic neurological conditions, such as Parkinson’s disease, motor neurone disease, multiple sclerosis (MS), a learning disability or cerebral palsy
  • diabetes
  • problems with your spleen – for example, sickle cell disease or if you have had your spleen removed
  • a weakened immune system as the result of conditions such as HIV and AIDS, or medicines such as steroid tablets or chemotherapy
  • being seriously overweight (a body mass index (BMI) of 40 or above)
• pregnant

The government have relaxed the requirements for sick notes from GPs in respect of SSP. The NHS are offering a system of isolation notes which can be obtained from the NHS website or calling 111. This will be accepted as satisfactory evidence by the government for SSP purposes.

Sending Employees Home and Pay

An employer may be entitled to send someone home. The employer should check its contracts to see whether there is a right to do so and, if not, whether there is an obligation (either expressly in the contract or implied) on the employer to provide work. If there are reasonable and non-discriminatory grounds for concern, it is unlikely to be a breach of the implied duties of the employer to send an employee home on full pay, unless there is an obligation on the employer to provide work.

Where an employer sends an employee home for a reason not falling within the self-isolation advice they should usually be paid in the absence of any express term in the contract. If the reason for sending an employee home to is self-isolate when they are required to do so by the guidance, the employer will usually be required to pay SSP (discussed above).

If a workplace is required to shut (either by the lockdown or by virtue of an insufficient  number of employees attending work) this closure will be treated as the employer’s decision and so, in principle, the employees will remain entitled to full pay, unless there is no contractual requirement to offer work (which may be the case for casual employees). The employer may be able to apply to the Coronavirus Job Retention Scheme which will pay 80% of employees’ salaries of up to £2,500 a calendar month (provided they are kept on the payroll). It is possible that a contract of employment will be frustrated (see below under heading Contractual Obligations) if the government mandates closure of an employer’s business. This will make the contract of employment void. The employer may want to avoid this so that the contract is still binding.

Policies and Procedures

It may be appropriate to review policies and procedures and ensure that employees are aware of what is expected of them. The polices and procedures that may need reviewing include:

• Sick pay
• Absence management
• Social distancing in the workplace (where possible)
• Homeworking
• Business travel
• Precautionary isolation

The company may also want to consider:

• Establishing the safe level of workers to continue operating and make arrangements for the eventuality where the workplace has to shut temporarily
• Whether the workplace and IT systems in place can cope with a higher number of homeworkers
• Separating the workplace into self-contained units to try to mitigate any workplace infection
• Identifying any high-risk workers and considering alternative arrangements for them

Contractual Obligations

Unless you fall within the limited exceptions to the general rule, contractual obligations must be complied with and any breach may result in damages being awarded against the breaching party.

It is possible to avoid having to comply with your obligations under a contract when this has been frustrated. Frustration is only granted in limited circumstances. It is too early to assess how the courts will deal with frustration in cases of coronavirus.  Frustration acts like a termination of the contract as opposed to a suspension. It brings the contract to an end instantly and does not require any action of the parties. The frustrating event must be so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract. That event must render further performance impossible, illegal or make it radically different from that contemplated by the parties at the time of the contract. Frustration will not usually occur solely by virtue of the fact that a contract is more expensive to perform or where the frustrating event should have been foreseen.  Below are some examples of frustrating events from the previous case law:

• Destruction by fire or other cause of the subject matter of the contract;
• Unavailability of the subject matter (e.g. the goods in a contract for the sale of goods).
• Supervening illegality of performance where a subsequent change in the law or circumstances can make performance illegal. For example, when war breaks out an export contract may be discharged.
• The cancellation of an expected event, such as in the “coronation cases” due to the postponement of King Edward VII’s coronation owing to illness.
• Unexpected delay in its performance due to an unexpected event or change in circumstances. To frustrate a contract, the delay must be abnormal so that it falls outside what the parties could contemplate at the time of contracting.
• Contractual performance imposing a burden on one party which is radically different from that contemplated at the time of contracting, without rendering performance actually impossible.

Furthermore the contract may contain a provision dealing with what is to happen in the case of a significant event which may include a global pandemic. Such clauses are often known as Force Majeure clauses.  If a contract contains such a clause, it should be examined carefully to see whether coronavirus would trigger it and, if so, to check how the clause operates (for example, to check whether any notices are required to be given to the other party).

Insurance

It is usually not possible to claim under a traditional business interruption insurance policy in the absence of physical damage to the property however some policies may provide cover for loss of use of the property. Furthermore insurance policies sometimes cover loss by the action of civil authorities or by virtue of a notifiable infection disease. Coronavirus became notifiable on 3 March 2020. As such if you have cover for notifiable infection diseases you may be able to claim for losses after this date but not before.  Other insurance policies may also assist including liability insurance, cancellation insurance and trade credit insurance. It is important to review all insurance policies to check whether you can claim. This should be done as a matter of priority as it would be fairly standard for a policy document to require you to notify the insurer immediately of the possibility of making a claim. As with all insurance claims, the exact nature of any claim you can bring will be dependent on the policy wording.

Debts

Debts due are still payable irrespective of the current situation. The courts are still open for business and are accepting new claims. As such the process for obtaining a judgement for an unpaid debt should be largely unchanged, albeit that hearings may be conducted telephone or video conferencing (e.g. skype). Please note that the enforcement of judgments may be more problematic as enforcement agents are currently ceasing to enforce debts. There are other enforcement options that can be pursued such as charging orders.

Companies House Filing

Companies who have been affected by coronavirus can apply for an automatic 3 month extension to file their annual accounts at Companies House. Such a step may not be able to be taken if a company has already extended their filing deadline or shortened their accounting reference period. Companies House seems reluctant to grant relief from penalties if accounts have been filed late even if the reason is coronavirus.

Directors Duties

Over the weekend, the government pledged to introduce new measures suspending the wrongful trading laws. Wrongful trading occurs when a company makes transactions whilst knowing the company is insolvent (i.e. not able to pay its debts). This is designed to protect creditors. The penalties for wrongful trading can be significant and include personal director liability.  The government claims that such provisions will be backdated to the beginning of March. It is important to be aware that this legislation has not been enacted yet and as such it is not possible to assess whether there will be exceptions to this suspension. As such there is a risk that if a director does something that prejudices creditors that they may be held personally liable. It is important for directors to be aware of when this law comes into force and it may be prudent to seek advice on any exceptions in the law enacting the suspension.

Property

The Coronavirus Act 2020 includes provisions which greatly restrict the ability of a commercial landlord to obtain forfeiture. Any forfeiture (by proceedings or peaceable re-entry) for non-payment of rent is prohibited until 30 June 2020 (although this period can be extended by the government). Forfeiture for other reasons (e.g. a breach of the lease not related to rent) is not affected. Furthermore, any actions taken by a landlord during this period cannot operates as a waiver of the right to forfeiture except an express waiver in writing. Additionally, failure to pay rent during this period cannot be considered as a ground for refusing to grant a new lease under the Landlord and Tenant Act 1954 where the tenant has security of tenure.

There is currently no mandatory rent holiday. As such rent continues to accrue and can be enforced by litigation. As mentioned above the courts are continuing to function albeit in a slightly different manner.

Whilst the above is intended to be of general assistance, it should not be regarded as legal advice and is not a substitute for substantive legal advice. Should you wish to take specific legal advice we would be happy to help. Please call us on 0115 837 1430 for specific advice about any of the above issues or any other legal issue.

Above all, stay safe.

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