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Governments and businesses across the globe are attempting to quickly formulate an effective response to COVID-19, whose reach has quickly expanded to over 71 countries. Recent reports suggest that COVID-19 will continue to adversely impact businesses in many ways in the coming weeks and months. This Legal Update provides guidance to businesses regarding legal issues arising from COVID-19 and key considerations when preparing a COVID-19 response plan.
What is COVID-19?
Coronaviruses are a large family of viruses that can cause illnesses ranging from the common cold to more serious respiratory infections. They are mainly spread from person to person through close contact. The likelihood that a person will become severely ill is higher where the person has a weakened immune system. COVID-19 is a form of coronavirus that is believed to have originated in Wuhan, China. COVID-19 causes a respiratory infection and its symptoms range from common to severe respiratory illnesses, including fever, cough, difficulty breathing and, in severe cases, pneumonia, kidney failure and death.
Preparing a COVID-19 Response Plan
(a) Establish a COVID-19 Response Team
We recommend that your business identify a team with overall responsibility for COVID-19 response planning. The response team should include representatives from your business with expertise in law, human resources, health and safety, operations and communications. Your response team will have responsibility for:
- developing an overall communications and contingency plan, co-ordinating the plan with the organization's global response plan (if applicable) and updating the plan as COVID-19 continues to evolve;
- preparing a detailed contact list of essential employees, contractors, vendors, suppliers, service providers and any other key contacts;
- acting as a liaison with affiliated companies, employees, contractors, vendors, suppliers, service providers, customers, insurance providers, regulators, government and public health authorities;
- determining the triggers for what has to happen, when and by
whom within your business in response to COVID-19, including:
- who is authorized to make decisions and at what level in the business;
- who is responsible for issuing communications, who will authorize the message to be communicated and how such messages will be communicated; and
- considering the extent to which your business can sustain disruptions to normal operations, including how staffing levels will be met, and the impact on employees, contractors, suppliers, service providers and customers.
Considerations for Businesses
Employers have a legal obligation to take all precautions reasonable in the circumstances to protect their employees. In response to COVID-19, your organization's response team should consider the following:
- Travel Restrictions. Cancel or postpone non-essential work-related travel to high risk jurisdictions. Caution employees against personal travel to high risk jurisdictions. Require employees to report if they are planning travel to a high risk jurisdiction. Monitor federal/provincial government travel and public health advisories. Review travel insurance policies to determine whether there are any limitations on coverage for travel to or through high risk jurisdictions.
- Reporting Requirements. Require employees returning from a high risk jurisdiction or living with someone who has done so, or who believes that they may have been exposed to COVID-19, to immediately report to the employer (even if they are asymptomatic), to work remotely for 14 days and to return to work only if they are asymptomatic at the conclusion of that 14 day period and cleared by a medical professional to return to work.
- Leave of Absence and Vacation Policies. Review policies to determine whether your organization can cancel scheduled vacations/leaves of absence due to staff shortages caused by COVID-19, or require employees to take vacation or paid/unpaid leaves of absence if staffing needs are reduced due to COVID-19. Consider also whether employees can be laid-off temporarily.
- Cross-Training and Remote Work Arrangements. Consider whether employees can be cross-trained to ensure sufficient staffing to cover COVID-19 related absences or whether work can be temporarily outsourced. Ensure that your organization's computer network can support staff working remotely.
- Promote Everyday Preventative Measures. Advise employees that if they have symptoms of a respiratory illness of any kind (e.g. fever, coughing, shortness of breath, etc.) they should stay home and seek medical treatment. Encourage employees to wash hands often with soap and water for at least 20 seconds; avoid touching their eyes, nose and mouth with unwashed hands, and to cover a cough or sneeze with a tissue, or cough/sneeze into their sleeve if a tissue is not available. Ensure that alcohol-based hand sanitizers with at least 60% alcohol are readily available. Consider retaining a medical expert to advise your response team on additional safeguards to minimize spread of COVID-19.
- Investigate Work Refusals. Employees have a statutory right to refuse to work or perform a task where it is likely to endanger their health or put them at risk. If an employer receives a COVID-19 related work refusal, it is generally required to investigate. Employees who exercise a legitimate health and safety work refusal cannot be disciplined, threatened or dismissed.
- Discrimination, Harassment, Accommodation. Do not make assumptions about employees based on stereotypes. Employees must not be subject to discrimination or harassment based on their connection to a high risk jurisdiction (e.g. race, ethnicity, or place of origin). Accommodate COVID-19 related medical conditions/absences to the point of undue hardship.
- Maintain Communication. Provide accurate and up to date information regarding COVID-19 and measures the organization is taking to respond. Consider establishing a telephone "hotline" and/or web portal for employees to facilitate communication if employees cannot attend at the workplace.
(b) Immigration Considerations
COVID 19 has had a significant impact on the international travel and mobility of a workforce. Employers must be aware of processing and administrative delays and be prepared to make alternate arrangements for their operational needs if necessary.
(i) US Immigration Considerations
Over the past few weeks, further to the Presidential proclamation on the Suspension of the Entry as Immigrants and Non-immigrants of Persons who Pose a Risk of Transmitting 2019 Novel Coronavirus, the US has imposed important travelling restrictions:
- China: The United States has imposed restrictions on US Citizens returning from travels to China. The Proclamation differentiates between citizens who have been in the Hubei province in the 14 days prior to their entry to the US and who are subject to a mandatory 14-day quarantine period, and citizens who had been anywhere else in mainland China, who are instead required to undergo "proactive entry health screening at a select number of ports of entry," and up to 14 days of "monitored self-quarantine" to ensure they have not contracted the virus and do not pose a public health risk.
The US has currently suspended entry of all aliens (immigrants, non-immigrants and other non US citizens) who were physically present within the People's Republic of China, excluding the Special Autonomous Regions of Hong Kong and Macau, during the 14-day period preceding their entry or attempted entry into the United States. Excluded from this are lawful permanent residents of the United States and their spouses; parents and legal guardians of a US Citizen or lawful permanent resident; and those on diplomatic and governmental visa status amongst others.
Foreign nationals who are not subject to an exclusion and are eligible to travel are required to land at specific airports listed by the Department of Homeland security. They are subject to specific screening and/or quarantine.
- Iran: The revised Proclamation signed on February 28, 2020 expands the above restrictions, exemptions and arrival guidance and suspends the entry of all aliens, immigrants or non-immigrants, who were physically present within the Islamic Republic of Iran during the 14-day period preceding their entry or attempted entry into the United States.
Businesses should closely monitor the movement of their personnel and travel through any affected areas and the entry requirements of the worker's destination.
(ii) Canadian Immigration Considerations
Immigration, Refugee and Citizenship Canada ("IRCC") released an Operational Bulletin addressing permanent residents and foreign nationals from China, Iran and South Korea. At this time, received applications are continuing to be processed however, delays can and should be expected as the situation develops.
- Office closures: Many offices are closed or are operating with only essential staff. IRCC offices in China and Hong Kong are currently operating with essential staff only. All visa application centres (VACs) in China are closed until further notice however, the VAC in Hong Kong and the VAC Contact Centre for China are open and operating with normal business hours. IRCC visa offices in other affected countries are currently operating normally.
- Temporary Residents wishing to travel, visit, or work in Canada: Due to the VAC closures in China, applicants will be unable to provide their biometrics or to submit their original travel document for visa issuance through the VAC; however, applicants in China may still submit online applications only. Due to travel bans from neighbouring countries, Iranian citizens may be unable to access VACs or IRCC offices to submit biometrics, attend interviews, do medical examinations, etc. However, applicants in Iran may still submit online applications only. Applicants in South Korea may experience delays in obtaining immigration medical examinations (IMEs), as many panel physicians in the region are not open to clients at this time.
- Permanent Residents: New permanent resident applications are being accepted and complete applications are being processed as per normal procedures. Permanent residents who require a Permanent Resident Travel Document to return to Canada should contact the relevant agencies to obtain such a document. Nationals of China, Iran and South Korea are being asked to submit their PRTD applications directly to the relevant embassy by commercial courier. For nationals of China who require a medical examination, extensions and adjusted timelines have been created to allow for applications to be processed.
- Citizenship Applicants: Applicants may also be expecting additional delays if they must attend tests, retests, interviews, hearings or oath ceremonies if they have been in China, Iran and South Korea prior to their return to Canada.
- Foreign nationals unable to leave Canada due to COVID-19: Foreign nationals who are in Canada and whose temporary resident status may soon expire may apply for an extension so that they may maintain their temporary resident status in Canada. As per current guidelines, applicants must apply online and must meet all requirements, including associated fees.
(c) Contractual Considerations
In addition to employees, COVID-19 is impacting business relationships. Parties to contracts involving counterparties, goods or services in countries impacted by COVID-19 should review those contracts carefully to address any provisions impacted or triggered by the virus outbreak.
The following is a general overview of provisions that may be triggered by the COVID-19 outbreak. Impacted provisions will vary based on the applicable industry and the nature of the agreement. Please see "International Trade" below as well, for a discussion of sourcing and procurement contracts.
(i) Review Contracts for Force Majeure Provisions
Depending on the circumstances, including the particulars of the provision, governing law, the industry in which your business operates and the specific impact of COVID-19, the implications of COVID-19 may trigger a contract's force majeure provision. A force majeure clause typically excuses a party from performance if the failure to perform is due to an enumerated event, or an event beyond the party's control. The determination is fact specific and provisions vary widely. As the application of the provision will depend on the language and particulars of the provision (does it include diseases or epidemics, or a broad catch-all?) and the circumstances (is the relevant party unable to perform?), all contracts should be reviewed to determine whether force majeure may be invoked (or is likely to be invoked by the other party) in light of the outbreak of COVID-19.
Consider the notice period required, whether the COVID-19 outbreak resulted in an inability to perform, the length of time the force majeure event must continue in order to rely on the provision and any repercussions of invoking the provision (e.g. if the force majeure event continues long enough, is there a right to terminate?). Is there any opportunity to mitigate the impact of COVID-19 on the agreement or your business?
(ii) Other Provisions That May be Triggered
Consider other contractual provisions that may be triggered by the impacts of COVID-19:
- Do the circumstances trigger any notice, consent or approval requirements?
- Does the impact of COVID-19 on your business impact or cause to be untrue or misleading any representations or warranties?
- Are any events of default or termination provisions triggered?
- Does the contract require development and implementation of a disaster recovery or emergency preparedness plan? If so, is the plan being followed?
- Are there any penalties for failure to meet minimum order quantities or other obligations? Will any guarantees be impacted?
- Are any other penalties and damages implicated?
- Consider time of the essence provisions as well.
(iii) Future Implications
The COVID-19 outbreak will also impact contracts that are currently being negotiated or that are approaching renewal. It will be important to consider the implications of further business interruption and to negotiate and clearly reflect how any related risks will be allocated among the parties in the contract. During any renewal period, review and address any provisions such as those described above, that may be triggered as a result of the COVID-19 outbreak or that need to be amended to address it.
(d) Commercial Leases
Commercial landlords and tenants should review their principal leases to determine what rights and obligations they have in the face of COVID-19 impacting access to premises. Leases entered into since the SARS outbreak usually have specific provisions giving the landlord special rights in the event of a health emergency. In the case of older and less sophisticated leases, the landlord's right to make rules governing the operation of the building and its right to control the common areas will usually be sufficient to allow the landlord to limit or control access to the building if required or recommended by the authorities.
In exercising its rights to control access a commercial landlord should act reasonably and in good faith and never with an ulterior motive. Keeping tenants fully informed on the proposed actions and explaining the necessity for it will go a long way in dealing with tenant concerns. In addition a landlord should be prepared, to the extent not prohibited by the authorities and subject to the landlord's usual security requirements, to allow a tenant to access the premises to retrieve laptops and files required by the tenant to work remotely from another location.
(e) Managing Litigation Risk and Exposure
The potential for litigation increases following any crisis. Prudence requires that you consider your litigation risk and exposure vis-à-vis all of your relevant stakeholders, including:
- Employees and independent contractors
- Contracting parties
Steps to minimize litigation risk and exposure include:
- Informing yourself of duties to warn and reporting obligations
- Employees and independent contractors
- Contracting parties
- Proactively reviewing contracts and term sheets
- Considering cross-border obligations
- Considering guidance updates if public issuer
- Reviewing the contractual clauses described under ""Contractual Considerations" above with contracting parties
- Engaging in without prejudice settlement discussions
- Entering into tolling agreements
- Reviewing media strategy for risks related to public statements and social media content
(f) Trade and Cross-Border Considerations
(i) Review outstanding purchase orders / production agreements
International product sourcing may be at risk if the products are manufactured in countries impacted by COVID-19. Various Chinese manufacturing sectors in particular are experiencing a significant reduction in operations and productivity, with some production facilities in complete shut down mode. Worldwide, general manufacturing impacted by COVID-19 is expected to remain depressed for months.
Sourcing and procurement contracts should be consulted to determine if there are any timeline guarantees provided by producers and suppliers. Contracts may also provide for obligatory notification provisions if the supplier is unable to meet product demand. Where necessary, procurement groups may seek to cancel and / or vary supply contracts in order to source product elsewhere.
(ii) Inventory Review
Where possible, investing in inventory origin mix is recommended. This entails seeking diversified suppliers in several jurisdictions to help with stock and inventory management. Where inventory insurance products apply, it is recommended to consult with the policy to determine if any action needs to be taken to protect rights to an inventory claim.
(iii) Supply Chain Transportation
International shipments may be delayed, particularly if products are being shipped by sea. Canadian importers anticipating delivery should communicate with their suppliers to ascertain whether the logistics chain is still in tact. Seeking alternative shipping methods where possible (such as air) may alleviate some supply chain pressure.
(g) Market Impact for Mergers and Acquisitions
For deals currently in the market, both buyers and sellers will be looking carefully at the "material adverse change", or "MAC", clauses in their agreements to determine if the impact of COVID-19 on the target company provides for a termination right in respect of the deal.
MAC clauses are typically designed to allow a buyer to back out of a deal in the event of a material change in the business, operations or financial conditions of the target. However, buyers should be cautioned, and sellers comforted, that the courts have been very reluctant to allow a buyer to rely on a MAC clause to escape its obligations under a purchase agreement. The courts have set a high bar to invoke a MAC clause, and generally require an impact on the target that is both financially and durationally significant.
While the wording of MAC clauses varies, the typical construct in Canada excludes from a MAC clause the impact on the target of an outbreak of illness unless it has a materially disproportionate impact on the target relative to other companies in the target's industry. The underlying principle is that a general market or economic condition does not trigger a MAC, rather there needs to be an event that is specific to the target or that affects the target differently than its comparable group.
For deals currently being negotiated, parties should expect to focus closely on the wording of the MAC clause and the potential impact of COVID-19 on any particular target company. In particular, sellers will be looking to ensure that COVID-19 cannot be used as an excuse for buyer's remorse. In addition, some buyers may look to pause or slow down negotiations as they continue to assess the potential impact of COVID-19 on the target's business.
(h) Additional Considerations for Public Companies
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