The Covid-19 crisis has not only led to serious implications for human lives, it is significantly impacting businesses and economies. As the outbreak continues to escalate, companies are faced with immense challenges of ensuring the well-being of their employees, while also ensuring business continuity.
During country-wide lockdowns, travel restrictions and social distancing measures, manufacturing and sales figures have taken a severe hit. Massive disruptions to supply chains have debilitated business operations. There has been a sharp fall in consumer and business spending, leading to a global recession. The International Monetary Fund has projected that global growth could fall to -3% in 2020, which might be the worst downturn since the Great Depression of the 1930s.
During this crisis period, businesses will have to take stock of their vast array of operational and legal issues. Although firms will have to address specific challenges within their specific industries and regulatory environments, here are some key considerations that every business needs to look into.
Reviewing Contractual Obligations
This is an unprecedented crisis and businesses need to get in touch with commercial counter-parties to discuss obligations that they might not be able to fulfill. It has to be considered that even landlords, suppliers and vendors have their own financial, commercial and contractual obligations. Here, it is the government's role to enable banks to enact repayment moratoriums, wherever possible, and also to ensure that the banks themselves don't fall into a liquidity, or worse, solvency crisis.
Some aspects of contracts to keep in mind are:
- Reading the fine print of all contracts in detail.
- Renegotiating the terms of contractual agreements and considering the impact of unforeseen events on engagement, termination, defaults and other factors.
- Reviewing sub-contracts to determine obligations, rights and potential for recovery.
The Force Majeure Clause
It is vital to see whether the event in discussion is covered by a force majeure clause. Force Majeure is a contractual provision that allows a party to terminate or suspend its obligations, in the event of circumstances beyond its control, which makes its performance commercially impossible and inadvisable. So, companies should consider looking for words like "pandemic," "epidemic" or "acts of government" in relevant language, which may be seen as relevant to the COVID-19 outbreak and excuse its non-performance of obligations.
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Employee Benefits and Executive Compensation
Ensuring worker safety is paramount, but along with that, businesses will need to have a plan for tackling remote working at scale too. First and foremost, business premises will have to fulfil legal obligations to include safety protocols that enable employees to work in a safe environment. This includes understanding of company rights in such cases. For example, can a company force symptomatic employees to get tested? Can they ask employees to stay at home if they appear symptomatic or have recently travelled to affected areas? Immediate concerns pertaining to global mobility have to be attended to, such as reviewing travel related HR rules and HR policies. Some key questions to answer are:
- Do existing health plans cover (or should cover) COVID-19 testing and treatment?
- Does the company have to pay employees disability pay, if they are unable to work due to the outbreak?
- What are the implications under welfare or health plans, if the employee ceases to work due to the COVID-19 outbreak?
- How will cost sharing agreements with third-party service providers change? What will be the financial impact if they cannot perform their services due to the outbreak?
Remote working will lead to added strain on existing IT and communications infrastructure and businesses will need to ensure that they have a system in place to combat cyber security issues.
Other concerns regarding employees include sick pay, leave of absence and reasonable accommodations for those not coming to work.
Tax and Regulatory Concerns
Understanding tax and regulatory systems is essential to navigate through this period of global uncertainty. Businesses will need to identify resources they need, in order to meet ongoing direct and indirect tax compliance requirements. Many governments are extending the deadlines for tax submissions for businesses. But, a key aspect to consider is that stimulus measures passed by the government don't always extend to local and national tax filing and payment obligations.
Some key areas to concentrate on are:
- How will modifications of cancellation of contracts affect tax obligations?
- How does remote working and work-from-home arrangements impact income sourcing?
- What requirements need to be fulfilled by companies to qualify for tax relief under the stimulus packages? How will the package modify tax obligations?
- What will be the impact on tax obligations due to debt modifications, capital restructuring and debt forbearance?
- How will loans to employees, suppliers and shareholders impact tax obligations?
- It is critical for companies to consider the broader economic, social and political context when navigating through tax functions, so that companies can make compliant decisions and be prepared for an unpredictable future.
Intellectual Property Laws
As purchasing and consumption's shift online, the business community will need to reevaluate their trademark strategies. While intellectual property is usually thought of in terms of their offensive use (leading to suing competitors), registered trademarks can also contain online enforcement tools that don't require courtroom litigation. Businesses will need to be cost-effective at every stage of the trademark life-cycle. Filing for new trademarks needs to be prioritized to target the company's most important markets in terms of brand attractiveness, future growth and past sales. Word marks can be more effective as opposed to design marks. Marks that are not worth the cost of registration can be kept on hold for now. In terms of existing registrations, brands need to make sure that they take proactive measures to maximise online enforcement. Companies can also consider waiting for the crisis to abate, if one or more trademarks are up for renewal. Apart from these, some key aspects to look into are:
- Best practices to protect trade secrets and IP, when dealing with a remote workforce.
- If a company is donating its IP to public repositories or institutions to support efforts against the pandemic, what could be the implications?
- How can pharmaceutical companies protect drugs that show promise in fighting COVID-19?
Companies need to continually monitor the spread of the disease and its impacts on employees, facilities, supply chains and other aspects to make quick decisions. The situation is fast-changing, where unanticipated twists and turns will be seen with every news cycle. Pro-activity will be the key to keeping businesses afloat.
Originally published 8 May 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.