20 March 2020

Forget the toilet paper: getting your pandemic plan right

This article was written by Annabel Griffin, Rachael Lewis and Josh Mead

Your inbox is overflowing with COVID-19 emails, you’re glued to the news wondering what could be next, and let’s face it – it’s hard to know what to plan for.

Our tip – spend the next 3 minutes reading this. We’ve shortlisted the top 5 legal issues that your organisation needs to be aware of right now. We’re not saying buying the essentials isn’t important, but here are a few other things to include in your pandemic plan.

At KWM, we’re helping our clients to get through this challenging period with as little disruption as possible. We know you’ve got lots of other things to be dealing with right now, so we’re here to assist you with the various legal matters we’ve flagged below, as well as the myriad of other legal implications from the COVID-19 crisis.

Stay safe and we’ll be here when you need us.

1. Working from home – what are your duties as an employer?

Employers have a duty to provide a safe place of work, and to take reasonable steps to ensure that any risks to the health and safety of their employees are appropriately managed. 

COVID-19 has resulted in substantial changes to working arrangements and there are various consequences under employment and WHS laws that should be considered. For example, key things we’ve been looking at are:

  • whether it will be a compensable workplace injury if an employee contracts the virus during the course of their employment;
  • whether employers have a responsibility to provide personal protective equipment, particularly for front line staff dealing with the public;
  • the responsibilities of employers to ensure a safe working environment when employees are working from home (and obligations on employers to assess remote working environments);
  • whether employees can refuse to come to work due to safety concerns;
  • whether employers can lawfully direct employees to work from home (and what do you do if they say no?);
  • how employers can effectively monitor and assess the performance of employees when they are working from home – especially those that may be subject to disciplinary processes or performance improvement plans;
  • what are employers’ obligations to their casual workforce, and does it change the employment relationship if you choose to pay personal leave for casual employees; and
  • whether the situation is different for contractors who usually perform their work on the premises, using equipment supplied by you.

2. Taking your laptops home – have you checked your licences?

When entering into ICT contracts, including software licences, having your whole workforce at home probably wasn’t on the cards.  When shifting to a remote working model on a large scale, it’s important to check whether your ICT contracts support this. You may find that software licences, VPNs and other services have certain restrictions on use or threshold limitations that are not suitable for a remote working environment.

Existing licences and service contracts may need to be varied to support your new workforce arrangements, even if they are temporary, to avoid breaching terms of use.

3. Contract execution logistics - where do I sign?

You’ve got to the end of a contract negotiation and are about to enter into the contract – but now your signatories or the counterparty can’t execute as originally intended. Over the past couple of weeks, we’ve seen an increasing number of deals globally that are being executed in ways that we would have previously considered to be unorthodox. With signatories working from home or stuck in different cities, it’s time to look for alternative ways to validly execute documents.

The rules surrounding execution of contracts are surprisingly complex and even differ between the States and Territories in Australia. It’s critical to get execution right because getting it wrong can mean the contract is not binding.

Many contracts can be signed electronically, but there are also quite a number of documents that cannot be – in particular, deeds or contracts being signed by counterparties under the Corporations Act are much more problematic when looking at electronic execution. For this reason, we’re also looking at the best way to manage multiple counterparts printed by each party, and even circumstances where directors of the same company can sign different physical counterparts.

4. Dealing with contracts – what happens if a contractual obligation can’t be performed?

COVID-19 is causing mass disruption to workforces and supply chains – we know that this will result in some parties being unable to perform their contractual obligations.  

Key things that may become relevant include:

  1. frustration of contract – contracts may be automatically terminated based on the doctrine of frustration where the nature of performance of the contract has radically changed since it was agreed, and it has become impossible to perform. At first glance, you could easily imagine scenarios that might meet this definition. In practice, the threshold for establishing frustration is a high one and there are substantial risks if a court determines at a later point that the contract was not actually ‘frustrated’.
  2. force majeure – if the relevant contract includes a force majeure clause, it’s possible that a party may be entitled to a break from their obligations if performance of the contract is impacted by the COVID-19 crisis. However, the ability to rely on a force majeure clause is contingent on what exactly constitutes a force majeure event under the relevant contract, and whether a viral outbreak will meet this definition.
  3. waiving rightsif you informally agree to a delay or a change in performance of a contract, be careful not to accidentally waive your rights under the contract or vary the contract terms. You may need to enforce the contract terms at a later point so it’s important to ensure that obligations remain intact and your rights are not waived.  
  4. agreeing variationsyou may decide that it is appropriate to vary the contract. Many contracts have requirements as to the form that variations must take so it’s important to check what needs to be done to effectively vary the contract (in particular, does the variation need to be a deed?).

5. Be wary of another party’s potential insolvency – ipso facto may disrupt your plans

We know that businesses are going to be increasingly challenged as the COVID-19 crisis continues and some will enter into insolvency.  Many contracts include rights that are triggered on the other party’s insolvency (most commonly, termination rights). It’s important not to assume that you will be able to exercise these rights in all circumstances if your contractual counterparty becomes insolvent.

The ipso facto regime introduced in 2018 limits a party exercising its termination right under a contract if the other party becomes insolvent or begins a restructuring process (for any arrangements entered into on or after 1 July 2018). There are various exceptions to this regime and you may still be able to terminate for other reasons under the contract – an assessment will need to be made on a case by case basis, and will depend on the individual contract and set of facts.

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