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Organisations must manage the risk COVID-19 presents to their business

March, 16,2020

By Maria Palmou

On 11 March 2020 the World Health Organization (WHO) labelled the COVID-19 (coronavirus) outbreak a pandemic. To date this has had an unprecedented impact on many jurisdictions, not only in terms of the challenges faced in assisting those affected but also to the level of freedom people enjoy, and it is not showing any signs of slowing down. As countries across the globe are in unchartered waters it remains to be seen how this outbreak will impact global economies.

On a smaller scale CFOs, top level executives and managers must assess the potential risks to their organisations and make strategic decisions. Although financial and other implications may not directly or instantly impact on all sectors, it is imperative that organisations implement a business continuity plan, a process which typically involves creating a system of preventative measures from potential threats and a recovery plan, should these threats occur.

As the duration of this virus outbreak remains unknown, risk assessments need to be reviewed frequently to ensure that the business continuity plan protects personnel and assets, allowing the business to continue functioning in the event of severe operational disruptions.

Challenges that an organisation can expect to face include;

  • Disruption of revenue – liquidity,
  • Reduced capacity,
  • Supply chain disruptions,
  • Drop in demand,
  • Personnel’s unavailability due to infection or travel ban restrictions.

From a legal standpoint, organisations must review their key contracts and provisions in order to assess potential breaches. Will the contractual obligations in place change and is the COVID-19 outbreak a force majeure event?

In the majority of Common Law jurisdictions force majeure is not a recognised concept and only an express force majeure clause in a contract, where parties had the freedom to implement their own terms of contract, may be enforced. In Civil Law jurisdictions the interpretation of such a provision relies on the force majeure clause wording and if there are references to what constitutes a force majeure event. Even if such an event is triggered which excuses a party from performance, liquidated damages and applicable penalties then the party relying on the clause may still need to demonstrate why performance was impossible, consider if there are time limits to invoke the clause or the right to terminate the contract. Under UAE Law the conditions under which force majeure may apply is in the provisions of Article 273 of the UAE Civil Code.

Additionally, companies must examine any business interruption provisions included in their contracts, most commonly found in insurance policies and review what the requirements for relief might be, typically including physical damage or loss first to be sustained.

Ultimately it all comes down to the jurisdiction and specific wording in the contract, therefore it is advisable to have a lawyer review any contract or clause that mentions force majeure.  

It is essential that organisations have contingency plans in place. Businesses should review internal processes in relation to employment and other relevant matters, ensuring that the new parameters in which they are forced to operate are effective and compliant with their jurisdictional legislation and any new implemented regulations and directives, including health and safety policies, are in line.

Some difficult decisions must be taken as organisations take precautions and rearrange resources in compliance with various regulations in relation to sick leave policies, encouraging employees to take annual leave, postponing the resumption of work for employees who were already on leave and/or termination of employment contracts. These are only some of the issues HR departments may be under pressure to deal with in order to provide clarifications about salary and work arrangements during this crisis period. Additional challenges also face HR departments of organisations operating in multiple jurisdictions.

It is advisable that organisations implement policies to prevent the virus from spreading, the severity of which will depend on the facility and the nature of work. Clear guidance or training and safety measures must be provided to all personnel. Many organisations may need to introduce new flexible contingency plans so that, where the nature of work permits, personnel can work remotely and IT departments should ensure that as many employees as possible have access to all relevant files and information.

Until COVID-19 is contained, which might take considerable time, and taking into consideration how dramatically the situation has evolved, it is crucial that organisations keep their personnel and clients informed. In favor of the common good all organisations must mitigate the COVID-19 impact and respond to the crisis. Strong legal and HR compliance can potentially minimise the damage on many organisations, particularly with the precautionary measures put in place by the Government of the UAE.  These measures will no doubt have an impact on many organisations across the UAE, however it is worth noting that the UAE Central Bank has announced a Dh100 billion stimulus to offset slowdown that businesses might face due to the COVID-19 outbreak.

Maria Palmou is a law firm administrator at Galadari, for more information on the risks COVID-19 pose to organiations and how these can be minimised, Maria can be contacted at maria@galadarilaw.com.