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Coronavirus Business Help Corner

Contractual Obligations

 

Chamber members should consider the following legal issues in light of the novel coronavirus 2019-nCov:

  • Terminating existing contractual obligation by “force majeure” clause or “frustration”
  • Employment considerations and special arrangements
  • Duty to provide medical or protective products to employees
  • Workfrom-home arrangement (WFH)
  • Temporary closure of office, furlough or reduction of workforce
  • Crossborder travel and quarantine requirements
  • Handling of employees who have contracted coronavirus

The novel coronavirus 2019-nCov, costing loss of life, productivity, consumer sentiments, cancelled flights, travel restrictions and quarantine requirements, has rattled the global economy and caused many businesses to re-evaluate their business models and operations. We wrote this article to help members of HKGCC to be better equipped with legal knowledge to get through these difficult times.  Together we shall prevail over this virus!

 

Terminating existing contractual obligation by “force majeure” clause or “frustration”

The outbreak of the coronavirus and the quarantine measures have rendered the performance of many commercial contracts more onerous or even impossible.

In this regard, businesses may wish to consider whether the relevant contracts expressly contain any applicable “force majeure” clause which may allow the suspension of the contracts or allow parties to be excused from performing the contracts upon the occurrence of unforeseeable events which are beyond the control of parties, which may potentially include the current coronavirus outbreak.

Hong Kong statutes do not expressly define and provide one universal rule and definition on exactly what constitutes “force majeure” under the laws of Hong Kong. As a common law jurisdiction with “judge made laws”, under Hong Kong laws each force majeure clause or event will need to be assessed on a case-by-case basis by the judge or arbitrator with competent jurisdiction to determine whether the language of the particular force majeure clause is wide enough to cover the present prevailing situation in the specific circumstances.

For contracts without an express force majeure clause, the fallback position of businesses would be the law of “frustration”. Frustration operates to excuse further performance where something, without fault of either party, has happened which makes it physically or commercially impossible for a party to fulfil a fundamental obligation of the contract, or only possible in a very different way from that contemplated. It is not sufficient that the change simply makes the obligations more onerous and examples in the SARS epidemic suggest that such burden is not easy to achieve.

 

Employment considerations and special arrangements

People are often regarded the most important assets of businesses. The balance between the morale and safety of the workforce and the need for work to be carried out at an office environment has become a very delicate issue in the current situation. 

Businesses are well advised to comply with the relevant laws for employees to work under safe conditions and to impose crisis management measures. In general, an employer has a common law duty to take reasonable care to ensure that the workplace is safe. Under the Occupational Safety and Health Ordinance (Cap. 509), an employer must also ensure the safety and health of all of its employees at work as far as it is reasonably practicable. Failure to comply may attract criminal liability.

It is very important that businesses have a comprehensive set of policies in place for dealing with the legal and commercial issues which may arise in the various scenarios illustrated below.

 

Duty to provide medical or protective products to employees

Some labour rights advocates have claimed that under the Occupational Safety and Health Ordinance (Cap. 509), employers are obliged to provide medical products such as surgical masks and hand sanitizers to employees.

The reality is that there is actually no express requirement under the Occupational Safety and Health Ordinance (Cap. 509) for employers to provide such protective products. Whether there is a need for employers to do so should be assessed on a case-by-case basis. Possibly other than certain high-risk industries, most employers in Hong Kong would unlikely be found to have the obligation to provide such products to the employees. Having said that, as a matter of employee relationship management, it would, of course, be advisable for employers to try to provide such products if the employees are required to return to office for work.  

 

Work-from-home arrangement (WFH)

In practice, quite a number of businesses have followed the Hong Kong government’s recommendation to adopt a work-from-home arrangement or work shift policy to reduce the number of employees who are required to be on the office premises on a particular day to reduce the risk of infection.

There is no legal obligation to allow the employees to work from home, but attention should be drawn to pregnant employees who are concerned about possible coronavirus infection at the workplace. The Employment Ordinance (Cap. 57) provides that an employer must not assign to a pregnant employee duties injurious to her pregnancy if she can produce a medical certificate with an opinion indicating her unfitness to do such work. Depending on the situation, employers should work out suitable arrangements with the pregnant employee, such as allowing her to work from home.

If work from home is allowed, it would be important to formulate a policy to address issues arising from work from home, such as in relation to the protection of confidential company information and equipment that are brought to home. Such policy should also be carefully formulated to ensure that the Disability Discrimination Ordinance (Cap. 487) and the Race Discrimination Ordinance (Cap. 602) are not violated. On the issue of race, we wish to note that due to how “race” is defined in the Race Discrimination Ordinance, it would be hard to successfully argue in Hong Kong courts that people of the same race can be held to have unlawfully discriminated against another person of the same race.  As good corporate citizens, we should endeavor to not allow any form of discrimination, whether based on ethnicity, birth place or otherwise.

Many employers have tightened their Work From Home (WFH) policy in light of a rather high-profile case where a group of management trainees of a bank who agreed to work from home went hiking instead and posted what they did on social media.

For completeness, it should be noted that if the employer voluntarily decides to close the office and some employees cannot work from home by their job nature (e.g. janitor), the employer should not hold this against those employees or unilaterally deduct their wages.  

 

Temporary closure of office, furlough or reduction of workforce

For businesses which are heavily affected by the crisis, we note that many employers have required their employees to utilize their annual leave now, take unpaid leave or receive pay cut. These actions should be very carefully assessed, documented and implemented, as there could be risks that such arrangements, if implemented improperly, would be regarded as contravening the Employment Ordinance (Cap. 57) and give rise to criminal consequences.

In the event that actual termination is required, businesses should also ensure that none of the affected employees fall within any of the protected categories under Hong Kong law (for example, the Employment Ordinance (Cap. 57) and the Disability Discrimination Ordinance (Cap. 487)). Some of the breaches could lead to criminal consequences.

 

Cross-border travel and quarantine requirements

Due to the international nature of businesses, many employees may have to travel globally from time to time. Businesses should be prepared to articulate its policy on issues arising out of international travel. For example, if the employees are required to travel back to Mainland China and is subject to mandatory quarantine in Hong Kong, whether the employees would be allowed to work from home during the period of quarantine and/or whether the period of quarantine would be regarded as unpaid, whether the same treatment applies to employees who travel back to Mainland China due to personal reasons, and how such leave would be classified as a matter of law.

For completeness, we note that the Hong Kong government has previously announced that the Department of Health will be willing to issue a medical certificate to employees who are subject to quarantine, so if the employees are able to produce such medical certificate, they may be entitled to the protection of the sick leave regime under the Employment Ordinance.  

 

Medical/temperature test

Quite a few employers have imposed compulsory temperature test before an employee enters the office or required suspected coronavirus employees to visit a doctor. Under the current outbreak, it is likely lawful to do so if such measures are considered reasonable for ensuring a safe workplace and are implemented in a reasonable manner.

However, one should be aware of the data privacy issues involved and comply with the data protection principles in the Personal Data (Privacy) Ordinance (Cap. 486), such as to consider whether the temperature test may amount to an unlawful collection of personal data with regard to the purpose and manner of collection etc.

If the collection and use of the temperature data violates the data protection principles, businesses may wish to alter how the temperature data is collected and used and/or amend their personal information collection statement and/or data privacy policy, and seek the employees’ explicit consent to the changes if deemed appropriate.

 

Handling of employees who have contracted coronavirus

In the unfortunate event that any of the employees has contracted coronavirus, they will be entitled to sickness allowance under the Employment Ordinance (Cap. 57) provided that the conditions therein are satisfied.

There have been calls for the coronavirus to be recognized as occupational disease (similar to SARS in 2003) which, in essence, means that if employees contract coronavirus during the course of employment, the employers would be liable and they would be able to take advantage of the employees’ compensation insurance. While coronavirus has yet to be listed as one of the occupational diseases under the Employees’ Compensation Ordinance (Cap 282), provided that an employee has contracted coronavirus from a personal injury by accident in the course of his/her employment, employers may still be liable to pay for compensation and recover from the employees’ compensation insurance, but of course, in practice, it would likely be difficult to establish that they contracted the virus by way of an accident.

Careful arrangements should be given to an employee who is suspected of contracting the coronavirus. Any unwarranted discriminatory act (e.g. immediate dismissal) will likely fall foul of the Disability Discrimination Ordinance (Cap. 487). Businesses may also wish to formulate a contingency plan in case any employees contracts the coronavirus (e.g. disinfecting the premises, quarantining employees who have close contact with the subject employees, and public relations management (as confirmed cases of coronavirus will likely attract media attention and lead to negative media publicity)).

Swift planning and response are needed for maintaining the productivity of business operations and for minimizing the adverse impact caused by this global health emergency.

The above is for general reference and should not be treated as a formal legal advice.  Feel free to reach out to us for assistance on any of the above-mentioned issues.  

 

By Nick Chan MH

Partner, Squire Patton Boggs

Vice Chairman, Legal Committee of HKGCC

Nick.Chan@SquirePB.com

 

 

The above is for general reference and should not be treated as a formal legal advice.  Feel free to reach out to us for assistance on any of the above-mentioned issues.  

 

By Nick Chan MH

Partner, Squire Patton Boggs

Vice Chairman, Legal Committee of HKGCC

Nick.Chan@SquirePB.com

 

Posted on 2020/02/18

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