News

02nd April 2020

More than 8,000 people in the UK have tested positive for Covid-19. As well as the impact on public health, the pandemic has also had major repercussions for most, if not all, businesses in the UK. A lot of information is being circulated about how businesses can minimize the impact of Covid-19, which can make it difficult to navigate the most appropriate information. High Wycombe based law firm Blaser Mills have attempted to outline some of the main issues for business and any potential legal implications, in the form of a simple Q&A.

EMPLOYMENT

Are employers required to pay sick pay to employees who are self-isolating? Yes. Employees and workers must be paid statutory sick pay from their first day of self-isolation. Some employers might offer a higher rate of sick pay as per the terms of their employment contract. It is worth noting that currently, employees may not be able to provide a sick note as usual and that the employer should be flexible about this. However, employees can self-certify for the first 7 days and it will soon be the case that a notification via NHS 111 will be enough.

Can employers ask staff to work fewer hours during the week or to stop coming into work all together? Asking staff to work fewer hours is known as short-time working. This is when employees are provided with less work and less pay for a short period of time. Employers are able to implement this if a term in the employment contract (or a collective agreement) allows this. Asking staff to stop coming into work is known as Lay-offs, where employees are not provided with any work or pay for a short period of time but are still kept on as employees. The same rules as short-time working apply. If the employment contract permits, or the employee has agreed to it, then the employer can use Lay-offs.

How long can I keep these measures in place? Any lay-off or short-time working clause in the contract will state for how long an employer can implement these measures. After a certain length of time however, these measures can be considered a full redundancy. This will be the case if an employee is laid off or kept on short-time working (or a mixture of both) for at least: • 4 consecutive weeks; or • 6 weeks over a 13 week period. Eligible employees can then resign and claim statutory redundancy pay from the employer.

What if the employment contract doesn’t have a clause permitting Lay-offs and Short-time working? If there is no clause permitting this and no agreement by the employee, then using these measures will be a breach of contract and the employee will be entitled to resign and claim constructive dismissal.

What is the Government Job Protection Scheme? This Scheme was announced by Chancellor Rishi Sunak in a bid to protect jobs in the UK. The government will reimburse up to 80% of ‘furloughed workers’ wages to a cap of £2,500 a month, per employee, with payments being backdated to 1 March 2020. Employers are able to top up the 80% if they wish, but do not have to do so.

What is a ‘furloughed worker’? Furloughed workers are employees who have been asked to stop working as their employers could not cover their salaries, but have not been made redundant. It would appear that being designated as a “furloughed worker” is not automatic. The employer must still comply with employment law and contractual provisions when “laying off” the relevant employees. This means that the employer cannot just impose the change on an employee unless there is a right to vary in the employment contract. Employers may need to go through the normal redundancy procedures of identifying and consulting with at risk employees, including the collective consultation requirements where more than 20 employees are affected.

SELF-EMPLOYED

What support is there for the self-employed? In the emergency Covid-19 legislation, the Government has stated it intends to introduce Statutory Self-Employment Pay for the self-employed and free lancers. This aims to ensure that the self-employed monthly earnings do not fall below 80% of their monthly net earnings averaged over the last three years or £2,917, whichever is lower.

PROPERTY

Is there any support if a business is unable to pay their rent? Yes. As part of the Government’s emergency legislation, they have introduced a ban on evictions for commercial tenants for at least 3 months. If a business does not pay their rent once after the three month period has lapsed, then landlords will be able to claim for forfeiture.

BUSINESS CONTRACTS

How does the Covid-19 pandemic bear on the fulfillment of contractual obligations? There are several are possible implications on the ability to fulfil contractual obligations in light of Covid-19. These include:

• Failure to fulfil contractual obligations – this could mean default of the agreement and may result in the other side claiming remedies for breach of contract.

• Force Majeure – Covid-19 could trigger an event of Force Majeure clause (as part of many contracts), which could result in the contract being frustrated.

• Change in the law – this could end up rendering certain contractual obligations illegal meaning the contract cannot be performed.

• Suspension of performance or termination – these outcomes could trigger a damages award or similar penalty. Any specific penalty will depend on the terms of your contract.

• Guarantees/Indemnities/Performance Bonds/Liquidated Damages related to contracts – If you are unable to fulfill the contract, it is possible that these could be called upon to remedy the fulfillment.

• Insolvency risk – There could be a risk that suppliers become insolvent, which will inevitably have a knock on effect. If the supplier is unable to supply goods, then there is no way to fulfil onward contracts. Therefore, it could be worth considering re-negotiating with the supplier or finding a new supplier.

What is Force Majeure? And what are the consequences of establishing a Force Majeure event? Force Majeure is an intervening act entirely outside the party’s control, which can delay, hinder or prevent them from fulfilling a contract. Examples include; earthquakes, war, floods, bushfires etc. In most contracts, if you can establish a Force Majeure event, it allows parties to agree a more practical and commercial solution, such as suspending or delaying performance rather than ending the contract. Is Covid-19 covered under Force Majeure? The World Health Organization (WHO) has deemed Covid-19 a Pandemic. In many cases, depending on how a Force Majeure clause is drafted, the announcement will be considered a trigger event, allowing a party to terminate the contract without penalty. However, whether Covid-19 is covered by Force Majeure depends on the specific drafting in your contract. Usually a Force Majeure clause will list specific events such as ‘disease or epidemic’. In this case, the Covid-19 pandemic would likely fall under this. If not, it would be wise to look at general terms such as ‘Act of God’ which could you could argue Covid-19 comes under. What if the contract doesn’t have a Force Majeure clause? If your contract does not include Force Majeure clause then failure to perform the contract may put you in breach of contract. The other party might terminate the contract and/or ask you to pay damages as a result. Under English law, where performance of a contract is physically or commercially impossible, the contract will be rescinded (this is called ‘frustration’). However, it is very hard to meet this threshold, and it will result in the contract ending.

COVID-19 BUSINESS INTERRUPTION LOAN SCHEME

What is the Coronavirus Business Interruption loan Scheme (CBILS)? This scheme is designed to give lenders more confidence in making loans to small businesses that have insufficient security to meet lender’s normal criteria, and are suffering lost or deferred revenue as a result of Covid-19. The scheme, that was launched on 23 March 2020, will be run by the British Business Bank via 40 plus accredited lenders and will provide lenders with a government-backed guarantee of 80% of each loan

Who can apply for CBILS?

To be eligible for this scheme, an SME business must:

• Be based in the UK.

• Have a maximum turnover of £45m p.a.

• Be in an eligible sector (this will include the vast majority of businesses. The excluded sectors are narrow).

• Have not had state aid of 200,000 euros over the current and last 2 financial years. (It has been commented that the European Competition Commission may not be amenable to CBILS if it gives UK business an unfair advantage with such State Aid).

• Must have been in sound financial health prior to the outbreak. In other words, were it not for exceptional circumstances and the impact of Covid-19, the business would be viable and can trade out of short term issues.

• All traditional forms of business entities are covered, including sole traders.

• The business must have a business bank account.

• Over 50% of the businesses’ turnover must come from trading activity so, like some tax reliefs this will not apply to “investment vehicles”.

How do you apply for CBILS? Although the scheme has launched there are currently no applications up and running. However, once applications open, you can apply for the scheme through the British Business Bank’s 40 plus accredited lenders and partners which are listed on this website. When applying, businesses should first ensure that they approach their own provider, via the lender’s website. If their provider will not provide them with the finance they need they should consider approaching other lenders.

*The information is correct at the time of writing and is subject to any further Government and/or legislative changes and announcements.


How Blaser Mills Law can help your business We will continue to keep our website and social media channels fully updated with the latest Covid-19 developments. If you require assistance in making strategic decisions on how to mitigate Covid-19 impact on your business, please contact Hiren Gandhi, Partner on 07917811014 or at hjg@blasermills.co.uk