Mitigating Legal Risk in the time of COVID-19
Updated: Mar 29, 2020
The world is slowly slowing down to allow governments to address the COVID-19 pandemic. Kenyan businesses and particularly MSMEs and SMEs are experiencing difficulties coping with the effects of this. Majority of businesses, now have to consider how to mitigate the changes in the economy and how to comply with the various presidential directives that may directly or indirectly affect the bottom line of their business.
Common Issues Arising for Businesses:
1. Cancelled/Suspended Contracts - Force Majeure and Frustration
Over the last few weeks, we have seen numerous directives by the Kenyan governments as well as other governments around the world restricting the movement and gathering of people and the closure of businesses. These directives have impacted a lot of businesses and, in some instances, have made it impossible for businesses to meet their contractual obligations.
Force Majeure is an uncontrollable event (such as war, labor stoppages, extreme weather or in this case, a global pandemic) that are not the fault of any party and that make it difficult or impossible to carry out normal business. A lot of contracts have a Force Majeure clause as a protection of parties where they are not able to meet their contractual obligations due to factors outside of their control.
It is possible that businesses have entered into contracts that do not have a force majeure clause or a contractual agreement that has not been reduced into writing. The inability to meet your contractual obligations in this case would therefore give rise to the common law doctrine of Frustration which operates in largely the same manner as a Force Majeure clause.
Force Majeure and Frustration can have two effects on a contract. Firstly, the contract may be suspended with the obligations to be performed upon the end of the Force Majeure clause, or in the alternative the contract would be cancelled.
Businesses that are directly or indirectly affected by the restrictions given by the government, should re-examine their force majeure clauses and seek legal advice on how to handle cancellations and what their obligations are under the contract.
What to do:
1. Review all your contractual obligations, written or verbal, in light of the prevailing situation;
2. Seek legal advice on all contracts that have been cancelled, or are considering cancelling;
3. Seek legal advice prior to entering into any new contractual obligations, and using current world trends confirm that you shall be able to meet your obligations.
2. Consumer Protection
Consumer protection affects all businesses that provide basic and essential goods and services to the general public. Over the last few days, the Competition Authority of Kenya, has investigated and fined businesses that are suspected of price gouging or increasing the costs of essential goods and services.
Businesses that are involved in these industries need to review their decision-making processes on increase in prices in light of increased demand and possible shortages. Companies ought to issue directives on how to handle shortages and price increases to ensure compliance with the law.
Businesses that require a high number of people congregating or moving through their premises (for example Shopping Malls, Supermarkets, Clinics and Hospitals) should review the government directives and ensure that they are compliant in providing protective gear and sanitization options for their staff members and customers.
3. Employee Protection
Majority of business shall have difficult decisions on how to manage their employees during this period. It is important to note that the Labor Laws in Kenya provides numerous protections for employees and employers are encouraged to seek advice and ensure compliance with the laws during this period.
Employers are encouraged to provide sufficient sick leave for their employees, especially those that are required to self-quarantine or undergo treatment for COVID-19. In Kenya an employer may seek to follow the provisions of the Employment Act or the Regulation of Wages (General) Order which provide for different sick leave periods.
In light of the high infection rate for COVID-19, it would further be prudent to seek advice and consider longer periods of paid leave so as to protect the majority of you workforce.
Additionally, business may have difficulty paying or maintaining their work force during this period. Should the business decide to reduce wages for the period, the same must be in writing with the employee’s consent noted. Any reduction of number of employees should occur through the redundancy provision. Business should be aware and cautious to note that termination of employee contracts can only happen with cause as provided in the Employment Act.
Any decisions made towards the payment of salaries or reduction of employees, should be done after consultation and advice from experts in the field.
4. Business Continuity – Key Person Risk
Finally, Businesses should reexamine their structures and assess business continuity and key persons risks. A key man could be the business owner or employee on whom the business relies heavily upon, and whose incapacitation shall greatly impact the future success of the business.
In the event that the key decision makers are incapacitated or under mandatory quarantine, what plans does your business have to ensure that you are able to continue with business as usual?
We urge all businesses to review their business continuity plans, and if there are none to prepare structures that shall enable to business to continue trading. These structures can be created in consultation with your advocate and other experts.
Every business owner shall face serious decisions that shall impact their continuity of their business or its eventual success. Seeking an expert’s advice shall put your business at an advantage.
This article was written by our Legal Expert Angela Kioi who is the Managing Director of Gathima Kioi Advocates a law firm with expertise in Commercial law, Litigation, Mergers & Acquisitions and Corporate Restructuring.
If you have any feedback or inquiries write to her via this link >> Email Angela