Mitigating the effects of coronavirus on employment contracts

It appears in these uncertain times of COVID-19, that most people are concerned about the effect of COVID-19 on their employment contracts and how to mitigate any hardships that may arise from this pandemic.

In this paper, we will address the following issues:

1. the effect of COVID-19 on employment contracts; and

2. mitigating its effects on employment contracts.

The effect of COVID-19 on employment contracts

All over the world, the economic effects of the COVID-19 pandemic are being felt by governments, private organizations and citizens alike. In Ghana, the Government has had to impose restrictions on the movement of persons in order to slow down the spread of the COVID-19 virus through the Imposition of Restrictions Act, 2020, Act 1012 (Act 1012). This has led to the closing down of some businesses and has made it impossible for parties to fulfill their obligations under employment contracts. This situation gives rise to two legal concepts which businesses may have to be aware of to either suspend or terminate their contracts if they are to survive. These legal concepts are force majeure and frustration.

Force majeure:

Force majeure is a clause that can be invoked to either suspend or terminate a contract depending on the wording of the force majeure clause. The wording of the force majeure clause may either free both parties from any liability or obligation or cap liability when an extraordinary event or circumstance beyond the control of the parties occurs. To rely on force majeure, it must be expressly stated in the contract.

Events such as war, strike, riot or an epidemic are usually included in these clauses as force majeure events. In the present circumstances, a party cannot presume that merely because there is a force majeure clause buried somewhere in their contract, that they can rely on it to automatically suspend or terminate the contract. In order for a party to trigger this clause, the force majeure events captured in the clause must cover a pandemic like that of COVID-19 and/or government restrictions such as those imposed by Act 1012.

The party must also follow any stipulated processes that must be adhered to, to trigger the clause, if any are listed in the contract. In addition, a force majeure clause should state what remedies would be available to the party seeking to rely on it. These remedies can range from allowing the delay in a party fulfilling its obligations, to allowing parties to suspend or terminate the contract. The clause may also stipulate time limits for any delays in fulfilling obligations.

Thus, if upon a careful review of your contract, you find that the contract’s force majeure clause does not contemplate a pandemic or a government imposed restriction, or it does not provide for the suspension or termination of the contract when these events occur, then you cannot rely on the principle of force majeure to suspend or terminate your contract in those circumstances.

Frustration:

Frustration applies where an event that was unforeseen by the parties and did not arise as a result of a party’s breach of the contract, makes performance of the contract impossible. A case in point is a contract for the staging of an event at a specified venue, if the venue burns down before the event, it renders the contract impossible to perform. Another classic example is where there is a change in law that makes it illegal for one or both parties to perform their obligations under the contract, such a contract can be deemed frustrated. If a contract is frustrated, the parties are completely released from their contractual obligations. The contract is not merely suspended.

Thus, we will show you how to preserve your employment contract during this crisis period with these principles in mind.

Mitigating the effects of COVID-19 on employment contracts

The following suggested solutions will enable parties manage the effects of the COVID-19 crisis. Our solutions are:

1. Parties may abrogate the existing employment contract and enter into a new contract for the duration of the COVID-19 crisis; or

2. Parties may amend employment contracts to include a COVID-19 force majeure clause.

1. Parties may abrogate the existing employment contract and enter into a new contract for the duration of the COVID-19 crisis (the “COVID-19 contract”).

This solution would require that the parties agree during the crisis period to abrogate the existing contract because it has been frustrated, and to enter into a COVID-19 contract which would encourage the following:

a) working from home;

b) fixed hours;

c) job description.

-Working from home

This COVID-19 contract should state that during the crisis period the employee’s home will be the designated office area. Confining the work area to a specific site in the home will mitigate against claims for damages or bodily injury that occur in other areas of the house.

-Fixed hours

The COVID-19 contract must agree on regular and fixed working hours, as well as rest breaks. If there are no established fixed hours, an employee could arguably claim that an injury occurring at any time during the day is a workman’s compensation claim.

-Job description

The employee’s job description should be detailed so that there is no discrepancy as to what activity is part of the employee’s job and what is not.

After the crisis period, some employees may go to court to seek compensation for hazards encountered at home, and as such, eliminating much of the risk that goes along with working at home in the COVID-19 contract may go a long way to mitigating the employer’s risks in these uncertain times.

2. Parties may amend employment contracts to include a COVID-19 force majeure clause.

This solution is applicable to those who would want to rely on the principle of force majeure to suspend the contract during the crisis period. We advise that if upon a careful review of the contract, the contract does not contemplate a pandemic or a government-imposed restriction and it does not anticipate a suspension of the contract, then the parties may during this period amend the existing contract to include an express force majeure clause.

This will protect both parties in the event that after the crisis period an employee chooses to sue the employer for failing to pay their full salaries during the crisis period and the employer also suing the employee for failing to perform his obligations in the employment contract during the crisis period.

In conclusion, we have in this paper addressed issues such as the effect of COVID-19 on an employment contract and how to mitigate any hardships that may arise from it.