Relevance of Force Majeure, Employee Protection Laws and Other Legal Issues

Introduction

Air pollution densities have plummeted, waterways in Venice are cleaner, whales are resurging to their Mediterranean Sea lanes, people have vowed to quit consumption of wild animals, sheep have found their way into playgrounds – Coronavirus – a harmonious balance in the animal life and nature?

The coronavirus was first traced back to a 57-year-old lady – who was a female shrimp seller in Wuhan city, China. This being the originating focal point of the virus, ‘patient zero’ was found selling shrimps at the Huanan Seafood Market on the 10th of December when she was gradually suffering from cold symptoms. On assuming that she caught the common cold, she went to a local clinic to pursue treatment where she was injected with the general medicine. The feeling of excessive fatigue continued and she visited the Wuhan Union Hospital. The practitioners held that her sickness was ‘ruthless’ and that several others from the same Seafood market visited the Union Hospital with same or similar symptoms. By the end of the month, she was quarantined when the doctors became aware of the newly emerging Coronavirus. Although she – Wei Guixian, may not be the first patient (‘patient zero’) as her medical reports indicated that she contracted the killer disease due to sharing common toilets with other meat sellers. Further as the news spread, the Wuhan Municipal Health Commission confirmed that Wei was one among the first 27 patients to have tested positive for the virus.[1]  Looking at the precedents, over the years, viruses that have caused pandemics normally emerged from animals.[2] This particular virus – the Coronavirus – is a family of viruses that can cause a variety of illnesses (like the common cold and other intense forms such as MERS and SARS which have proven to be fatal over the years). It is riveting to note that the name ‘coronavirus’ is given to this particular disease because of its crown like shape with protrusions around. Not only has this disease affected humans physically (especially the older age groups who are found to carry underlying diseases like heart problems, cancers, fragile immunities, etc), but it has taken its devastating toll on the economic as well as the overall social frameworks of severely affected nations. From its unfortunate inception (in around February) to its turbulent widespread over the months, the Covid-19 has muddled its way through Asia, America and other parts of the World. Although it began by damaging the Chinese and Italian economy (and population) – the virus also gravely crippled the United States (which appears to have revived). As a result, countries are escalating into recession, there is a severe decline in the stock market and in consequence, and an overall decline in the global income. With the global supply chain shaking to its very core, people are hoarding groceries, sanitation products and other essentials.[3]

This essay will be focusing on the impact of the virus legally and economically. From the negative drop of oil prices to the application of concepts such as force majeure, the aftermath of the pandemic is rather vehement. The entire world is on halt and globalisation is put on pause. While some may blame the country that showed first signs and allegedly censored the information – there is more to the story than what people are shown. The researcher ensures that information shared below is entirely based on self-research and any borrowed data is cited to its fullest.

The coronavirus has taken a serious hit on both domestic as well as international businesses. Companies and industries are and would be facing many issues involving the supply chain, the employee/labour workforce, corporate governance, insurance and travel. More importantly – the legal mechanisms of each and every one this companies/industry is impacted. While the repercussions resulting from the virus on many businesses is not entirely clear, the outbreak is highly likely to spread in the upcoming weeks. The legal mechanisms, as mentioned earlier are wide-ranging and complex in nature. But the primary question here is that – How can law or a lawyer help during a time of such crisis? Legal practitioners can aid in identifying risks, lay down options and put forth various legal remedies. They can also advise on the governmental measures by providing information from the perspective of industries. People can gain the right information and further plan their response and simultaneously reduce the potential threat of disputes.[4]

Contracts that are legally binding are under scrutinization as their terms and conditions and the entire performance factor will be denied with the virus prolonging in its stay. Parties to the contract may experience delay, interruptions and their performance might even be cancelled. Parties who are liable under a contract to perform certain tasks (like suppliers, sellers, etc) will automatically refrain from doing so in order to avoid any unfavourable outcomes or loss. Due to these unfortunate events, companies on the other end of the contract may fail to carry on with their obligations towards people/other companies depending on them. As a result, parties being held accountable for non-performance may use the tag of ‘Covid-19 lockdown’ for their impossibility in fulfilling the terms of the said contract (like negotiating prices, overall giving up of initially assigned contractual duties, etc). This is when the term force majeure comes into picture.

This comes from a French phrase that is embodied in Sections 32[5] and Section 56[6] of the Indian Contract Act, 1872. It means a supreme influencing factor – a contractual provision that is agreed upon by parties. Occurrence of any event and that event being declared force majeure would mean that it shields a party from any potential liability if the said party fails to perform an obligation as mentioned in their contract. It could include things like – Act of God, war, natural disaster, strikes and even pandemics/epidemics.[7] The intuition is simply this – if a party has no control over the events that have caused such non-performance, then they are excused from paying the price, if liabilities arise. Indian Courts have begun to apply this concept to wherever it appears necessary. In the case of Energy Watchdog vs CERC[8], certain aspects were to be considered – the outline of force majeure, how this concept varies widely in its application, how the duty to mitigate is interlinked with the exercise of reasonable diligence, the nature of the unfortunate event and its unpredictability, the nature of the contract (where it can be cancelled, held or not) and lastly, the party upon whom the burden of proof lies.

Usually, employers are to ensure a safe working environment. They are expected to do everything ‘reasonably possible’ that they can to guarantee full protection and prevention. But this comes with a financial cost for the employers. In particular, an employer must – check with authentic sources like Health Ministry, etc and implement any regulations (for example – install handwash dispensers, etc.). They must inform the workers about their steps very clearly and must constantly encourage them to follow guidelines. Employers can also give paid leaves if genuinely possible for a month, etc.[9] While some of this may seem to be an economic burden to some employers (and their companies), the other side of granting paid leaves, granting access to services for half price to consumers, etc comes with work etiquette. Moral obligations take up the larger chunk of the picture. However, failure to take responsibility by such employers may result in future loss and maybe even legal liability. Since many labourers are unable to adjust to the lockdown and with their salaries on hold, only the Government can bring a change by advocating more stringent regulations via the employers for the betterment of the conditions of the workmen.

The deadly coronavirus hit the global economy the hardest with having governments across the globe implement stringent policies including lockdowns in order to control the outbreak. The ongoing pandemic has presented before us various unprecedented challenges and impediments to businesses in continuing the day-to-day operations of the organisation. The ongoing lockdown across the world has caused delays in fulfilment of obligations as promised by contracting parties. The question with us is whether the current situation can allow the contracting parties to alter their obligations with regard to the non-compliance of terms of the contract neither being understood as “default” committed by party nor “breach” of contract.

To deal with such extraordinary situations, there are certain well-accepted practices in Commercial Transactions by the inclusion of “Force Majeure & Material Adverse Effect” (MAE) clauses.[10] Force Majeure Clauses provide that parties to a contract may be excused from performance obligation, in whole or in part, or entitled to suspend or extend the time of performance of the duties, due to the occurrence of some specified event or condition. Obligations of the contract are to be resumed by the parties once the events or conditions that were previously causing hindrance have been remedied or have been overcome. [11] Clauses of Force Majeure typically define triggering events such as acts of god, natural disasters, terrorist activities, civil unrest, war, certain governmental actions such as expropriation, and labour unrest. [12] Pandemic and related consequences of a pandemic due to governmental action is a type of event which is covered by a Force Majeure Clause (FMC). The impact of FMC may vary depending upon the terms of the contract.

Though there cannot be one solution to this question along with the fact that it also depends upon how the force majeure clause is worded, there are certain laws related to the same that can be taken into consideration: The Indian Contract Act, 1872 contains specific provisions to combat situations of force majeure or situations similar to it. Section 32 that talks about ‘enforcement of Contracts contingent on an event happening’ and Section 56 that talks about ‘agreement to do impossible act’ of the ICA, 1872 can be taken into consideration. In the case of Satyabrata Ghose v. Mugneeram Bangur & Co[13], the Supreme Court relied upon sections 32 & 56 of the ICA, 1872, where it was held that the word ‘impossible’ had not been used in sense of physical or literal impossibility. However, there were certain exceptions that had been created for the applicability of force majeure in Indian Courts.  After the breakout of coronavirus, the High Court of Bombay in the case of Standard Retail Private Ltd vs. G.S. Corp & Others[14] held that clauses of force majeure cannot be invoked by the purchaser in the cases where the seller has already performed its part of the contract.

The impact of the force majeure event cannot be generalised as it depends upon the nature of transaction in question along with the impact of the same. Various steps have been taken by the Indian Government in order to minimise possible hardships of citizens of the country while recognising Covid-19 as a force majeure.  There are no definite rules to be followed between contracting parties. Every commercial entity that has been affected due to ongoing pandemic must examine the specific provisions of their respected contracts in order to locate if there exists a precise definition of force majeure and its consequences on the contract. One can determine the effects of failure to perform of obligations of the contract as well as the consequences of non-performance, only after a careful evaluation of the contract between the parties. [15]

To contain the deadly virus, governments across the world have closed borders in order to follow the quarantine imposed over people. Various companies have imposed travel bans on their employees, whereas other companies have completely shut down its day-to-day operations due to the ongoing pandemic. India being one of the most populated countries of the world is severely affected by the outbreak on a large scale, compared to various other countries. To further prevent the increase in number of cases, the Hon’ble Prime Minister of India had announced a complete national lockdown along with issuance of various guidelines issued by the Central and State Governments of the country. [16]

The lockdown imposed has created many issues regarding employment for which the existing employee protection, safety policies, strategies and procedures need to be review and fully ensured. Various Health laws that can be considered in order to determine whether enough laws are there to maintain the interests of employees or not are: 1) The Factories Act, 1948 which is the principal legislation that the health, safety, and welfare of workers in factories. According to Section 7-A of the Act, the occupier is responsible for the safety and of all workers while they are at work in the factories. In addition to this, Section 11-20 of the Act contain provisions of environmental sanitization that are required to protect workers from hazardous environment. Hence, during the ongoing pandemic, the State Governments are putting great importance to ensure the health, safety, and welfare of both the workers and their employers 2) The Disaster Management Act, 2005 is the Act which deals with provisions regarding effective management of disasters. In the case of N.D Jayal and Anr. vs. Union of India[17], it was stated that all aspects of planning, coordinating and implementation of measures that are necessary to prevent, minimize or stop the spread of a disaster is what is known as Disaster Management. Coronavirus has been considered as a disaster and it demands for all each citizen to stay at home in order to contain the virus. To ensure the interests of the employees, the Ministry of Labour & Employment issued a department order dated March 20, 2020 which advised all employers to deter from deducting the salaries of employees and also directed them to not deduct wages of workmen during the outbreak. These orders were well backed by the fact that the lockdown had been imposed under the – Epidemic Diseases Act and the Disaster Management Act, hence, violating the order would have penal implications on to offenders in certain cases wherein the State Government has mentioned that:

“All the establishments of Government as well as private institutions shall make payments of wages/salaries fully to the workers/employees including those working under contract and outsourcing basis during the lockdown period. Any violation will be viewed seriously and the offender will invite penal action under The Epidemics Disease Act 1897.”[18]

Along with this, there are various other orders, notifications and guidelines issued by the Government of India to ensure the interests of workmen and employees.

The spread of coronavirus has created a major financial distress over companies all over the world while they are trying their best to mitigate the financial impacts of supply chain issues. Companies that already had high debts are finding it hard to sustain in the current conditions of market. This has led creditors to withdraw their money at a time they need to pay suppliers for the goods that they are able to deliver on time while not receiving payments from customers. In this scenario, the companies may be forced to seek protection from their creditors or go for insolvency. On the other hand, the Board of Directors of the company would face issues regarding corporate governance and disclosure. Directors during the course of their directorship are required to exercise reasonable care, skill and diligence in order to act in the best interest of the company. In addition to these issues, most companies would face issues regarding insurance. Every company that got financially impacted by the virus would need to determine whether business interruptions that occurred as a result of the virus could be claimed under the company’s insurance policy.

firstly,With the ongoing threat of the virus, when everybody is locked down and safe inside their homes, there are doctors, nurses, policemen and many other people who are putting their lives at stake in order to serve for the country. The virus has given a sense of unity to all citizens of the country like never before and everybody is doing their best in order to protect their respective country;

Secondly, the coronavirus pandemic marks the end of an era of hyper-individualism. Countries are coming together to help each other deal with the situation. There is a sense of unity between countries. Countries that are less effected are trying their best to help the countries that are affected the most. For example, India recently shipped an essential Covid-19 fighting drug called “hydroxychloroquine” to 13 countries. This shows a sense of solidarity between countries; [19]

thirdly, the coronavirus has been able to break America out of their more than 50 year pattern of escalating political and cultural polarization and work in favour of changing things towards greater national and international solidarity and functionality for two reasons: first, due to the “common enemy” scenario in which people begin to look past their years long differences when faced with external threats and second, due to the “political shock wave” scenario, which makes enduring relational patterns more susceptible to change after some type of major shock destabilizes them This promotes more constructive patterns in terms of cultural and political discourse;

 fourthly,  the coronavirus pandemic changes things in two ways. One, it has made people believe and accept the expertise such as medical professionals. Two, it has made people believe and support their government. People have a new seriousness towards the importance of government officials, scientists and medical experts who are putting day and night together in order to contain this virus;

Conclusion

In the contemporaneous period, India is encountering a swift spread of the infection. However, people are refraining from taking these regulatory measures released by the government seriously. Globally, the Covid-19 cases are ranging between the 3rd Stage to the 4th Stage[20]. Post such an extreme escalation, the economy is declining. Stern diligent planning to tackle the current situation can protect the interest of stakeholders such as employees, employers, and customers. Parties, by reviewing possible force majeure clauses can benefit from the underlying structure of the contract. In this regard, the government should bring in regulations and amendments to the consumer laws for making sure that pandemic is not made a scapegoat for corporations to escape liabilities and also to help the companies that will go bankrupt because of the ongoing pandemic due to high debts. Insurance regulations should be relaxed to some level so that the companies can recover from the damage it suffered due to the pandemic. After this pandemic, the Governments should be more prepared for such situations in the future.

While some believe that China created the virus and concealed the information about its leaking; this seemed a little bizarre to accuse an entire nation with such an allegation – current news and updates, however, makes people think otherwise. How did China see a sudden drop in the number of cases? How are they instantaneously able to purchase colossal tonnes of crude oil for storing? How did they suddenly become the largest contributors/influencers of the W.H.O? All these questions raise speculations about the Chinese government and its leaders. Political news and national agitations point to the probable emergence of hostility and friction towards China by other nations, especially the United States of America. Human rights advocates are seeking to recognize China’s disinformation and ‘propaganda’ as stemming from a more ideological or value-based foundation. Posing as a transnational threat that has now managed to cross-borders and proliferate worldwide.[21] Moving on to the ongoing clinical trials that are evaluating probable treatments, the world is simply holding on to the hope of finding a cure to end this impasse on life. A different future can be envisaged for America – a communal spirit ostensibly born through social distancing.[22] Lastly, from this deadly virus, we should also learn to respect the nature and other sociological aspects of the world that were brutally ignored by us. Rather than blaming each other, we should learn from the mistakes we made and make future amendments and never repeat those mistakes again.

Bibliography

Articles

  1. PTI, A Wuhan shrimp seller identified as coronavirus ‘patient zero.
  2. …………., ‘What is a Pandemic
  3. Apoorva, ‘Coronavirus (COVID-19)
  4. Aman Sharma, ‘Coronavirus Lockdown 2.0: Focus on both life, livelihood
  5. Daisy, ‘100 Reasons to Stay Positive During the Pandemic
  6. Nicola Cantore, ‘Coronavirus – the economic impact
  7. David Metzger, ‘Coronavirus – The Legal Implications
  8. Cyril Amarchand Mangaldas, ‘Coronavirus: Key Legal Issues for India Inc. With Covid-19’,
  9. Michael Sobolik, ‘Accountable for delaying Covid-19, Target the Great Firewall’,
  10. Ed Yong, ‘How the Pandemic Will End

Weblinks

  1. Nita Madhav & Others, Pandemic: Risks, Impacts, and Mitigation, NCBI, (2018), available at – https://www.ncbi.nlm.nih.gov/books/NBK525302/
  2. Van Der Hoek, L Pyrc, K., Jebbink, M. et al, Identification of a new human coronavirus, Nat Med 10, 368–373, NATURE, (21 March, 2004), available at – https://www.nature.com/articles/nm1024#citeas
  3. …, Covid-19 Coronavirus Pandemic, WORLDOMETERS, (Last updated: April 29, 2020, 06:29 GMT), available at – https://www.worldometers.info/coronavirus/
  4. World Health Organization, Coronavirus disease 2019 (COVID-19), Situation Report – 99, (Last updated: 10:00 CEST, 28 April 2020), available at – https://www.who.int/docs/default-source/coronaviruse/situation-reports/20200428-sitrep-99-covid-19.pdf?sfvrsn=119fc381_2

Bare Acts Referred

  1. Indian Penal Code, 1860
  2. Epidemic Disease Control Act, 1897
  3. Disaster Management Act, 2005

[1] PTI, ‘A Wuhan shrimp seller identified as coronavirus ‘patient zero’’, THEECONOMICTIMES (Mar  30th 2020 12:25 PM IST) available at – https://economictimes.indiatimes.com/news/international/world-news/wuhan-shrimp-seller-identified-as-coronavirus-patient-zero/articleshow/74870327.cms (last accessed – Apr 16, 2021).

[2] ………….., ‘What is a Pandemic’, WHO (Feb 24th, 2010) available at – https://www.who.int/csr/disease/swineflu/frequently_asked_questions/pandemic/en/ (last accessed – Apr 16, 2021).

[3] Apoorva, ‘Coronavirus (COVID-19)’, EWA (April 1st, 2020) available at – https://www.essaywritingassignment.com/blog/coronavirus-update/ (last accessed – Apr 16, 2021).

[4] David Metzger, ‘Coronavirus – The Legal Implications’, CLIFFORD CHANCE, available at – https://www.cliffordchance.com/insights/thought_leadership/coronavirus.html (last accessed – Apr 17, 2021)

[5] The Indian Contract Act, 1872 – Section 32.

[6] The Indian Contract Act, 1872 – Section 56.

[7] Cyril Amarchand Mangaldas, ‘Coronavirus: Key Legal Issues for India Inc. With Covid-19’, BLOOMBERG QUINT OPINION (Mar 17th 2020 7:57 PM IST) available at – https://www.bloombergquint.com/opinion/coronavirus-key-legal-issues-for-india-inc-with-covid-19 (last accessed – Apr 17, 2021)

[8] 2017 SCC 378.

[9] Ibid. footnote 11.

[10] Ranjana Roy Gawai, Coronavirus impact: Can’t fulfil your contractual obligations?,  BUSINESSTODAY, (Last updated: April 17, 2020, 23:51 IST), available at – https://www.businesstoday.in/opinion/columns/coronavirus-impact-contracts-force-majeure-material-adverse-effect-clauses-corporates/story/401341.html (last accessed – Apr 17, 2021)

[11] Thomas P. O’leary & Emily Shilletto, Covid-19 – Force majeure, material adverse change or material adverse effect?, DENTONS, (May 13, 2020), available at – https://www.dentons.com/en/insights/alerts/2020/march/13/covid19-is-it-a-force-majeure-material-adverse-change-or-material-adverse-effect (last accessed – Apr 17, 2021)

[12] Ibid.

[13] Satyabrata Ghose v. Mugneeram Bangur & Co 1954 SC Civil Appeal No. 44 of 1954.

[14] Standard Retail Private Ltd Vs GS Corp & Others 2020 Commercial Arbitration Petition (L) NO. 404 of

2020. 

[15] Ibid note 7.

[16] Sonia Abrol & Vidhi Madan, Coronavirus Employer and Employee Relationship, LAKSHISRI, (09 April, 2020), available at – https://www.lakshmisri.com/insights/articles/coronavirus-employer-and-employee-relationship/# (Apr 18, 2021).

[17] N.D Jayal and Anr. V. Union of India 1992 Writ Petition (civil) No.  295 of 1992. 

[18] …, Know what is exempted from Telangana lockdown, TELANGANATODAY, (23 March 2020, 12:22 AM), available at – https://telanganatoday.com/telangana-govt-invokes-epidemic-diseases-act-for-complete-lockdown (last accessed – Apr 18, 2021)

[19] Politico Magazine, Coronavirus will change the world permanently, , (19 March, 2020), POLITICO, available at – https://www.politico.com/news/magazine/2020/03/19/coronavirus-effect-economy-life-society-analysis-covid-135579 (last accessed – Apr 19, 2021)

[20] Generally – Coronavirus has 4 stages – 1st (cases imported from foreign countries), 2nd (local transmission), 3rd (community transmission), 4th (epidemic).

[21] Michael Sobolik, ‘Accountable for delaying Covid-19, Target the Great Firewall’, THEDIPLOMAT (Apr 29th, 2020) available at – https://thediplomat.com/2020/04/to-hold-china-accountable-for-delayed-covid-19-action-target-the-great-firewall/ (last accessed – Apr 19, 2021)

[22] Ed Yong, ‘How the Pandemic Will End’, THEATLANTICCO (Mar 25th, 2020) available at – https://www.theatlantic.com/health/archive/2020/03/how-will-coronavirus-end/608719/ (last accessed – Apr 19, 2021)

Author: Muskaan Bhasin

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