As the novel coronavirus (COVID-19) pandemic causes health and social impacts on a previously almost unfathomable scale, for businesses too it is a bewildering and overwhelming time. Social distancing and other governmental measures to preserve health and safety, and slow the spread of the virus, are causing immediate and profound adverse economic effects for enterprises of all sizes.
This Emergency Guide seeks to address some key commercial legal issues for Australian businesses, with particular focus on NSW. The guide is current at 17 April 2020 and has been prepared on a fast-track basis to help Australian businesses grapple with a many-faced and complex health, social and economic environment.
Blue sub-headings in the table of contents indicate that new information has been provided since the first version of the emergency guide released on 23 March 2020.
1. What is the legal status of COVID-19 internationally and in Australia?
2. What is the National Cabinet?
3. What is the National Partnership Agreement?
4. By what legal authority is Australia imposing social distancing measures and other regulations on businesses?
5. What social distancing measures are currently in place?
6. What is a Restricted Service?
7. What is an Essential Service?
8. Our business is not listed as an Essential Service or Restricted Service, do we need to shut?
9. What is the ‘4 square metre rule’?
10. What are Essential Gatherings?
11. What rules apply to Non-Essential Gatherings?
12. Can we terminate our purchase contract because of the pandemic?
13. If our business supplier can’t perform, can we engage someone else to supply us?
14. What if our business contract has a Force Majeure clause, will it apply?
15. Can we rely on a contract provision that says we can terminate or suspend the contract ‘without cause’ or ‘for convenience’?
16. What if there is no contractual right to terminate/suspend ‘without cause’ or ‘for convenience’?
17. Can we terminate/suspend because it has become “impossible” to perform the contract?
18. Can we mutually agree to suspend, terminate or vary the contract?
19. Can we terminate the contract if performing it would be a breach of law?
20. How do we manage cancellations, delays and suspension of products and services as a result of new restrictions imposed by COVID-19
21. What are our continuous disclosure obligations?
22. As an employer, can we stand down employees in the event of a slow-down?
23. Can the employer force employees to reduce hours or salary in the event of slow-down?
24. Can we be liable if our employee passes on the virus to other employees?
25. How should employees prepare for working from home?
26. What is the difference between the JobKeeper and JobSeeker programme?
27. Is loss of revenue insurable?
28. Will the Government bring in legislation to address commercial contracts?
29. What measures should we be taking to assess and mitigate losses?
30. As a commercial landlord, can I get an interest payment and/or loan freeze from banks?
31. What are my rights as the tenant of a commercial lease?
On 30 January 2020 the World Health Organization (WHO) declared the outbreak a Public Health Emergency of International Concern
(PHEIC) with respect to the novel coronavirus (now known as COVID-19). This is the 6th time WHO has declared a PHEIC since the International Health Regulations came into force in 2005.
For more information, see: https://www.who.int/emergencies/diseases/novel-coronavirus-2019
In Australia, ACT, Victoria, South Australia and Western Australia have all declared a State of Emergency with respect to COVID-19. This means that the relevant government has increased powers to enact controls and penalties in the public interest.
The national response to the COVID-19 epidemic is being led by the newly formed National Cabinet. Created at the Friday Council of Australian Government (COAG) meeting in March 2020, the “wartime” National Cabinet is charged with to co-ordinating and delivering a consistent national response to COVID-19. It is comprised of the nation’s first ministers – the Prime Minister, the State Premiers and the Territory leaders. It consists of five Labor and four Liberal members.
Cabinet status has also been given to two key co-ordinating arrangements – the chief medical officers group, known as the Australian Health Protection Principals Committee (AHPPC), and the National Co-ordinating Measure (NCM). The NCM operationalises the National Communicable Disease Plan and is managed through the Department of Home Affairs’ Crisis Coordination Centre (CCC). The CCC in turns co-ordinates the federal, states and territory whole-of-government responses to non-health issues related to COVID-19.
On 13 March 2020, leaders signed the ‘National Partnership Agreement on COVID-19 Response’, a 50-50 shared funding deal between the Commonwealth and the states and territories to provide the Australian health system the capacity to assess, diagnose and treat people with coronavirus in a way that minimises the spread of the virus in the community and protects the most vulnerable.
As part of the deal, the Commonwealth will deliver an immediate $100 million advance payment for the health system to the states and territories.
E.g. How can the Government force my restaurant to close?
Further to the meetings of the National Cabinet, State and Territory Governments have begun issuing orders under the relevant state public health legislation.
In NSW, under section 7 of the Public Health Act 2010 (NSW) (‘Public Health Act’), the Health Minister may take any action or make any Orders considered necessary to deal with general public health risks and the possible consequences.
Examples of Orders issued by the Minster so far include the immediate cancellation of outdoor gatherings of more than 500 people, and indoor gatherings of more than 100 people under s 7 of the Public Health Act. However, this is changing almost daily.
NSW has introduced a number of social distancing measures, some of which have been enacted by Orders under section 7 of the Public Health Act:
As of midnight on 30 March 2020:
Restricted Services are services which have had their operations restricted in NSW under section 7 of the Public Health Act. The following businesses cannot open (or can only open with restrictions):
As of 23 March 2020:
As of 25 March 2020:
There are also currently restrictions around other activities, including:
As at 30 March:
Essential Services are services which have been identified by the NSW Premier as ‘essential to society’ and expressly “immune” from the restrictions that apply to Restricted Services. These have been defined as:
E.g. We sell furniture or clothing
The NSW Premier has advised that if your business is not listed as either an Essential Service or a Restricted Service, you may continue to operate on an unrestricted basis. There is also another category called ‘Essential Gatherings’, which amongst other things includes shopping centres, as discussed below.
However, it is still recommended that businesses allow employees to work from home where possible to ensure social distancing is respected. If so, it is best practice for employers to ensure that employees’ home work environment is safe and appropriate. An example of some relevant criteria are in the Working from Home Self-Assessment for employees of members of Parliament.
This rule requires there to be four square metres of space for each person in a gathering. This means that the size of the premises has to allow for at least 4 square metres of space per person.
To calculate the number of people for the size of your room you must:
These are activities that are regarded as essential to the functioning and wellbeing of the country. They include:
These are not subject to the rules that apply to Non-Essential Gatherings discussed below.
On 20 March 2020 the NSW Minister for Health and Medical Research, Brad Hazzard MP, made an Order under section 7 of the Public Health Act 2010 (NSW) to prohibit:
Under the Order, Non-Essential Gatherings are suspended (until midnight on 18 June 2020) to reduce the risk of spreading coronavirus (COVID-19) and to give both businesses and people time to fully understand social distancing requirements.
As at 30 March 2020, additional rules have been applied to Non-Essential Gatherings, most notably that they cannot exceed two people.
For example, if we cannot retail fashion garments, can we terminate our wholesale agreement to buy fabric?
There is currently no blanket right under Australian common law for a purchaser to stop paying under a contract because a public emergency such as COVID-19 has occurred.
The right to terminate will depend on:
These matters are discussed below in this Emergency Guide.
Yes, provided your current supply contract is not on an exclusive basis and has not been terminated. If you have entered into an exclusive arrangement to acquire products or services, and the agreement has not been terminated, you should seek to vary the existing agreement to remove exclusivity.
In complex contracting situations you may also need the co-operation of the existing supplier to hand over or migrate services to the new supplier. If your existing contract does not contemplate this, you may be able to negotiate a co-operative arrangement between you, the old supplier and the new supplier.
Is the coronavirus an ‘act of God’?
Force Majeure clauses contemplate that certain circumstances may prevent the performance of contractual obligations, and provide a framework by which the affected party can be excused.
Such events are acts beyond a party’s reasonable control, such as so-called ‘acts of God’ (e.g. bushfires) or acts of humans (e.g. war, terrorism or strikes).
The party seeking to rely on the Force Majeure clause will need to show that the coronavirus pandemic was ‘not reasonably contemplated’ by the parties when entering into the contract and that COVID-19 has caused the performance of the contractual obligations to be beyond the party’s reasonable control’.
Also note that some Force Majeure clauses will expressly exclude the obligation to pay money from the operation of the Force Majeure clause.
Careful analysis of the wording of the specific language of the Force Majeure clause is required.
Yes, you can terminate provided that the contract unambiguously states that you can terminate a contract without having to assign a reason (such as breach by or insolvency of the other party).
The enforceability of such a clause will depend on whether the drafting is clear and unambiguous, so that it can be validly effected.
You also need to take care to issue the termination or suspension notice validly under the process outlined in the contract, or it may not be binding.
If there is no right to terminate or suspend the contract ‘without cause’ or ‘for convenience’, consider whether there are other contractual grounds to terminate. Has the other party breached a clause or are they potentially insolvent? If so, the contract may allow you to terminate for an event of default.
However, if no termination rights exist in the contract, you should take advice from a lawyer as to whether you can fall back on your general rights under the common law. Such common law termination rights can arise where there has been:
E.g. a Restricted Service supplying goods has been ordered to close.
If it has become “impossible” to perform the contract, the legal doctrine of “frustration” may apply:
‘…whenever the law recognises that without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract.’[1]
Typically, the party seeking to claim their performance has been ‘frustrated’ needs to show that:
Legislation in NSW states that where a contract is frustrated and the whole or part of the performance to be given by a party has been received before the time of frustration, the performing party shall be paid an amount equal to the value of the performed obligations.[2]
Frustration may not arise where:
The sole remedy available for frustration is the automatic termination of the contract from the moment the frustrating event occurs. This means that anything that happened before termination remains valid, but from the moment of frustration, neither party is contractually bound to perform the contract further.
Depending on your rights and obligations under the contract, it may not be commercially astute or legally appropriate to invoke frustration. If a Court does not find that the occurrence constitutes a frustration event, the party who has terminated may be found to have repudiated the agreement and be liable for damages.
For advice on how your contract might be affected by the coronavirus COVID-19 outbreak and how to approach your counterparties, or respond to an approach, on those issues, please contact Edwards and Co Legal.
E.g. a Restricted Service supplies goods to another Restricted Service and both need to close.
Yes. In the extraordinary circumstances presented by COVID-19, it is possible both parties may wish to be released from their contractual obligations. In these circumstances, the parties should communicate openly and in good faith, and document a contract variation or a termination and release agreement.
In suggesting termination, care needs to be taken to avoid triggering repudiation or other breach of the contract. We recommend that you take legal advice before signalling to the other side that you cannot fulfil the contract.
E.g. where we are a Restricted Service that has been ordered to close and cannot supply
You should consult the terms and conditions of the contract. Does it provide for termination if it is illegal to proceed with the contract?
In any event, it may be that requiring performance of an illegal contract is unenforceable. Generally, courts will not assist parties seeking to enforce an illegal contract, and such illegality will render the contract void. However, this is qualified by complexity. For example, is the illegal aspect essential to the bargain between the parties, and should the counterparty be deprived of the benefit of the contract?[3]
Specific legal advice should be sought.
E.g. a PR event to launch a swimwear brand
The Australian Consumer Law (ACL) impose a number of obligations on businesses, including:
First, businesses should consult the terms and conditions of the event agreement. Does it provide for termination for convenience or Force Majeure? Does it have a clause that says that it will terminate if it is illegal to proceed with the event?
The ACL generally requires companies to provide refunds in the event of a cancellation (even if the terms and conditions stipulate otherwise). Further, where an event is cancelled as a result of COVID-19, the ACCC has issued guidance that patrons should receive ‘a refund or other remedy, such as a credit note or voucher, in most circumstances’.[4]
It is important to note that the ACL applies not just to contracts with consumers, but to business contracts with a value of less than $40,000.
Care needs to be taken to avoid triggering repudiation or other breach of the contract. You should take legal advice before signalling to the other side that you want to terminate the contract, even where it as a result of a legal requirement.
For more information, you can consult the COVID-19 FAQ provided by the ACCC for small business requirements in managing cancellations, delays and suspension of products and services.
Listed companies are required to continuously disclose information that may affect their value or market price. ASX Listing Rule 3.1provides that:
‘Once an entity is or becomes aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of the entity’s securities, the entity must immediately tell ASX that information.’
The extraordinary circumstances of COVID-19 have caused uncertainty with respect to listed entities disclosure obligations with respect to the virus. However, ASIC Chairman James Shipton has recently stated that ASIC is ‘monitoring corporate contingency plans in case the virus spreads locally and is checking that listed companies are disclosing to investors any material impacts on their profits’.
It is important for companies to ensure compliance with Listing Rule 3.1 by attentively monitoring and disclosing material impacts of COVID-19 on their businesses. This extends to the impact of the government’s ongoing regulatory orders, employment issues, contract issues and changes in consumer demand.
The answer to this depends on whether the work stoppage is the result of a cause for which the employer “cannot reasonably be held responsible”.
If this is the case, subject to the employer having an enterprise agreement or a contract of employment that provides for this situation, under section 524 of the Fair Work Act (Cth) the employee can be stood down without pay for the period of the stoppage.
This would include where a business is temporarily required to cease its operations due to government orders. If so, the employer has a right to stand down employees that cannot usefully be employed as a result.
However slightly less clear is where the Government has issued a closure order in respect of some businesses, but not others. See the social distancing sections of this Guide.
Whether a particular employee can be usefully employed is a question of fact to be determined having regard to the circumstances. As a practical matter, can the employee work from home? What if there has been no forced closure, or where work could conceivably be performed from home, but the slowdown has reduced demand for the products or services of the business?
Also note that under section 524(2), an employer may not stand down an employee under s.524 of the Fair Work Act if the employee’s enterprise agreement, or a contract of employment, provides for this. The terms may also include additional requirements that an employer must meet before standing down an employee (for example requirements relating to consultation or notice). Instead of standing down an employee, the employer may agree that they should take paid or unpaid leave (section 525 of the Fair Work Act.
If the “stand down” rules above do not apply, unilaterally changing work hours or remuneration for permanent employees could constitute redundancy. Caution is advised. As an alternative to this, reductions in hours or salary should be by agreement between the employer and employee.
During the GFC many employers negotiated arrangements with full-time staff to work part-time or made agreements to utilise leave.
Work Health and Safety (WHS) and Occupational Health and Safety (OHS) legislation requires employers to provide and maintain a healthy and safe working environment. This would include appropriate measures to try and avoid the spread of COVID-19.
Guidelines should be clearly communicated to all staff, such as:
Failing to comply with a workplace health and safety duty is a category 3 offence, attracting fines of up to $500,000 for corporations and $50,000 individuals.
Work Health and Safety (WHS) and Occupational Health and Safety (OHS) legislation requires employers to provide and maintain a healthy and safe working environment. This includes working environments inside the home.
An example of some relevant criteria are in the Working from Home Self-Assessment for employees of members of Parliament. This allows employers to carry out a risk assessment of the employees’ home office to identify any potential safety risks or hazards. Any potential risks should be eliminated. Employers should also ensure robust policies and procedures are in place that detail part of the house where employee will be working, the equipment employee will use (computer, desk, chair etc) and breaks.
If the employee sustains an injury while working from home, the legal test is whether the injury sustained arose out of, or in the course of, the employee’s employment. So the employer could be liable in such circumstances. Employers should confirm with their insurers that their insurances extend coverage in such circumstances.
The JobKeeper program is a $1,500 per fortnight wage subsidy for eligible employers to pass onto full time, part time and certain casual employees. For more information on eligibility requirements, the process and FAQs, read our recent article on the JobKeeper programme.
The JobSeeker payment is a $565.70 per fortnight welfare payment for eligible persons who have experienced unemployment or reduced salary (less than $1,075/fortnight) as a result of COVID-19. This payment is set to increase to $1,115.70 per fortnight from 27 April.
COVID-19 was declared an insurance catastrophe from 12 March 2020 by the Insurance Council of Australia (ICA).
Generally speaking, typical commercial insurance and business interruption policies may not offer coverage for business interruption or supply chain disruption due to a pandemic such as COVID-19.
However, you should contact your insurance company or broker on an urgent basis, and have your insurance policies legally reviewed.
The Government is currently issuing orders under the relevant state public health legislation.
On 22 March 2020, in response to the CVOD-19 pandemic, the Australian government announced a “safety net” reform package, consisting of a range of measures intended to lessen the threat of businesses being pushed businesses into insolvency and winding up as a result of the virus and its effects. The key elements of the package are:
These proposed interim measure changes do not yet have legal effect. Amendments to the Corporations Act and other legislation will be necessary to give effect to the changes. No Bill has been released, however it is anticipated that legislation will be introduced urgently and with some degree of retrospective application. Bipartisan support will be required in Parliament for these amendments.
As companies enter into unprecedented territory as a result of COVID-19, it is important to take measures to mitigate future losses.
Here is a quick checklist:
If you want to use our full interactive LAWFIT® checklist for assessing how your business is placed in light of COVID-19, please contact us.
30. As a commercial landlord, can I get an interest payment and/or loan freeze from banks?
Australia’s big four banks have introduced measures to ease financial difficulties caused by COVID-19. This includes mortgage and loan repayment relief measures for homeowners and business owners respectively.
However, Australian banks have not yet implemented measures to support landlords of commercial leases.
31. What are my rights as the tenant of a commercial lease?
On 3 April 2020, National Cabinet released a Mandatory Code of Conduct (Code) that includes SME commercial leasing principles during COVID-19. For our initial comments on the Code and a detailed list of the Code’s principles, see our article on the COVID-19 Commercial Leasing Code.
The Code principles include that ‘landlords must offer tenants proportionate reductions in rent payable in the form of waivers and deferrals … of up to 100% of the amount ordinarily payable, on a case-by-case basis, based on the reduction in the tenant’s trade during the COVID-19 pandemic period and a subsequent reasonable recovery period’.
The Code states that ‘COVID-19 pandemic period’ is defined by the period during which the JobKeeper programme is operational. The JobKeeper programme will be available from 30 March 2020 to 27 September 2020.
As at 15 April 2020, the Code has not yet been given legal force at a State and Territory level through legislation. We expect this will likely happen soon, though nonetheless negotiations are well underway in Australian between commercial landlords and their tenants.
This Emergency Guide has been prepared on an expedited basis for Australian businesses. Given the scale of the issue, it is not intended to be, and cannot be, comprehensive, nor do we guarantee its accuracy or completeness, especially given the speed with which the legal and regulatory environment is evolving. It will be updated and new versions issued as the pandemic unfolds.
Please contact us if you require advice about your business in light of the pandemic. We have programs to quickly assess the your situation, and make immediate and cost-effective recommendations.
Stay well.
This article is part of our “law in the time of corona” series of business law articles.
[1] David Contractors Ltd v Fareham UDC [1956] (Lord Radcliffe) cited in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337.
[2] Frustrated Contracts Act 1978 See: https://www.legislation.nsw.gov.au/#/view/act/1978/105/full
[3] REW08 Projects Pty Ltd v PNC Lifestyle Investments PTY LTD [2017] NSWCA 269 [23 October 2017].
[4] https://www.accc.gov.au/consumers/consumer-rights-guarantees/covid-19-coronavirus-information-for-consumers
