Your business, your contracts and Covid 19.
How to handle your contracts today where the world is changing due to a global pandemic.
Last updated: March 31, 2020
At Hello Contract, we deliver high quality contracts through our automated document platform for a fixed price and at highly reduced costs when compared with ordinary law firms. As contracts are the core of our business, we want our customers to fully understand the risks and obligations arising from them during these increasingly anxious COVID-19 times.
Due to high demand and overlapping questions, we address the questions that have been asked either through consults with our partners at Legal Legends, or questions that have beenasked through our bot on this page.
Please note that what is set out below cannot be construed as legal advice, and apply only to general scenarios. If you have a different issue, please reach out.
For more general information regarding Covid-19 please consult the following websites:
For possible financial consequences, you may read:
Please note that this blog is ongoing and will continue to be developed. As it evolves, we will update it to try answer as many questions as we can.
Table of Contents:
- What is Force Majeure
- What if my business or that of my contracting party can no longer meet (contractual) obligations as a result of the Coronavirus?
- Am I allowed to terminate an agreement due to Covid-19?
Customer and Supplier duties
- My supplier is pushing me to pay an invoice. What can I do?
- I have contracts in place with customers, are these customers able to cancel these?
- Can I dismiss employees if my business begins to suffer?
- Can I reduce the salaries of my employees?
- Can I reduce the working hours of my employees?
- Am I as an employer legally required to ensure the health and safety of my staff?
- What can be done to ensure a safe and healthy working environment?
- If any employee is placed under quarantine by the Employer, should the employee be required to take sick leave?
- Events during the national 21 day lockdown
- What if my employees request self-quarantine?
- What happens after the quarantine period?
- What if an employee contracts the Coronavirus?
- Can an employee’s professional or personal travel plans be restricted?
- What are the obligations of my employees?
- What if I need to temporarily close my business down and employees are sent home for a time?
What is Force Majeure?
Force majeure events are circumstances which are beyond the reasonable control of one or more parties to a particular agreement.
Examples of force majeure events include:
- acts of God; and
- fire and the like.
These events, if they do arise, will prevent one or both parties from performing their obligations in terms of a contract. Parties to a contract are free to include as many or as little force majeure events as they would like. As such, events constituting instances of force majeure might differ from contract to contract, however, events such as the Covid-19 epidemic are normally recognised and included as events of force majeure.
Typically a force majeure clause will allow either party to terminate a contract if an event of force majeure arises, such as that of Covid 19, and persists for a particularly lengthy period of time. Some contracts might specify the exact period of time that the force majeure event needs to persist for before the contract may be terminated, others might not.
The inclusion of a force majeure clause protects a party from the consequences of not being able to perform in terms of the contract until the force majeure event has ceased, or, if the event of force majeure continues for a lengthy period of time, will allow for the contract to be terminated without any of the parties being held liable.
What if my business or that of my contracting party can no longer meet (contractual) obligations as a result of the Coronavirus?
If my contract in question contains a force majeure clause.
Should the contract that you have contain a force majeure clause, and assuming an event such as that of the Covid-19 is envisaged in such force majeure clause, and provided that the party who is affected by the force majeure event notifies the other party, the obligation to perform in terms of the contract will be suspended for as long as the force majeure event persists.
My contract does not contain a force majeure clause.
It is generally regarded that parties are free to contract with each other, and despite the Covid-19 epidemic, should a contract not contain a force majeure clause, if a party does not perform in terms of the contract, the other party may demand performance or at least damages (compensation) for inability to perform in terms of the contract.
There is, however, the possibility that a party which is affected by the Coronavirus, and cannot perform as a result thereof, may raise a legal defense known as supervening impossibility of performance. This generally means that since entering into a contract, the ability of one or both parties to perform in terms of a contract has since become impossible.
In this regard, it is unlikely that the party not being able to perform will escape liability unless a court rules that it is equitable in the circumstances. Most likely, should the performance not be something that sounds in the payment of money, the party might be required to pay money as opposed to perform in terms of the agreement.
Am I allowed to terminate an agreement due to Covid19?
If your contract includes a force majeure clause, and if the force majeure clause regards epidemics as an event of force majeure, and provided that the processes contained in the force majeure clause are followed, such as notice periods and the like, the contract may be terminated.
My supplier is pushing me to pay an invoice. What can I do?
Legally, there is often not much you can do apart from paying the debt.
Our suggestion would be to get in contact with your supplier and communicate with them. In this regard, as everyone is affected by Covid-19, negotiating more lenient payment terms might be the best approach. This might then result in you having to sign an Acknowledgement of Debt but would certainly be the choice of the lesser of the two evils in these circumstances.
I have contracts in place with customers, are these customers able to cancel these?
This would be dependent on the terms of the agreement with your customer. If the customer is being prevented from performing and you do have a force majeure clause, it is possible that the customer could claim and institute an event of force majeure, escape liability and terminate the agreement.
We would however, and as mentioned above, suggest entering into discussions with your customer, being lenient to a certain extent, and rather try to arrive at certain agreeable payment terms over a period of time.
Can I dismiss employees if my business begins to suffer?
Should the operations of your company have been affected to such an extent that you are no longer able to afford the salaries of your employees, in certain circumstances you may be able to justify their dismissal based on the operational requirements of your business.
The above is a form of retrenchment and needs to be considered only as a last resort. This is a requirement in terms of our Labour Relations Act.
Prior to dismissing the employee you will have to have a consultation with the employee in order that the employee may be heard and that you may show that the reason for the dismissal is genuine and justifiable. We strongly suggest that a labour lawyer be consulted here, however.
Can I reduce the salary of my employees?
Unless there is a clause in an employment agreement permitting salary reduction, you may not (unilaterally) reduce the salary of any employee.
You may, however, enter into negotiations with your employees, and if they agree to such salary reduction, record the new terms in an addendum to their pre-existing employment agreement.
May I reduce the working hours of my employees?
Yes, you may reduce the working hours of your employees, but you may not effect a salary reduction of theirs unless there is a clause in their employment agreement which permits you to reduce their salary in such circumstances.
Am I as an employer legally required to ensure the health and safety of my staff?
There is an obligation on an employer, in terms of the Occupational Health and Safety Act 85 of 1993, to ensure and maintain a safe and healthy working environment, and ensure that there is no risk to the health of employees as far as may be reasonably practicable.
As such, the prospect of Covid-19 clearly places an obligation on an employer to manage the risk of contamination in the workplace.
What can be done to ensure a safe and healthy working environment?
Employers should be promoting regular and thorough hand washing, and endeavour to keep employees abreast of Covid-19 developments.
As much as possible, permit your employees to work from home in order to encourage social distancing.
To the extent that a work from home environment cannot be catered for, ensure that you have adequate and proper washing and sanitising facilities.
To the extent possible, an employer should create areas within your workplace where self-isolation of employees is possible.
The Department of Health will most likely publish guidelines now and again. It is important that these guidelines be followed.
If any employee is placed under quarantine by the employer, should the employee be required to take sick leave?
Only in instances where a medical certificate is provided, will the employee be on sick leave.
Forced quarantine by an employee does not place an employee on sick leave unless and until a medical certificate follows.
An employer may require an employee to be quarantined if the employee recently travelled to an affected country or if the employee displays symptoms of the illness whilst at work. The employer could consider such an employee to be on special paid leave away from the office, but this will depend on the nature of the work performed by such employee, and whether remote work is possible.
As an alternative, the employer should try seek if remote working is a possibility within its operations. If remote work is not possible, such days at home will not be deducted from an employee’s sick leave.
Events during the national 21 day lockdown
As your employees are being forced by the government to stay at home, regardless of their being ill or not, the below will apply in our opinion.
Those which are not ill, and cannot work remotely, we recommend being placed on special paid leave. However, despite the President’s request for employers to pay their employees over the lockdown period, an employer is not legally obliged to pay its employees whilst they are not working. As such, these employees might, once their annual leave has been depleted, and as per the below, be placed on unpaid leave.
Those which are not ill, and can work remotely, do not need to take leave at all.
Those which are ill may be placed on sick leave.
In addition, employers may place their employees on annual leave and exchange this with their shutdown period in December or any other period that is suitable to the employer, if this is possible and feasible. It must be reiterated that employers are well within their rights to force employees to take annual leave during the lockdown period, until the employees leave has been depleted. Once an employee’s annual leave is depleted the employee would then be placed on special paid leave, or as a last resort, unpaid leave.
For more information on government benefits should you be required to temporarily close your business during the 21 day lockdown period, read here.
What if my employees request self-quarantine?
Where an employee requests to be self-quarantined as a precaution, such employee is not sick, and therefore sick leave cannot be taken.
During this period, if an employer requires these employees to take sick leave or annual leave, the employee may elect not to self quarantine. We recommend this situation to be treated as a special paid leave rather.
In instances where an employee is capable of working remotely, no leave will need to be taken.
What happens after the quarantine period?
After the quarantine period, whether there are any persisting symptoms or not, the employer may require the employee to be tested by a physician to confirm that they are able to return to work.
What if an employee contracts the Coronavirus?
In such an instance, this would be considered sick leave as the employee would need to be placed into self quarantine. A medical certificate in this regard would need to be obtained by the employee.
The employee should not be permitted to return to work until that employee is cleared of the virus by a medical practitioner.
Can an employee’s professional or personal travel plans be restricted?
Although an employer may restrict an employee’s professional travel by air or by road, it cannot dictate where employees travel when they are out of the office on personal time.
What are the obligations of my employees?
An employee needs to be proactive in order to identify possible hazards and risks to the workplace. Employees are therefor required not only to abide to any policy that the employer has set to reduce the spread of the Coronavirus, but also to comply with the Occupational Health and Safety Act 85 of 1993 and the Regulations specific to the Coronavirus brought into effect on 18 March 2020. If an employee identifies a possible high risk situation, they should report this to the employer.
What if I need to temporarily close my business down and employees are sent home for a time?
UIF National Disaster Benefit
What if an employer decides to close their business temporarily during the lockdown or thereafter as a result of Covid-19?
The Department of Employement and Labour has along with the Unemployment Insurance Fund (UIF) introduced the National Disaster Benefit. Please see the UIF Guide here.
In terms of this benefit, an employer can apply for the National Disaster Benefit for employees who will are placed on a temporary lay-off due to the temporary closing of business as a direct response to the COVID-19 outbreak.
The National Disaster Benefit comprises a flat rate payment of R3.500 per month for the duration of the company’s shutdown, or a maximum period of 3 months, whichever period is shorter.
If the employee is ill, or is temporarily laid-off or unemployed for longer than 3 months, the normal UIF benefits will apply.
Covid-19 Temporary Employee / Employer Relief Scheme (C19 TERS)
The Minister of Employment and Labour has issued a Directive called Covidl9 Temporary Employee / Employer Relief Scheme (C19 TERS).
Any employer, who as a direct result of the Covid -19 pandemic has to close its operations for a period up to 3 (three) months and suffers financial distress, will qualify for a Covid-19 Temporary Relief Benefit.
The benefit will only pay for the cost of salary (or portion thereof) for the employees during the temporary closure of the business operations.
The amounts paid will comprise a percentage of an employee’s salary, according to a legislated sliding scale from 38% (highest earners) to 60% (lowest earners). The salary benefits will be capped to a maximum amount of R17 712 per month, per employee, and an employee will be paid in terms of the income replacement rate sliding scale (38% – 60%) as provided in the Unemployment Insurance Act.
Should an employee’s income determined in terms of the income replacement sliding scale fall below the minimum wage of the sector concerned, the employee will be paid a replacement income equal to minimum wage of the sector concerned.
Can I terminate a contract that I have with an Independent Contractor?
Apart from the instances mentioned above of force majeur and vis major, alot of Independent Contractor and Sub-Contractor Agreements contain a termination for convenience clause. If this clause exists, you can simply provide the termination notice required by the clause. If you would like, you can purchase this form of notice here.
Governmental assistance to small businesses
The Ministry of Small Business Development has launched the Debt Relief Fund as of 24 March 2020.
The Debt Relief Fund is aimed at providing relief to small businesses with regard to their existing debts and repayments. Please see the Ministry’s Press Release here.
In order to qualify, the applicant must demonstrate a direct link of the impact or potential impact of the COVID-19 virus to their business performance.
Interested small businesses may enrol here.
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