Covid-19 coronavirus: 10 key points for effective contingency planning

1. Coordinate your response

Consider setting up a dedicated team, reporting to senior management, to take responsibility for assessing and managing the potential impact of Covid-19 (and the steps put in place by relevant Governments and authorities to deal with it). Ensure that the team:

• Has representatives from support functions including HR, IT, purchasing, procurement, security and legal and is split across different regions and time zones (where relevant).
• Develops or implements a business continuity plan, taking into account relevant legal and regulatory obligations and the issues we set out below. 
• Prioritises effectively and manages potentially conflicting imperatives.
• Establishes and maintains clear internal and external protocols for regular and emergency communication with employees and other key stakeholders.
• Monitors and responds to developments and takes advice, with appropriate senior management and/or legal oversight. 

2. Manage the impact on the workforce

Employers will need to comply with health and safety duties and broader duties of care and good faith owed to workers. Steps to consider, subject to local law requirements, include taking action to:

• Monitor local Governmental and World Health Organisation advice and notify/remind staff of recommendations not to travel to particular areas and of measures to help prevent the spread of Covid-19.
• Introduce policies prohibiting or limiting business travel, particularly to high-risk areas, and consider alternative communication solutions (eg video-conferencing).
• Introduce policies on the self-isolation of staff (whether mandated by law, imposed by you or requested by individual staff members).
• Establish procedures requiring staff to report if they feel unwell or are absent, and to report possible infection or exposure to the virus (including following private travel to high-risk areas) or concerns involving others they have been in contact with at work.
• Provide staff with the right equipment for disinfecting hands and (if official advice recommends) protective masks, and with any additional health and safety training or support that they might need.
• Implement flexible or home-working arrangements and accommodate requests where feasible for particular roles – considerations might include whether the technology and equipment used to cater for a surge in remote working are reliable and whether further measures are necessary to maintain customer confidentiality.
• Plan resourcing strategies such as the re-allocation of staff, the splitting of teams, the rotation of in-office/home-working arrangements or the cross-training of staff who perform business-critical functions, to minimise the risks of disruption if large numbers of staff, or key staff, are absent.
• Have back-up arrangements in case employees responsible for health and safety are unable to perform their roles.
• Make special arrangements for vulnerable employees. 
• Consider carefully any proposal to repatriate staff from high-risk areas, particularly the impact on local staff in terms of workload and from a segregation and potential discrimination perspective.

Wider legal issues that you might also need to consider include whether: 

• Local management has the authority that it needs to take appropriate action.
• Employment terms or legislation permit or require periods of self-isolation (whether mandatory or self-imposed) to qualify as paid sick leave or as unpaid leave.
• You have a right to require staff to work from home.
• You are able to conduct voluntary or mandatory screening.
• Voluntary absences or work from home arrangements require remuneration, or, if quarantine is imposed by Government, whether Social Security allowances are payable.
• Workers can be required to use annual leave for relevant absences.
• You will allow requests for staff absence where a family member has the virus or is self-isolating (or if schools are closed or childcare arrangements impacted) and, if so, on what basis.
• You have a duty to inform/consult with health and safety representatives or works councils/trade unions in relation to the measures being taken.
• You are compliant with discrimination and privacy legislation in relation to staff who may contract the virus and ensure proper protection for those from high-risk areas against bullying, discrimination or harassment.
• You are eligible to apply for subsidies or financial support from national authorities if there is a business shutdown due to the virus, or a reduction in capacity due to sickness.

3. Manage contractual risks 

Evaluate the potential implications for your customer and supply chain contracts. Review how Covid-19 will affect your ability to perform your contractual obligations (either directly or due to issues in your supply chain). Assess what rights you might have if your counterparty is unable to perform. Consider:

• Event of Default – will a failure to fulfil obligations result in an Event of Default?
• Force Majeure and frustration – will the effects of Covid-19, or any response to it, be caught by a Force Majeure provision or frustrate your contract? This may require you to consider whether Covid-19 has made it impossible or unlawful for either party to fulfil its contractual obligations.
• Change in law/illegality – will any relevant Government response trigger change in law provisions or render performance illegal?
• Material Adverse Change – will the effects of Covid-19, or any response to it, fall within a MAC clause?
• Suspension of performance/termination – are either of these possible and/or likely and, if so, what are the consequences, both under the terms of the contract – for example, liquidated damages – and as a matter of law?
• Notification obligations – are there notification obligations in relation to possible delays/suspension/termination/frustration?
• Mitigation – are there express provisions requiring parties to mitigate their losses in relation to possible Force Majeure or other events, such as obligations to use “reasonable endeavours” and devise commercial workarounds? Even if there are no express contractual provisions a failure to mitigate may still affect the amount of damages that can be recovered.
• Payments – can they be effected remotely?
• Guarantees/indemnities/performance bonds/liquidated damages – is there a risk of these being called on if obligations are not performed? 
• Consequences of getting it wrong – if you act (or fail to act) based on an incorrect assessment of your rights, will you be in breach?
• Related contracts – will a failure to perform one contract have implications for other contracts? 
• Non-contractual overlay – are there non-contractual obligations in a relevant jurisdiction that should inform your approach?
• Insolvency risks – do you need to deal with supply chain insolvencies? Is it possible (or necessary) to look to alternative suppliers or to agree to a commercial re-negotiation
• Renegotiation of terms – have you considered no waiver, no oral modification, entire agreement and related provisions, and ensured that any alternative arrangements are properly documented?

4. Manage financial arrangements

9. Consider impact on potential M&A transactions

Businesses looking at entering into M&A transactions with targets that may have trading links with affected areas or sectors may wish to consider delaying or taking steps to protect themselves, for example via bespoke due diligence, conditions, termination rights, pre-completion undertakings, warranties or indemnities. Please see our February 2020 bulletin on this issue, here, for further details.

10. Stay up to date on your rights and obligations

Ensure that the team leading the response keeps up to date with the evolving situation:

• Comply with current legal obligations and guidance: many aspects of your response will be informed by your legal and regulatory obligations in each relevant jurisdiction and by guidance already given by relevant authorities. It is important that your response team has a good understanding of those obligations and ensures compliance with them.
• Identify and respond appropriately to changes to relevant legal obligations or guidance: your room for manoeuvre may well be constrained not just by the current legislative regime in relevant jurisdictions but also by any new emergency legislation or regulatory and industry guidance. Any legislation may well allow for draconian measures to be introduced in a very tight timeframe. Guidance from Governments, regulators, multilateral organisations (for example the World Health Organisation) and industry groups or representative organisations in relevant jurisdictions may also be updated frequently and will need to be monitored. Regulators are already making clear their expectations, for example in the UK, the recent FCA/Bank of England/HM Treasury statement that they expect all firms to have contingency plans in place to deal with major events.
• Liaise with Government and industry bodies where necessary on the extent and impact of any controls that may be imposed.

Allen & Overy is advising clients on a range of coronavirus-related issues. For more information on the potential impact of coronavirus on your business or transaction, please speak to your usual A&O contact.