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Delphi insights: Covid-19 – legal aspects

Delphi has established local task forces at all our offices responsible for gathering knowledge, analyzing and continuously cover legal issues arising as a result of the corona virus and Covid-19.

We advise on a number of different issues and also offer backup resources to facilitate businesses continuity planning if key persons who are lawyers are directly affected by the virus.

We regularly publish information and host webinars regarding legal aspects of Covid-19 at our Corona resource center.

Contractual Issues – force majeure and MAC clauses

As a consequence of Covid-19, many contractual issues and questions have arisen. What happens if an event has to be canceled or a supplier cannot deliver – how should these issues or delays be handled? How far-reaching is the responsibility for what is within your own control – may (and should) a subcontractor be replaced? Who will carry the extra costs? Another issue is the so-called MAC-clauses (Material Adverse Change), commonly used in M&A transactions.

Force Majeure

  • Force majeure is generally defined as an extraordinary and unforeseeable event beyond the reasonable control of a party, preventing this party from fulfilling its obligations under a contract. Force majeure clauses are usually interpreted restrictively. Whether a force majeure clause can be triggered and the effects of that have become frequently asked questions as a result of Covid-19.
  • There is no legal definition of force majeure under Swedish law. The issue should therefore be assessed based on the parties’ contract and, if there is no contract, based on other laws and regulations.
  • If a force majeure event occurs, the effect could be that a supplier or customer is relieved from performing the obligation affected. Although, the exact consequences must be examined on a case-by-case basis and depends on the contract. Thus, if a possible force majeure event has occurred, start by reviewing your contract.
  • Force majeure can also affect the possibility of claiming damages in the event of non-performance.
  • Delphi can assist in reviewing and interpreting force majeure clauses and offer legal advice when such clauses are missing in your agreements.
  • You can read more about if and when Covid-19 amounts to a force majeure event here.

MAC clauses

  • “Material adverse change” (“MAC”) clauses exist in M&A transactions but can also be found in other types of contracts. The clause provides a right to modify the price, withdraw from the transaction or other remedies if there is a material change.

Labor law

There are many labor law issues arising from Covid-19 and its consequences – for example: what constitutes applicable law in relation to forced and voluntary quarantine? What about the employees’ obligation to work?

  • The employer is responsible for the work environment and has an obligation to prevent employees from being exposed to any health threats. The employer must (i) keep itself up to date about the risks posed by the corona virus, (ii) evaluate working conditions and assess the risks of any employee being affected by infection and/or his or her concerns about infection, (iii) take necessary measures to prevent the risks, (iv) monitor and evaluate the measures taken, and (v) keep staff constantly informed about the work environment and measures taken.
  • All employees have a responsibility to contribute to a healthy working environment and to comply with the instructions given by the employer to prevent the infection from spreading and/or concerns about the infection within the workplace.
  • An employee cannot unilaterally decide to work from home due to fear of being infected by the virus.
  • The employer decides whether the employee should go on a business trip if traveling is normally part of the work obligation. However, the employer is not allowed to put employees at risk. Accordingly, any refusal to comply must be assessed on a case by case basis.

GDPR

What considerations should be made by employers when processing employees’ personal data because of the Corona virus?

  • From a data protection perspective, the employer has vast possibilities to process personal data relating to its employees since it in many cases is necessary in order to exercise rights or to perform obligations under labor law.
  • Process as little personal data as possible.
  • Consider whether it would be sufficient for general information to be communicated without identifying the individual employee.
  • Avoid sending e-mails including information regarding health and consider whether it is necessary to process any health information at all.

Be wary when discussing with competitors – competition law prohibitions on cartels and abuse of dominant position apply even in times of crisis

Both EU and national competition law prohibits cartels, i.e. companies coordinating their prices, discounts etc. and market division – geographically or between customers. This means that even in times of crisis (like the current situation due to Covid-19, which hits hard on many companies), companies are not allowed to cooperate with competitors for the purpose of attempting to increase prices or divide customers between them.

According to EU Commission practice and several national competition authorities, a crisis is not a valid reason for companies to coordinate, for example, prices. This has inter alia been confirmed in connection with the mad cow disease outbreak.

We would also like to point out that companies do not have to go as far as to agree on (for example) coordination of prices. Sometimes it is enough to disclose confidential information about (for example) prices to a competitor in order for it to be considered a violation of competition law. However, in certain exceptional cases it may be permitted for competitors to cooperate, but it is then important that you are able to show that it leads to lower prices or better products or services for the consumers.

Media has in the past reported about abnormally high prices for certain products in times of crisis. It should therefore be reminded of that companies having a so-called dominant position, oftentimes defined as having a market share exceeding 40 % (however, a complex assessment is required to establish it), are inter alia not allowed to use overpricing. Determining what constitutes such unreasonably high prices is a complex matter. However, in recent years several cases from various industries have been examined by multiple national competition authorities – especially where pricing of pharmaceuticals has been increased by several thousand percent.

Violations of competition law could lead to extensive sanctions in the form of huge fines, damage claims, exclusion from procurements, ban on trade activity, extensive bad will, etc. As always, it is therefore important to carefully analyze the contemplated measures before they are taken in order to ensure that they are consistent with competition law.

Public procurement and state aid

Public entities, such as municipalities, regions, public authorities and publicly owned companies are bound by the public procurement legislation when purchasing goods, services and contract work. But what happens to public procurement in a situation of crisis? How can the state provide aid to businesses severely affected by the outbreak of the corona virus?

  • A key component of procurement legislation is that all procurements must be announced and suppliers shall have due time to leave tenders on equal terms.
  • In case of urgent needs, such as in a situation of crisis, there simply is not enough time to carry out an advertised procurement. A direct procurement must be made.

There is no general exemption facilitating direct procurements in crisis situations. However, there are other exemptions that may be applicable, primarily the exemption for extreme urgencies. This exemption can be used in an emergency if the procured goods, services or contract works are absolutely necessary.

  • Other exemptions may be applicable – for example, a direct procurement can be made if the contract is of low value and the scope of an existing framework agreement could potentially be extended to cover something of acute need.
  • The contracting authority may at any given time evaluate the alternatives to address an acute need. Contact us and we will help you.
  • For more information on the challenges about state aid, see this article.

Shareholders’ meetings and listed companies’ obligation to share information

The spread of the corona virus has led to several companies taking measures in advance of their shareholders meetings’, an event which usually results in a large gathering of people in the case of a listed company. What are the options for companies to let their shareholders participate on site, or for a shareholder that does not want to be physically present at the meeting? Further, Covid-19 risks affecting listed companies’ continuous disclosure of information and the information made public in financial statements in the future.

  • There are no legal barriers against shareholders participating at a shareholders’ meeting by phone, via link or through other means of communication (this may however be subject to approval of the shareholders’ meeting in some cases). In these cases, it is important to ensure that the remote participants have the right to “attend” the shareholders’ meeting.
  • A shareholder cannot be denied access to a shareholders’ meeting. However, it is a criminal offence not to take reasonable safety measures to avoid putting other people at risk of infection if you are aware that you are infected by a communicable disease. A shareholder who is unwell may therefore not be able to attend a shareholders’ meeting.
  • Shareholders who in one way or another are unable to attend a shareholders’ meeting can always provide a power of attorney for someone else who will attend to vote on the his or her behalf.
  • Many of our clients have canceled the social parts of their shareholders meetings’, resulting in shorter speeches and no serving of food or drinks.
  • Listed companies have an obligation to disclose significant changes, both positive and negative, to their earnings and financial position if it diverges from previously disclosed information because of the outbreak of the corona virus. Further, the European Securities and Markets Authority has disclosed special guidelines for companies on the disclosure of information and financial reporting linked to the corona virus.
  • For more information on issues regarding shareholder meetings’ and disclosure of information read this article.

Summary: Try to avoid disputes

  • If you are forced to cancel deliveries, have outstanding invoices or have to lay off employees there is a risk for disputes.
  • Before drastic measures are taken, it is important to ascertain the situation based on the relevant contract and any mandatory laws.
  • Decisions made on a wrongful basis may result in liability for damages in future disputes.
  • You are welcome to consult with us to limit your risks of getting into situations with (additional) disagreements and potentially expensive disputes between your company and your customers, suppliers, partners and employees.

You are welcome to contact our corona task force if you have any questions.