Coronavirus: crisis management and business continuity

Published on
7 min read

The World Health Organisation (WHO) of COVID-19 has now categorised COVID-19 ‘pandemic’ status. This means that the virus is now occurring worldwide.

News continues to report additional cases, with restrictions being put in place by governments across the world, and Boris Johnson describing it as 'the worst public health crisis for a generation' on the UK entering the 'delay' phase in responding. A medical approximation given after the 12 March Cobra meeting was that the UK would be roughly 4 weeks behind Italy, actions were confirmed to delay the peak in infections and push the peak down.

Coronaviruses are viruses that circulate among animals but some of them are also known to affect humans. After they have infected humans, transmission can continue between humans. Coronavirus was identified in China at the end of 2019 and is a new strain of coronavirus that has not been previously known in humans. While animals are the source of the virus, coronavirus is now spreading from one person to another (human-to-human transmission). There is currently not enough epidemiological information to determine how easily and sustainably this virus is spreading between people. It seems to be transmitted mainly via respiratory droplets that people sneeze, cough or exhale. The incubation period for coronavirus (ie the time between exposure to the virus and the onset of symptoms) is currently estimated at five to six days, ranging up to 14 days.

In light of the rapidly increasing numbers of those infected and the status of ‘pandemic’ it is recommended that companies implement their crisis management and business continuity plans; putting in place steps to ensure the safety of employees, agents, contractors and customers as well as a plan to ensure the continued viability and operation of their business.

There are certain steps and reviews that business operators should take now:

Crisis Management & Business Continuity

The status of pandemic should trigger most companies crisis management policies.

Below is a summary of some of the key measures that should be taken, these are as follows:

  • A company should have a detailed and up to date crisis management plan, listing key decision makers, experts and responsibilities, and be linked to a business continuity plan.
  • This should implement a key decision-making crisis management team, including directors, covering areas such as management, operations, personnel, sales, communications; with key contact list for suppliers, customers and relevant agencies/trade bodies.

Key issues to be planned for include:

  • A full Hazard Analysis Critical Control Point (HACCP) plan should incorporate all major risks and seek to protect staff at vulnerable points within the supply, processing and distribution chain. This should be kept regularly updated to ensure that specific risks are reviewed and protections, as far as possible, included.e. delivery drivers to remain in waggons, restrict visitors to site.
  • What are the relevant steps that employees are expected to undertake re hygiene and travel? Has this been properly communicated? Are facilities provided for this?
  • What is contractual sickness and working from home policy? Has this been adequately prepared for and communicated?
  • Have key functions and personnel been identified? Have deputies been identified? What staff resources can be utilised where?
  • What are stock levels? Are there alternative suppliers? Alternative production facilities? Transport & logistical availability? Agency staff availability?
  • How should orders be prioritised if output cannot meet demand? What notification of this may be required?
  • How can foreseeable costs be mitigated?

Check of potential liabilities, to include:

  • Check insurance policies and terms and levels of cover: in particular check terms of business interruption insurance. Business interruption insurance may exclude or limit liability for a Also, levels of compensation may be capped.
  • Check contractual terms of supply and distribution agreements; (see below)
  • Health and safety legislation obliges employers to provide a safe as reasonably practicable environment for staff and visitors; suitable risk assessments for employees and other persons affected by the work activities should be carried out and all reasonable precautionary measures implemented

Keep abreast of new developments – legal, scientific and medical that may affect your product / assist you in protecting against risks and so protecting your customers, consumers and employees and ultimately your business/brand

Employees

There is a wide range of resources available on our coronavirus hub on what employers should do in different situations and as preventative measures re the real possibility that staff may need to be placed in quarantine to prevent the spread of the coronavirus, but summary points are: 

  • Where employees have been instructed to self-isolate: In the absence of express provision in their contract of employment or in a relevant workplace policy, it will be appropriate to continue to pay employees during any quarantine period in most circumstances.  Where the conditions of isolation and the nature of their job make this possible, quarantined staff can be expected to continue to work remotely.  If no meaningful work can be done, the quarantine period can be treated as a period of suspension on medical grounds.
  • Where infection is confirmed:  Once a member of staff has become ill the employer’s contractual provisions on sick leave will apply.  Workplaces from where a confirmed case has emerged may need to be closed for a limited period to be disinfected.  Employers will need to work with health authorities to take appropriate and proportionate steps, in consultation with their staff, to isolate any people who have been in close contact with that person.
  • General Staff welfare: An epidemic of this nature is bound to cause anxiety, particularly among staff who are more at risk of catching the virus or are likely to be more severely affected if they do catch it. Advice is provided on support, reassurance, privacy issues, addressing increased risk of discrimination and keeping up to date with advice and information.

Employers should, in any event, review their sickness absence policies. Employers should also ensure that they have effective and reliable systems for communicating current health risks to staff both inside and outside of working hours. Issues such as home working, recruitment of temporary staff and travel bans should be considered.

Fulfilling Contractual Obligations

There are reports of some UK businesses moving to a restricted working week due to lack of supplies coming in from China. Coronavirus and the associated restrictions may cause a business to breach its contractual obligations or suffer loss. There is the potential for substantial business impact and where contracts are not fulfilled, the effected party could bring a potential claim (for damages for breach of contract). However, whether the making or defending of these claims may hinge on whether the contract has an appropriate 'force majeure' clause and the context, detail, restrictions etc around that and the business itself. 

One of the things that all businesses should be doing is reviewing their commercial contracts and agreements in light of this to assess the risk to themselves, their suppliers and customers, the potential liability exposure and looking for ways in which the risk to themselves and their supply chain can be mitigated. 

Force Majeure

A Force Majeure clause (French for "superior force") refers to a clause that is included in contracts to remove liability for events beyond their control that interrupt the expected course of events and restrict participants from fulfilling obligations.  This is likely to include epidemics and governmental measures. The clause itself will usually define force majeure events such as, including: acts of God, flood, drought, earthquake or other natural disaster; nuclear, chemical or biological contamination; terrorist attack, civil war, civil commotion or riots; and action taken by a government or public authority. Sometimes it may also include non-performance by suppliers or subcontractors as well as interruption or failure of utility services.

Businesses should assess the definition of force majeure in their contracts ie does the clause reference ‘epidemic or pandemic or other civil emergency’ or simply reference action taken by government or public authority - which would give a more restrictive interpretation. The provision of food and food security may also be allocated special government provisions in a state of emergency and so this may also impact on food businesses particularly and add more uncertainty to the provision of these clauses.

In any event, it is unlikely that a clause would provide blanket avoidance of liability to mitigate losses and a lot will hinge upon what might have been 'foreseeable' by a company at any one time; timing and context of when a contract was entered into, and any wording re timescale and additional requirements will apply individually depending on how clauses are drafted/agreed. In summary, this would include:

  • If the outbreak was foreseeable at the time the agreement was made;
  • Potential steps that could be taken in advance to mitigate loss (such as the reduction in the working week that is already being implemented in some UK factories) or find alternate supplies. 
  • Other specific wording/requirements; such as if there is the requirement for certain country specific regulations to apply or specific notice requirements to be fulfilled.
  • The scope of wording used; for example, if there is reference to performance being “delayed” or “hindered”, this would be easier to establish than for the force majeure event to "prevent” performance of the contract, i.e. that performance is legally or physically impossible, not just difficult or unprofitable.
  • Termination provisions - There may also be provisions that if force majeure events continue for a prescribed period of time a party may be allowed to terminate the contract. 

Summary

It is important that businesses plan ahead for contingencies and proactively consider measures to mitigate any potential business interruption and losses. Also, to protect, wherever possible, vulnerable employees.

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