Newsletter 03/2020

Legal updates

Pandemics and the Law

Pandemics and the Law: How to Navigate Your Business Through COVID-19 Preventative Measures

These are challenging times, affecting almost all industries regardless of geography simultaneously. It is vital that business owners prepare themselves, here is some useful information:

Force Majeure:

  • Given the measures taken to curb the spread of COVID-19, many parties are unable to perform their contractual obligations, this is likely to trigger a 'force majeure' event under your contract. Force majeure is an 'act of god' which is outside of the control of the parties but makes it impossible for one or both parties to perform their obligations.
  •  Establishing that a force majeure event has occurred may give a party the option to either

a)       Suspend the performance of the contract;

b)      Refrain from performing the contract;

c)       Terminate the contract;

d)      Claim for an extension of time for performance.

  • Financial hardship or challenging business environment is not itself sufficient to trigger a force majeure.

Disputes:

  • Unpaid invoices will likely rise due to the sudden suspension of business activities across many industries, restricting cash flow. Undertake a risk analysis of your suppliers and customers.

a)       Discount invoices for early payment (particularly with higher risk receivables);

b)      Enter into new deferred payment plans with monthly interest ensuring that there is a definitive end   date when full payment is due;

 c)       For service businesses, consider barter arrangements to save on short term cashflow.

  • Only consider litigation as a last resort or if a party already had an aged receivable well before the COVID-19 measures were introduced.

  Employment:

Unfortunately, one of the most substantial casualties of this pandemic is the workforce.

  •  The UAE Labour Law still applies and it is the company's obligation to continue to pay salaries;
  •  There is no legal right to make redundancies without the appropriate salary payout plus the employee's accrued entitlements;
  •  Unpaid leave must be agreed with employees and properly documented (consider using e-signatures);
  •  You do have the right to dictate when employee's paid annual leave is taken;
  •  If you do consider reducing salaries by more than 10%, you must manage this properly through the Ministry of Resources & Emiratisation to ensure that your WPS (Wage Protection System) is not suspended. This largely applies to onshore companies only.
  •  Understand your companies gratuity liabilities and annual leave liabilities, these should form part of your readily available cash reserves. Failing to pay employee entitlements may result in severe penalties to the Manager of the company.
  •  Consent and communication with your employees is key. Work with your employees to navigate this period together.

For additional support, contact Lee McMahon on lee@supportlegal.com . The first 30-minute consultation is free for AUSBG members.

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