Federal Tax Relief to Alleviate COVID-19 Hardships

The coronavirus (COVID-19) pandemic has already had widespread effects on the U.S. economy. Demand for many goods and services has stalled. Unemployment claims have skyrocketed. And many schools and businesses are operating online — if at all. Life has changed dramatically across the country.

The federal government has been working on various relief measures to help individuals and small businesses cope with the situation, including tax relief provisions. Here are the tax changes that have been finalized so far.

Even more relief measures are underway. As of this writing, Congress is working on a huge new COVID-19 relief bill that will surely include a massive economic stimulus package and probably lots of tax changes. Contact your tax pro for the latest developments.

Guidance on Federal Income Tax Deadline Deferrals

On March 20, U.S. Treasury Secretary Steven Mnuchin announced on Twitter that the April 15 federal income tax filing deadlines will be extended until July 15. His tweet says, “All taxpayers and businesses will have this additional time to file and make payments without interest or penalties.” It’s unclear at this point whether the extension will apply to the tax return filing deadlines for federal payroll taxes (Social Security and Medicare taxes) owed by employers or for federal estate and gift taxes.

In addition, on March 21, the IRS issued Notice 2020-18, which clarifies that individual taxpayers and corporations can defer until July 15 federal income tax payments that would otherwise be due on April 15. (Normally, when you file an extension, you must still make a good-faith estimate of your tax liability and, by the normal filing deadline, pay the full amount estimated to be due. This relief measure is an exception to the general rule.)

Specifics under Notice 2020-18 are as follows:

For individualsIndividual taxpayers can defer payment of federal income tax (including any self-employment tax) owed for the 2019 tax year from the normal April 15 deadline until July 15. They can also defer their initial quarterly estimated federal income tax payments for the 2020 tax year (including any self-employment tax) from the normal April 15 deadline until July 15.

Individuals who have non-salary income — such as self-employed people, investors and rental property owners — must normally make quarterly estimated tax payments to avoid an IRS interest charge penalty.

Individuals can defer their tax payments until July 15, with no interest or penalties, “regardless of the amount owed.” (Earlier IRS guidance imposed a $1 million limit, but that limit was eliminated by Notice 2020-18.)

For corporations. Corporations that use the calendar year for tax purposes can defer until July 15 any amount of federal income tax payments that would otherwise be due on April 15 with no interest or penalties. This relief covers the amount owed for the 2019 tax year and the amount due for the first quarterly estimated tax payment for the 2020 tax year. Both of those amounts would otherwise be due on April 15. (Earlier IRS guidance imposed a $10 million limit, but that limit was eliminated by Notice 2020-18.)

For trusts and estates. Trusts and estates pay federal income taxes, too. Federal income tax payments for the 2019 tax year of trusts and estates that use the calendar year for tax purposes are due on April 15. The initial quarterly estimated federal income tax payments for the 2020 tax year of trusts and estates that use the calendar year for tax purposes are also due on April 15.

Notice 2020-18 clarifies that trusts and estates can defer any amount of the aforementioned tax payments from April 15 to July 15 with no interest or penalties.

Important: Notice 2020-18 offers no relief for paying federal payroll taxes (Social Security and Medicare taxes) owed by employers — or federal estate and gift taxes. But additional relief measures may be under construction in Congress.

Tax Provisions in the Families First Coronavirus Response Act

On March 18, President Trump signed into law a COVID-19 relief bill. It’s called the Families First Coronavirus Response Act. The new law mandates paid leave benefits for small business employees affected by the COVID-19 emergency and establish related tax credits and Social Security and Medicare (FICA) tax relief for their employers.

Tax credits for emergency leave payments to employeesThe new law grants tax credits to small employers to cover payments to eligible employees while they take time off under the mandatory emergency COVID-19 paid sick leave and paid family leave provisions. These provisions apply to employers with less than 500 employees.

Emergency paid sick leave under the new law is limited to $511 per day for up to 10 days (up to $5,110 in total) for an employee who’s in COVID-19 quarantine or seeking a COVID-19 diagnosis. An employee can also receive emergency COVID-19 paid sick leave of up to $200 per day for up to 10 days (up to $2,000 in total) to care for a child whose school or childcare location has been closed or whose childcare is unavailable due to COVID-19.

In addition, the law gives an employee the right to take up to 12 weeks of job-protected family leave if the employee or a family member is in COVID-19 quarantine or if the school or childcare location of the employee’s child is closed due to the outbreak. The employer must pay at least two-thirds of the employee’s usual pay, up to a maximum of $200 per day, subject to an overall maximum of $10,000 in total family leave payments.

To help employers cover these now-mandatory emergency leave payments, the law allows a refundable tax credit equal to 100% of qualified sick leave wages and family and medical leave wages paid by the employer.

The credit applies only to eligible leave payments made during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.

The new law increases the credit to cover a portion of an employer’s qualified health plan expenses that are allocable to emergency sick leave wages and emergency family leave wages.

The credit is first used to offset the Social Security tax component of the employer’s FICA tax bill. Any excess credit is refundable, meaning the government will issue a check to the employer for the excess.

Important: The credit isn’t available to employers that are already receiving the pre-existing credit for paid family and medical leave under Internal Revenue Code Section 45S.

Employer FICA tax relief. Qualified sick leave and family leave payments mandated by the new law are exempt from the 6.2% Social Security tax component of the employer FICA tax on wages. Employers must pay the 1.45% Medicare tax component of the FICA tax on qualified sick leave and family leave payments, but they can claim a credit for that outlay.

Credits for self-employed people. For a self-employed individual who’s affected by the COVID-19 emergency, the new law allows a comparable refundable credit against the individual’s federal income tax bill. If the credit exceeds the individual’s federal income tax bill (including the self-employment tax), the excess will be refunded via a check from the government. The credit equals:

  • 100% of the self-employed person’s sick-leave equivalent amount, or
  • 67% of the person’s sick-leave equivalent amount for taking care of a sick family member or taking care of the individual’s child following the closing of the child’s school or childcare location.

The sick-leave equivalent amount equals the lesser of:

  • The individual’s average daily self-employment (SE) income, or
  • $511 per day for up to 10 days (up to $5,110 in total) to care for the individual or $200 per day for up to 10 days (up to $2,000 in total) to care for a sick family member or a child following the closing of the child’s school or childcare location.

In addition, a self-employed individual could receive a family leave credit for up to 50 days. The credit amount would equal the number of leave days multiplied by the lesser of:

  • $200, or
  • The individual’s average daily SE income.

The maximum total family leave credit would be $10,000 (50 days x $200 per day).

Credits for self-employed individuals are only allowed for days during the period beginning on a date specified by Treasury Secretary Mnuchin and ending on December 31, 2020. The beginning date will be within 15 days of March 18, 2020.

Important: To properly claim the credit, self-employed individuals must maintain whatever documentation the IRS requires in future guidance. Contact your tax professional for details.

Moving Target

This article only covers some of the COVID-19-related tax changes that have already been finalized. Other types of non-tax federal relief have also been made available and many states have announced their own COVID-19 relief. More federal measures and additional guidance are expected soon. Contact your tax professional to discuss financial relief measures that apply in your specific situation.

 

Coronavirus (Covid-19), French continuing plans and economy

On 13 March 2020, French Ministry of Justice issued a press release just after the announcements of the President of the French Republic. The aim, due to the emergency, is to protect citizens who are the most vulnerable and to curb the epidemic. Chancery has now prepared continuing plans to allow Justice to face core obligations of the Nation.

According to a CNB (Conseil National des Barreaux) release dated 15 March 2020, the continuing plans will be triggered as from 16 March 2020 by the Ministry of Justice to avoid propagation of Covid-19. Tribunal and courts will be closed, except for cases relating to core litigations.

Core litigations are limited to (i) criminal tribunals and courts including (a) pre-trial custody (détention provisoire) and probation (contrôle judiciaire), (b) immediate criminal summary trials (comparution immédiate), (c) appearance before the liberty and custody judge (juge des libertés et de la détention), (d) appearance before the enforcement judge (juge de l’application des peines) including appeals, these latest in the events of emergency only, (e) permanence of public prosecutor’s office (permanence du parquet), (f) hearings relating to investigation chamber for custody (audience de la chambre d’instruction pour la détention) and (ii) civil tribunals and courts including (a) children’s courts and permanence in the events of emergency only (audiences du tribunal pour enfants et du juge pour enfants et permanence du tribunal pour enfants) – including educational assistance (assistance educative), (b) summary judgments (including relating to family matters), but based on emergency only, (c) civil liberties and custody judge hearings (juge des libertés et de la détention civil).

Due to the risks of contamination, instructions are, to the extent possible, to cancel criminal court sessions related to crimes (cour d’assises). It is also allowed to postpone hearings (taking into account reasonable time extension and pre-trial custody time-frame).

Legal public facilities (services d’accueil du public) will be closed as well as justice centers and legal access points. Even if justice civil servants will not be allowed to receive public, they will be reachable by phone to address emergency situations.

As far as Paris is concerned, the first President of the court of appeal of Paris issued an ordinance dated 16 March 2020 (N°105/2020) named ordonnance de roulement modificative (amending rotation ordinance), on the basis of, inter alia, the decision of the Ministry of justice dated 15 March 2020 triggering continuing plans, article L1142-7 of the French Code de la Défense and emergency. Such article not only states that (i) the Ministry of Justice ensures in all circumstances the continuity of the legal criminal services as well as enforcement of criminal sanctions, but also (ii) he participates in fighting against elements adversely affecting fundamental interests of the Nation (this including preservation of the population in and outside France, according to article 410-1 of the French Code pénal).

Aside to the public authorities, the legal profession, as a whole, may support the economy : it can be suggested that business lawyers may wish to consider advising their clients to enter into settlement agreements (within the meaning of article 2044 of the French Civil Code) to solve pending litigations and to unlock commercial situations created by the current sanitary crisis.

This would give the economy a possibility to maintain a flow of activity.

Up to date 16 March 2020

Time to Protect Indian Businesses from Insolvency

The medium to long term financial effects of Coronavirus are yet to unfold, but the magnitude is already anticipated to be huge. Many countries across the world are announcing financial packages for businesses. India is also on the track to take a decision on relief packages.

With widespread lockdowns, the coming months are expected to witness a series of defaults by many viable businesses, and in this situation, we need to protect viable Indian businesses from landing up in our bankruptcy tribunals, for no fault of their promoters.

Broadly speaking – today an Indian company can be pushed into insolvency proceedings if it defaults in the discharge of its liability worth over INR 1,00,000/- (USD 1,322) towards a financial creditor or an operational creditor. With a few statutory exceptions and very limited way-outs, the promoters today face a real threat of losing their businesses forever if a creditor decides to opt for a legal action upon default in a single payment above the said threshold.

The bankruptcy and insolvency landscape in India has significantly changed from the regime prevailing prior to the introduction of the Insolvency and Bankruptcy Code (“the IBC”) in 2016. The most prominent feature of the IBC is “corporate insolvency resolution process” or CIRP, during which period the creditors assume control of the company and bids to acquire its business are publicly invited by an insolvency resolution professional. The board of directors of the company is suspended during the CIRP period, and in most cases, the promoters are legally prohibited from repurchasing their companies. This mechanism of CIRP was absent under the previous regime, governed by the (Indian) Companies Act, 2013. During that time, in certain cases the High Courts granted a few weeks’ of time to the promoters to settle with the creditor(s), failing which notification of winding up was published and the official liquidator took charge to liquidate the assets of the company.

The IBC stipulates a more mechanical approach, leaving little discretion with the learned judges of the National Company Law Tribunal (“NCLT”), which is the adjudicating authority under the IBC. The practitioners of the earlier company courts would agree that during the earlier regime it was expected from a creditor to show, in addition to a default of a similar threshold, that the corporate debtor is also unviable as a business. The courts went through the past balance sheets, read auditor’s reports while quoting them in judgments, and frequently observed in courtrooms that businesses give employment, and viable businesses cannot be liquidated just because of a default.

Since the advent of the IBC, the focus changed, and for a reason – the “CIRP”. Who will buy an unviable business during a CIRP? No one. What will then a CIRP achieve? Nothing.

The “business viability/un-viability” test was perhaps therefore never propagated in the IBC. Resultantly, a default above the threshold is enough, by itself, to trigger a CIRP, with all its consequences under the IBC. What the IBC also doesn’t consider is – the reason for such default.

Time has come for us to realise that unviable businesses anyway fail the CIRP. The reports published by the Insolvency and Bankruptcy Board of India evidence that four out of every five CIRPs are not able to find a resolution anyway. Eventually, such unviable companies are thrown into liquidation. No one wins.

We should, therefore, think of a course correction, and to save numerous Indian businesses that would otherwise land up in CIRPs because defaults are now imminent – and more painful – without any fault of the promoters. We need to acknowledge, with evidence now, that each default does not indicate a fault of the promoters, and survival of the businesses of all sizes is vital for the survival of the economy. The IBC and NCLTs also have a much larger economic and functional role, beyond facilitating the buying and selling of the businesses and assets or enforcing settlements by promoters under fear of CIRPs.

We, therefore, feel that the “reason for the default” should, in some way at-least, form part of the judicial consideration while admitting cases under the IBC. Viability of the business should form another vital consideration, even if the focus is on CIRP. The thresholds also should be raised much above INR 1,00,000/-, which we note is a work in progress anyway.

Let’s save our businesses. It takes years to create each viable business. The above-suggested actions may not be exhaustive. Our hon’ble judges also have always found innovative solutions, such as reverse CIRP, when the situation demands. It is now time for the law also to consider that exceptions (habitual defaulters) are not the rule.

Force Majeure and Coronavirus: Frequently Asked Questions

Part 1: Force Majeure and Suspension/Termination of Contracts

Coronavirus (COVID-19) is turning out to be a twin fold pandemic – that started with affecting public health and soon spread throughout the economy. Sudden global shutdown and travel restrictions have brought the economy to a screeching halt before most of us could even comprehend the real impact. Many businesses are still at a loss and are only doing guesswork regarding the magnitude of potential losses and recalibration needed for the businesses to survive this time, and remain viable.

Resultantly, certain harsh realities stare at us, and certain brutal questions are to be answered. With specific reference to Indian laws, we have attempted to answer some of these questions which businesses are asking concerning the possibility to suspend, extend or cancel their contractual obligations and their ability to reduce workforce and other recurring costs and liabilities.

You are reading Part 1 of our series on “Force Majeure and Covid-19: Frequently Asked Questions”. In the next part, to be published on March 20, 2020, we would discuss the possibility of reduction in workforce and wage bills.

Question:   What is a force majeure clause and how does it help the contracting parties?
Answer:      Force majeure is commonly defined as an unforeseen irresistible force, such as an act of God or war. Performance of a contract by a party facing a force majeure situation may be impossible. Recognising this, most contracts include a force majeure clause, which permits a party, when facing a force majeure situation, to temporarily suspend its performance under the contract.

A suspension under a contract, in accordance with its force majeure clause, entitles the party suspending it to be exempted from performing its obligations under the contract. Accordingly, during the period of suspension, such party is not held liable for breach of its contractual obligations. The contract springs back to life and operation once the force majeure situation subsides. The contracts usually also provide for the termination, if the force majeure situation continues beyond a specific number of days.

 

Question:Is the outbreak of COVID-19 a force majeure situation?
Answer:      Force majeure clauses are a contractual feature. Indian laws do not define “force majeure”, from the perspective of contract laws.

The answer, therefore, lies in answer to the question – what are the identified force majeure situations in your particular contract? Most contracts illustrate various situations as “force majeure events”. Some contracts use words like “epidemic”, “Government order” (of shutdown) and “any other situation making the conduct of business impossible” as examples of force majeure situations. COVID-19 would easily qualify as a force majeure event in such cases.

On the other hand, some contracts give a more restrictive definition of force majeure, limiting it to physical damage to the business premises or change in law or policy.

As force majeure clauses permit contractual non-performance, they are likely to be given a narrow interpretation by the courts, when scrutinized.

Accordingly, to answer, the outbreak of COVID-19 does not automatically become a force majeure situation, and its classification as such largely depends on the language of your specific contract(s).

Question:   If COVID-19 qualifies as a force majeure situation in my contract, am I exempt from its performance?
Answer:Your chances of performance exemption are good, but not automatic. Even if COVID-19 can comfortably be classified as a force majeure situation in your contract, you must remember that:

Your performance is not suspended automatically: You would most likely need to issue a written notice to the other party, as specified in your force majeure clause, invoking the clause and notifying suspension of your obligations. Some contracts also require a party giving a force majeure notice to give a plan to mitigate the loss caused to the other party. Therefore, read your contract and follow what it prescribes.

Force majeure should affect your performance: The performance is also not suspended just because a force majeure situation has arisen unless it significantly affects your performance capabilities. A party invoking a force majeure clause should, therefore, be prepared to demonstrate as to how the occurrence of a force majeure situation has made performance by such party “impossible”. The common legal understanding is that a mere occurrence of a force majeure situation, without a real impact on contractual performance capabilities of such party, would not entitle it to suspend its performance under the contract. As lawyers, we see that some of the parties would face this challenge if their counterparties decide to legally oppose the suspension.

Question:If COVID-19 cannot be a force majeure situation in my contract or if my contract does not have a force majeure clause, what recourse do I have?
Answer:  It is still not ending of the road for you. Indian Contract Act, 1872 enshrines the doctrine of frustration of contracts, which means that a contract would become void if its performance is rendered impossible or unlawful after the contract has been made. Void contracts are unenforceable, the result of which, in layman terms, is that such contracts cannot render a party liable for their non-performance.

Similar to force majeure, the frustration of a contract would also need a party claiming so to demonstrate as to how the occurrence of a situation (COVID-19, being the case in point) has made performance by such party “impossible” or “unlawful”.

Please however note that, unlike force majeure, the frustration of a contract renders it void with immediate effect, and the law does not provide for a suspension of such a contract. Of course, if one party claims “frustration of the contract”, and then both the parties are willing to suspend the contract, they can contractually agree to a suspension. In economic difficult times, new contracts are also hard to come by, so the suspension is a real business possibility following frustration. The suspension, however, cannot be enforced in absence of a contractual stipulation (e.g. force majeure) or with the consent of the contracting parties.

Question:   While invoking force majeure clause, can we propose reduced/alternative performance?
Answer:Indian contract law requires that a party shall do everything within its control to mitigate the loss to the other party. Therefore, a party can propose reduced/alternative performance during a force majeure period. Such reduced/alternative performance may however not be enforced upon the other party unless your force majeure clause so provides. If the other party does not agree to such reduced/alternative performance (consider cases where insufficient raw material supply would make the running of the plant itself commercially untenable), one can revert to full suspension of performance.

Each case should, however, be assessed carefully, before reduced/alternative performance is proposed. Force majeure, when available, is a contractually enforceable suspension right. A unilateral amendment is ordinarily never enforceable. In cases where the contractual relationships are complex, a party needs to assess whether a proposal for reduced/alternative performance would give an opportunity to the other party to deny the applicability of force majeure clause itself.

Conclusion:

Force majeure and frustration of contracts are contractually and legally viable tools that provide a real possibility to the businesses to deal with the current situation. Case to case assessment is however needed before implementation of these options.

CCWC and Hogan Lovells: Our Shared Vision

As part of our commitment to being a leader in diversity and inclusion, we are proud to announce the beginning of a partnership between Hogan Lovells and Corporate Counsel Women of Color (CCWC).

The nonprofit organization provides a support network to in-house women of color attorneys, promotes career advancement and success at all levels within corporations, and promotes all aspects of global diversity in the legal profession and workplace. We look forward to working with CCWC as part of our shared vision to support the leadership and professional development of women of color in the legal industry.

Please watch the video below to learn more about this partnership.

Footbal and Administrative Decisions

On 10 March 2020, the French Conseil d’Etat (Conseil d’Etat case, Fédération Française de Football, Req. 424347) confirmed the possibility for the executive committee of the FFF (Fédération Française de Football) to accept the propositions of the CNOSF (Comité National Olympique et Sportif Français) given in the course of a conciliation and to additionally ask the DNCG (Direction Nationale du Contrôle de Gestion) to convene and to take other measures. In such a context, to create rights with a decision qualifying as an administrative decision (acte unilateral), the FFF has to take a new decision containing its own legal and fact reasons (motifs), this later cancelling the first one of the DNCG.

In this case, for financial reasons, the first measure ruled by the DNCG prohibited Racing Club de Lens from accessing Ligue 1.

The DNCG is an independent entity by law created by the FFF in the view of ensuring the sustainability of sports associations and companies, to encourage the respect of sport equity and to contribute to economic regulation of competitions. Its main mission is to organize the financial, legal and administrative control of members of sports associations and companies belonging to the FFF or of the professional league (or even those which ask to join them). Albeit considered as independent, the DNCG does not have the legal personality and forms part of the FFF.

After a mandatory conciliation before the CNOSF on 25 July 2014, other measures were instead proposed by such entity: (i) limitation of the number of employees and / or (ii) recruitment control. On 28 July 2014, the executive committee of the FFF thereafter decided to accept these other measures but additionally asked the DNCG to convene in order to determine how Racing Club de Lens would play in Ligue 1.

In such a context, this latest decision was challenged by a relegated team from Ligue 1 to Ligue 2 (Sochaux) (being ranked 18 after the championship and hoping staying in Ligue 1).

Such complaint is dismissed by the Conseil d’Etat for the second time.

The main subject arising from this case and developed in the report of the public draftsman (rapporteur public – see conclusions M. G. Odinet, rapporteur public available on the website of the Conseil d’Etat) deals with the qualification of the second decision dated 28 July 2014 and the correlative cancellation of the first decision dated 26 June 2014.

To rule the case, the Conseil d’Etat runs a limited scrutiny check (contrôle restreint) over the new decision taken after the conciliation on 28 July 2014 (standard in this kind of case). In this respect, the Conseil d’Etat ensured an absence of manifest error (erreur manifeste d’appréciation) only, and followed the conclusions of the public draftsman: the executive committee of the FFF did not take an inconsiderable risk in cancelling the first decision of the DNCG and in deciding instead the limitation of the number of employees and / or the recruitment control. No EMA (erreur manifeste d’apprécaition) can derive from this new decision.

Even if not raised in the case dated 10 March 2020, it might be argued that the question of interest to act (intérêt à agir) of Sochaux could also have solved this case. The interest to act of Sochaux could have successfully been challenged in the first instance as these two teams were playing in different leagues: it is not because Racing Club de Lens would have stayed in Ligue 2 (due to financial reasons) that Sochaux would had won the right to stay in Ligue 1. There is no link between the two: as such, Sochaux could also have lost the case on the ground of lack of grievance (défaut de grief) of the FFF decision. In addition, Sochaux cannot be considered as representing the collective interest of the whole profession.

By this decision, the Conseil d’Etat hopefully confirms the latitude of sport institutions vested with public power prerogatives (prérogatives de puissance publique), but remains, with the ECHR (European Convention of Human Rights) one of the ultimate regulation entities.

UN Condemns Thailand poultry producer for silencing human rights defenders

A group of United Nations (UN) experts condemned Thammakaset, a Thai poultry producer, for alleged targeting of human rights defenders Thursday.

In 2019, Thammakaset allegedly used Thai defamation laws to sue and have prosecuted ten individuals who criticized Thammakaset’s labor practices for human rights abuses. The UN experts called upon Thailand to reform defamation laws based on the UN Guiding Principles on Business and Human Rights to prevent companies from silencing human rights activists.

Thailand is the first country in the Asia Pacific region to have a national action plan against human rights abuses in business. Additionally, Thailand has recently proposed to amend laws and protect human rights defenders.

Despite these promising actions, the UN experts recommended that Thailand take further action:

Although the adoption of the national action plan and the amendment to the Criminal Procedure Code to protect human rights defenders are positive steps in the right direction, it is time for the Thai Government to ensure that these measures are effective and that companies like Thammakaset stop vexatious legal proceedings against human rights defenders.

The report follows a March 2018 report to the Human Rights Council that previously called upon Thailand to reform its defamation laws for similar concerns.

US announces G7 will be held virtually amid COVID-19 pandemic

The US State Department has announced Wednesday that the G7 Summit will be held virtually to better accommodate efforts to prevent the spread of COVID-19 (the novel Coronavirus).

The G7 was originally set to be hosted in Pittsburgh, Pennsylvania later this month. The G7 has included Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union. Russia was a member previously until their 2014 annexation of Crimea.

Several of the G7 states are currently experiencing widespread outbreaks of COVID-19. Japan has been fighting outbreak for several months. Italy has recently implemented strict quarantine and travel restrictions nationwide. The US has only recently begun fighting the pandemic with a patchwork of quarantines, travel restrictions, and event cancellations. According to the Centers for Disease Control and Prevention (CDC), the State of Pennsylvania currently has 12 reported cases of COVID-19.

The State Department did thank the City of Pittsburgh for its willingness to host the event and does look forward to hosting events there in the future.

COVID-19: managing the risk of contamination in the workplace

While the World Health Organisation has just declared the COVID-19 epidemic a “pandemic”, with the virus had reached nearly 130,000 people since December 2019, managing the risk of the virus spreading in the workplace has become a major issue for every employer. Following the announcement of multiple cases in Luxembourg and the decision of one Luxembourg bank to require employees to take holiday leave in the event of contamination, it seems more important than ever to remind ourselves of the rights and obligations of employers in the current scenario.

What are the employers’ obligations?

According to the Luxembourg Labour Code, employers have a legal obligation to ensure the safety and health of their employees in all work-related aspects. More particularly, as part of their responsibilities, employers shall take all necessary measures for the protection of the safety and health of employees, including actions for prevention of occupational hazards, information and training, as well as the establishment of the necessary organisational means. In general, employers must avoid risks and take precautions against possible risk factors, plan risk prevention and eliminate hazards or, at least, reduce them as much as possible.
In concrete terms, employers must take all the necessary preventive measures to protect employees and prevent the spread of the virus, such as:

  • display pictograms in the premises explaining basic hygiene procedures (e.g. regular hand washing, avoiding physical contact, avoiding travel in high-risk areas, sneeze or cough into a tissue );
  • reinforce hygiene measures (provision of masks, soaps and alcohol-based solutions for hand disinfection, etc.);
  • encourage teleworking where possible;
  • limit employees’ business travel and use alternatives solutions such as video-conference, phone calls, etc.;
  • postpone organized social events;
  • inform employees about the evolution of the situation in Luxembourg;
  • etc.

The means put in place by the employer should thus be aimed at (i) researching the virus’ origins and (ii) containing and delaying its spread.
In any case, employers shall keep themselves informed of the official recommendations published by the Ministry of Health, and liaise with their occupational health service in case of doubt.

Can an employee refuse to work or to carry out an assignment for safety reasons?

The Labour Code provides that in the event of serious, immediate and unavoidable danger, an employee can choose to leave or refuse to go to his/her workplace. There is no specific procedure to follow: it is sufficient for the employee to inform his/her employer orally or, preferably, in writing. In such event, the employee shall not suffer any harm/be subject to any sanction. A dismissal in violation of this prohibition of sanctions would be automatically deemed abusive.
If the employer has not taken the necessary steps to isolate employees exposed to the virus, an employee may, therefore, exercise his/her withdrawal right, either because he/she has been in a risk area or because he/she has been in contact with a colleague who has been in a risk area. Similarly, if the employer does not offer repatriation to an employee working in a risk area, the employee can again exercise his/her right to withdraw by ending the assignment. This right may also be exercised by an employee in the event that his/her employer asks him/her to go to a risk zone for an assignment.
As mentioned above, the employee’s withdrawal right can only be exercised in the event of serious, immediate and unavoidable danger. Consequently, an employee cannot refuse to attend work simply for fear of the COVID-19; similarly, an employee cannot refuse a business trip to an area that is not considered to be at risk. In such circumstances, the employee’s refusal could be subject to disciplinary action up to, and including dismissal.

Can the employer refuse to approve vacation for an employee who intends to privately go to areas at risk of COVID-19?

Under Luxembourg law, the employer may only refuse to grant leave in limited cases:

  • for operational purposes;
  • because of the justified wishes of other employees;
  • because of the employee’s unjustified absences, when they exceed 10% of the time during which he/she would normally have been required to work.
  • Luxembourg law does not allow the employer to deny leave to an employee for health and safety reasons. In any case, the employer cannot interfere in the private life of its employees.

In accordance with its obligation to ensure safety and health in all work-related aspects, the employer may, at most, recommend to the employee not to travel to the specific place. If the employee nevertheless travels to a high-risk area, the employee may be refused access to the workplace if the health and safety of others employees are seriously at risk, and in order to avoid spreading the virus in the company.

Does the employee have an obligation to inform the employer of possible exposure to the virus?

The Labour Code provides that it is the responsibility of each employee to take care, according to his/her possibilities, of his/her own safety and health and that of other persons affected by his/her acts or omissions at work, in accordance with his/her training and the instructions of the employer. In particular, employees must immediately report to the employer and/or the designated employees and the safety and health representatives, any work situation which they have reasonable cause to believe presents a serious and immediate danger to safety and health, as well as any deficiencies found in the protection system.
In light of the above, and on the basis of the principles of good faith and loyalty inherent in all employment relationships, employees should, therefore, inform their employer of any possible exposure to the virus (e.g. travel to an affected area, contact with a person returning from an affected region, etc.) so that the employer can take all the necessary measures in accordance with its obligation to ensure safety and health at work.

What can the employer do in case an employee is showing symptoms or is coming back from a high-risk area?

First of all, as the employer is responsible for ensuring safety and health in the workplace, and pursuant to the Labour Code, the employer may request employees showing symptoms or coming back from a high-risk area to perform a medical examination in order to ensure that the employee is fit for work. Such medical examination should be carried out by an occupational doctor of the company and at the employer’s expense, and may only be requested if the employer has serious indications of the existence of a risk for safety and health at work.
Where the health and safety of other employees are at stake, the employer may also refuse employee access to the workplace. However, the risk justifying the refusal of access to the workplace must be serious and justified; otherwise, the refusal of the employer could be regarded as discrimination.
Finally, the employer may encourage the implementation of telework for employees whose nature of work allows it, in order to avoid any risk of infection or spread of the virus.
According to the Ministry of Economy, employers could even impose telework in a preventive manner. The employer and the employee would then have to enter into an amendment to the employment contract, allowing the use of telework for reasons objectively motivated by precautionary measures in the context of the fight against COVID-19.
In any case, the employer shall cover the costs directly linked to telework, especially costs in relation to telecommunication. The employer shall also provide their teleworkers with appropriate technical support and is responsible for any cost related to the damage or loss of equipment and data used by the teleworker.
Where the nature of the employee’s job does not allow telework, the employer may exempt the employee from work where there is a risk for health and safety in the workplace.
In any case, the employer shall continue to pay its employees’ salaries. In addition, the employer may, under no circumstances, require the employee to stay at home by taking days off.

How to deal with a sick employee or with an employee stuck abroad due to restriction measures?

In case of sickness or quarantine instructed by a doctor, the employee will receive a medical certificate and the absence will be treated as normal sickness absence (i.e. cost is either borne by the employer or social security depending on whether the 77-day threshold has been reached).
However, if an employee is absent and stuck abroad due to restrictive measures implemented in connection with the prevention of the spread of COVID-19 (e.g. quarantine on a cruise ship, cancellation of flights, etc.), and if the employee is not sick, this absence will not be treated as normal sickness absence.
In such a situation, the employer and the employee may agree that the employee will work remotely, if practically possible. In this case, the employer must continue to pay the salary of the employee.
In any case, absences due to cases of “force majeure” or causes beyond the employee’s control, which have made it impossible for the employee to request prior authorisation, shall not be considered as unjustified absences and shall be assimilated to actual working days. In this respect, the employer shall continue to pay the employee’s salary.
However, if an employee is stuck abroad following his decision to go to a high-risk area despite his employer’s warnings, it could then be considered that there is an impossible performance of the employment contract due to the employee’s gross negligence and that in this case the employer could be justified in not paying the employee’s salary.

Should the employer grant an employee’s request to telework in order to care for children who are temporarily not allowed to attend their school?

An employer has no legal obligation to accept a telework request. Should the child of an employee be infected with COVID-19, placed in quarantine or temporarily unable to attend school, the employee will have to apply for leave.
However, where the child of an employee has potentially been in contact with a person who may be infected with the virus or who has stayed in a risk area, it is in the employer’s interest to permit teleworking as a preventive measure.
draft Grand-Ducal regulation has recently been adopted, providing for the possibility of a right to family leave for parents whose children have been placed in quarantine by the doctor of the Health Directorate, in particular in order to limit the spread of infectious diseases and more specifically of the COVID-19.

How can redundancies be avoided in the event of a decline in the activity of the business due to the propagation of the COVID-19?

In order to protect jobs and prevent redundancies, the Labour Code allows businesses, under certain conditions, to resort to various short-time working schemes depending on the nature of the difficulties encountered.
In this respect, the Labour Code provides that in the event of partial or total interruption of the operation of the undertaking due to losses of a “force majeure” nature occurring independently of the will of the employer and the employees, a subsidy may be granted to the employer who, instead of proceeding to dismissals, undertakes to maintain the employment contracts of its employees and to pay them a compensatory wage allowance.
In the event of an agreement, the Employment Fund (Fonds pour l’emploi) covers 80 % of the salaries normally received by the employees (which is capped at 250 % of the minimum wage for an unskilled worker) during the non-work periods with a maximum of 1.022 hours per employee and per year.
The Luxembourg authorities have recently recognized that this short-time working scheme in cases of “force majeure” may apply in principle to all economic sectors as long as the causes invoked are directly related to COVID-19 (e.g. drop in demand from customers or users, employees absences due to external decisions, the company can no longer operate at normal speed, etc.).

(COVID-19): Legal Aspects to be Considered by Companies

An overview of the events of the last few weeks shows the growing social and economic impact of the coronavirus (COVID-19) on a global scale, including in the business and companies’ fields. To this end, we consider appropriate to give some guidelines that companies should take into account in order to minimize the possible consequences of the health crisis of COVID-19. In this sense, it is recommended that, with the appropriate advice, the companies carry out an individualized study of their relationships with third parties, paying special attention to the following areas:

  • Contracts signed with suppliers or customers.

The concept of force majeure may be the cause and justification for the frustration of a contract, which will imply its future non-fulfilment, thus causing damages that may be compensated in the event that such force majeure is not appreciated. The application of this concept must be evaluated in accordance with the legislation and circumstances applicable to each contract, as it is an undetermined legal concept. However, in order to assess force majeure, the company must, in any case, have exhausted all the means at its disposal to fulfil the obligations entered into.

  • Insurance policies. Review of the scope of coverage contracted.
  • Potential claims for liability of the Public Administration for actions or omissions related to this situation that cause damage that the company does not have a legal duty to bear.
  • Review of the obligations that determine health regulations, mainly with regard to information duties and the adoption of preventive or precautionary measures agreed by the competent authorities.
  • In the case of litigious conflicts, anticipate and avoid own acts that weaken the position of the company resulting from decisions in other areas of the company.
  • To comply with the duty of diligence for the adoption of measures for due direction and control, which could lead to civil and even criminal liability.
  • In the labour environment, companies should pay attention to inter alia to:
    • The need to proceed to articulate measures for the suspension of employment contracts.
    • The consideration as a situation of Temporary Incapacity derived from common illness of the absences of the employees as a consequence of obligatory quarantines imposed by the health authority.
    • Review of the application of regulations on the safety and health of workers.
    • Creation of protocols for remote work of its employees and the use of electronic and computer means made available.
    • Special compliance with data protection regulations in relation to particularly sensitive information, such as employee’s medical and health data.

In addition, the directors and officers of the companies must review their action protocols, good governance practices and compliance processes to determine and confirm their correct monitoring and implementation, the need to adopt, where appropriate, new procedures and protocols and, in short, the adequate and correct fulfilment of due diligence obligations to avoid possible liability for action or omission.