GYIAD Law Bulletin: Legal Effects Of Covid-19 On The Business Life

The emergency measures that have been taken regarding Coronavirus have massively affected ongoing business life on a daily basis. Considering the unexpected and fast-moving nature of the epidemic, force majeure clauses in contracts and force majeure approaches of states and judiciary authorities have become one of the focal points of business people, shareholders and other market players, especially in terms of possible delays or non-performance in commercial relations. On the other hand, issues such as disruptions in supply and distribution chains, closure of workplaces and harbors, disruptions at customs, labor shortage and a decrease in consumption are interpreted as the preview of a global crisis. While the effects of the epidemic and the severeness of the measures have increased day by day, we deem it helpful to address the effects of this pandemic from a multifaceted legal perspective within this article.

  1. Effects on Ongoing Contracts and “Force Majeure” Argument

The pandemic, apart from the tragic human loss, is having and will continue to have a profound economic impact and naturally, this shall have legal consequences especially in terms of executing ongoing commercial agreements and fulfilling obligations under agreements. However, whether or not the Coronavirus may be considered as a force majeure is still a matter of debate because of various reasons.

The concept of force majeure is described as those uncontrollable events that occurred after the signing of the agreement, that are not the fault of any party and that make it difficult or impossible to carry out a normal course of business and cannot fulfil the terms of a contract for reasons beyond its control which may result terminating the agreement.

A wider circle argues that the epidemic constituted a force majeure, and states that there were many compelling reasons including but not limited to unexpected difficulties in terms of labor and supply chain that makes it harder to carry out the agreement with its current form and, therefore, it should be excused between the Parties. The fact that WHO has declared the situation as a "pandemic" upon its continuation to spread despite the measures taken might cause controversy such as non-legal responsibility of the parties' due to their inability to fulfill their obligations according to the characteristics of the contracts, substantial alteration on the fundamentals of the contracts, the fate of the contracts and the possible termination of the contracts shall be a matter of debate. Accordingly, it will be examined in terms of the contracts in force and/or to be concluded whether the epidemic disease such as Coronavirus can be defined as “Force Majeure”. The "Pandemic" detection of the WHO, beyond certain countries, constitutes a strong basis for approval of existence of a “Force Majeure” event internationally. In this scope, it would be useful to exemplify the decisions taken by certain institutions and countries and the explanations made in this context:

  • Many countries including Turkey mutually closed their air, sea and land borders to civil visitors and restricted flights.
  • The European Union ("EU") has put the relevant legislation and legislative amendments on its agenda with the purpose of avoiding the damage of the various airline companies having to fly empty in order not to lose their slot rights.
  • The Russian Tour Operators Association has applied to the Russian government and demanded that the situation to be declared as "Force Majeure" and even though their application has not yet been concluded, the Russian Ministry of Transport issued a statement for the airline companies regarding the refund of the money received from the tour operators. While the negotiations on the same topic are also going on in Germany, it was stated by the tour operators that the situation revealing due to Coronavirus epidemic they could not fulfill their obligations arising from the contracts concluded with the hotels and airline companies was evaluated and that it was expected to reach an agreement.
  • The governments in certain countries especially in Spain and Greece are holding meetings on relief of tax debts of tourism companies due to the Coronavirus.
  • In terms of Turkey, it was declared that the request for the postponement of Social Security Institution ("SSI") premiums and other taxes stated by the sector representatives at the meeting with Mehmet Ersoy, the Minister of Culture and Tourism, would be conveyed to the government and the postponement of the accommodation tax and contribution payments would be discussed at the meeting to be held in İstanbul.

It is not generally observed that the force majeure clauses explicitly state global health threats or pandemics, however, due to the increasing effects on global trade rapidly worldwide spreading of Coronavirus, the necessity to include viral epidemic diseases in the force majeure provisions in the commercial contracts showed itself. As the international treaty regulating the international contracts for the supply and sale of contracts between member states of Contracting States United Nations Convention on Contracts for the International Sale of Goods (“CISG”), also called "Vienna Convention", to which Turkey became a party as of November 1st, 2011, states clearly in the Article 79 “A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it, or its consequences.” However, this situation might not be as clear in practice as in the theory. For example, the situation of a vendor being a sufferer of Coronavirus taking the decision of closing his/her own factory with his/her own initiative, despite the fact that his/her country of residence has not taken measures relating to the closure of factories is controversial.

As the concept of force majeure and the conditions deemed within its scope are not explicitly regulated under the Turkish Code of Obligations, having Law no 6098, such cases  to be evaluated within this scope shall be determined by case law. In this context, epidemic disease was accepted as one of the conditions of force majeure in the doctrine and under a decree of Supreme Court Assembly of Civil Chambers, having the case nr. 2017/11-90 and decree nr. 2018/1259 and dated 27.06.2018. The mentioned decree shed some light on the issue with the statement; “Force majeure is an extraordinary event that cannot be foreseen and resisted against, occurring outside the activity and operation of the responsible or debtor and leading to the violation of a general behavior norm or debt. Natural disasters such as earthquake, flood, fire and epidemic are considered as force majeure.” The decree leads the way in the discussion regarding whether or not the epidemic can be accepted a force majeure. 

Although there is an opinion of the International Chamber of Commerce ("ICC") shared in the past regarding the SARS virus which shall not be deemed as force majeure in the contracts that caused bilateral performance obligations, there are different evaluations in terms of the current situation.

In China, where the epidemic appeared first, in order to prevent somewhat uncertainties and protect the contractual parties from violating their obligations, the government has started to issue force majeure certificates to the companies that have failed to meet their contractual obligations. 

Our suggestions regarding the usage of force majeure clauses and how to manage non-performance during the Coronavirus outbreak are as follows:

  • The parties of the commercial contracts ought to evaluate whether the epidemic constitutes a force majeure in terms of the relevant contract by discussing the actual effect felt by the actions within the scope of the contract due to the virus by taking into consideration whether the current situation creates hardship or non-performance and whether the commercial activities going on in the places affected by the virus has come to a standstill or not.
  • The parties of the existing contracts ought to stay in the regular communication with the other party in accordance with the correspondence and notification procedures specified in the Contract and mutual negotiations ought to be conducted to minimize the damage.
  • Those who are producers in China and fail to fulfill their contractual obligations due to various reasons may obtain a “force majeure” certificate by applying to the competent authorities in China.

Whether the non-performance of contractual obligations, hardship or delay in performance arising due to Coronavirus can be considered as a force majeure or not ought to be evaluated separately and individually under each contract in terms of parties, the element of foreignness, the nature of actions, place of performance, applicable law and especially characteristics of the situation taken place. Thus; the relevant epidemic disease will not create the same effect on each contract in terms of the facts mentioned above.

  1. Supply Chain Distruption

The Coronavirus epidemic, which has severely affected global supply chains, has led to a noticeable increase in restructuring activities within the companies due to supply chain disruptions. China, the world's largest export country, has introduced business and travel restrictions to more than half a billion people across the country which have serious reflections on manufacturing and shipping activities in order to control the spread of the virus. More than 50,000 global companies are known to have one or more direct or first-level suppliers in the region, and it is estimated that approximately 22 million businesses in the region - corresponding with 90% of all active businesses in China - are affected by the Coronavirus epidemic. By considering China's role in global production; it is observed that the Coronavirus epidemic causes major disruptions in supply chains worldwide. As China is a key in global supply chains, it will be factual to mention a worldwide supply chain degradation due to international trade disruption in the light of the constraints and emergency measures affected in Europe.

When a closer look is taken at the effects of the coronavirus on global businesses; the cessation of operations seems to worsen the supply chain problems that started in December 2019, significantly reduced the stock levels of companies and caused companies to restructure by negatively affecting their liquidity. The coronavirus epidemic has so far pushed some of the global companies to take the following measures, as mentioned in the press and social media:

  • Companies such as Bosch, Honda Motor, Nissan stopped their production in the Wuhan region, while Hyundai stopped production at its factory in South Korea.
  • It has been announced by Fiat that they plan to stop the production line in Europe due to the high use of products of Chinese origin in Fiat brand products manufactured in Europe and their replacement is not possible in a short time if no products are available from China.
  • Starbucks, Apple and Ikea have closed their retail stores in China.
  • Many airlines, such as Lufthansa, Air France, American Airlines, Delta United, and THY, have reduced or completely stopped flights to China. So far, more than 25 thousand flights to and from China have been canceled.
  • The International Air Transport Association stated that global air transport, including cargo aircraft, will decline for the first time since 2009 due to the Coronavirus epidemic, and the loss could be $ 113 billion.

On the macro scale; the effect of the virus on global supply chains increased the risk of stagnation in the markets in the year 2020. While global stock markets dropped significantly during the week of 24-28 February 2020, oil prices are recorded at their lowest levels in the last four years, on 9 March 2020. Global interest rates were also affected amidst Coronavirus fears, and on March 3, 2020, the American Central Bank (“FED”) reduced the federal fund rate to a range of 1% to 1.25%. It is anticipated by economists that the FED will have a very little opportunity for maneuvering if the economy gets worse.

The general recommendations for minimizing potential problems are as follows:

  • Supply chain stabilization can be ensured by diversifying suppliers by companies, and substitution providers that can solve bottlenecks can be preferred instead of suppliers having problems with the virus.
  • Multiple approaches in procurement can be adopted to search for alternative sources simultaneously.
  • Using additional production capacity can be helpful in managing fluctuations in the supply chain.
  • After examining and evaluating the inventories and sales, studies can be carried out on keeping the stock at a safe level and reducing the risk and ensuring balance.
  1. Mergers & Acquisition (M&A) Transactions:

The uncertain economy and market conditions affect the M&A activities at various stages and reduce such attempts. Coronavirus outbreak may also have an effect on the M&A transactions in the current period. Some of these effects are briefly mentioned as bullet points below.

  • It will make it difficult for the target company to be examined in many ways such as strategy, business, financial situation, liquidity, customers, suppliers, expenses, contracts and offers and to be evaluated in the light of possible negative effects in these areas.
  • In the light of the decline experienced in international stock markets, company values were affected negatively.
  • Distributions in supply chains may negatively affect the sustainable business plan and operational activity of the Target Company.
  • This may be an important factor in the evaluation, as the value of the company may decrease depending on the countries which the target company has commercial relations with.
  • Assessment of the health and safety rights of the target company employees, such as remote work, that they will acquire after the closing, should be considered as an essential additional matter.
  • As the legal and financial examinations to be carried out at the target company may gain uncertainty and the completion periods of the said examination may become unpredictable, the closing process of may be affected during the period when the effects of coronavirus outbreak continue to exist.
  • Cases such as travel activities and events being affected by Coronavirus and in some cases, the closing of government offices may cause delays in closing of agreements.

Expanding the Definition of Material Adverse Change: In order to minimize the negative impact of coronavirus epidemic on M&A transactions, it is important to regulate the epidemic within the Material Adverse Change clause ("MAC") included in the Share Purchase Agreements. MAC Clause in M&A transactions, can be defined as a substantial negative change, and/or a significant negative event and/or a change in the conditions that affect the value of a company which would eventually affect the purchase (generally) or sales decisions of the parties. According to the amendments made regarding the MAC Clause, within the occurrence of the substantial negative effect within the Buyer, who is a party to the M&A transactions, shall have a right to withdraw doing a transaction without facing sanctions as per the right of withdrawal regulated in the Share Purchase Agreement.

In order to eliminate the negative effects of coronavirus outbreak, the following suggestions can be considered:

  • It would be useful to progress with the rapid reporting processes in the M&A transactions during the unexpected turmoil caused by the crisis, thus, to determine how the business was affected and the speed at which the operations recovered by understanding the risk avoidance points quickly.
  • It is important to expand the use of a virtual data room that provides secure digital information transfer in order to carry out legal / financial review processes in a healthy and steady manner and prevent any disruption in communication.
  • The scope and details of the due diligence study to be conducted over the target companies should be reviewed and a closer review on such should be made.
  • The scope of the definition of Material Adverse Change clause stipulated in the Share Purchase Agreements should be reviewed.  
  1. Employment and Occupational Health Safety:

One of the most important projections of the coronavirus outbreak manifests itself in the employment relationships. Small and large companies create a risky environment with thousands of employees and various measures should be taken in order to prevent the spread of the coronavirus and prevent the growth of the epidemic, and we would like to discuss the importance of the measures that employers should take in the workplace under the light of a negative discussion.

If an employee to be infected with Coronavirus at the workplace or during the performance of its job, is it considered as work accident? 

Whether an employee suffering from a coronavirus epidemic can be considered as a work accident or not is among the main discussion topics. When the decisions of the Supreme Court of the past years are examined, although it is noteworthy that the judgement that an employee suffering from an epidemic disease during his/her work was noticed as work accident, each situation to be encountered should be examined within the specific circumstances. In this respect, it will not be correct to evaluate each employee cases affected by the epidemic within the scope of a work accident.

Preventive Measures in the Workplace:

  • All businesses need to gather the Occupational Health and Safety (“OHS”) committees, to evaluate the situation in every detail, to determine the measures to be taken in the workplace and work areas, to make decisions related to disinfectants supply, hygiene rules, and masks providing. Thereafter, such decisions should be implemented immediately.
  • Necessary measures should be taken for hygiene and cleaning with the occupational safety specialist and workplace doctor.
  • It will be beneficial for businesses to inform their employees about the symptoms of Coronavirus epidemic and its prevention methods.
  • It will be important for the workplace physicians to keep all employees under surveillance and to make the diagnosis and detection of viruses by increasing the health checks and periodic physical examinations that should be done within certain periods within the scope of the legislation. However, we would like to underline that all of these actions should be carried out under the supervision of the occupational physician.
  • Employees who are obliged to travel to different countries or cities at risk of the Coronavirus will need attention to return to their workplaces, following the 14-day rule. On the other hand, the approval of physician or obtaining a full-fledged health report to be provided is among the recommended measures as a preventive measure.

Complications That May Arise During the Implementation of the Measures:

  • There may be cases where employees do not want to participate in meetings and business trips that will take place domestically and / or abroad.
  • In the event that the employee who returns from abroad is forced to use the free leave within the scope of the precaution to be taken to prevent returning to the workplace for fourteen days, disputes may arise.
  • It may be possible that the employee does not comply with the employer's instruction to wear a mask for health purposes, or if the employee, vice-versa, does not follow the instruction of the employer not to wear a mask and wear a mask for the health purposes.
  • If the employer closes the workplace on his/her own initiative, he/she may not want to pay wages to the employees.

Measures That Can Be Adopted Within the Framework of Legal Legislation To Reduce The Risk:

Awareness and Education: Employees should be informed about the disease as well as the training to be given. Considering that the effects of Coronavirus occur 14 days later, employees who are thought to have a risk of disease should be encouraged to stay at home during this period. It is recommended to post information signs using free materials from organizations such as WHO or the Ministry of Health.

Home Office Practice:

  • In particular, it would be appropriate to lead the employees who have recently been abroad to work at home within the necessary arrangements so that their performance is minimally affected. In this case, it will be necessary to determine the remote working procedures for the employees, explain the work flows clearly and take measures regarding the occupational health and safety of the people who will work at home. Although there are no provisions for working directly at home within the scope of the current legal regulations, it will be useful to state that the issue of working remotely is regulated under the Labor Law No. 4857. For the transition to distance work, it is recommended to make announcements in the workplace, to specify the duration and the way of working in such announcements, and to take the written consent text from the workers in accordance with this announcement and to keep these texts in the employee’s personal files are within the suggestions.
  • It is very important for the employers to inform the employees, as the accidents to happen during working to be considered as work accidents. Employers who partake in remote working shall inform their employees in terms of occupational health and safety and obtain the approval of the employees regarding such information. Although the home environment is not directly counted as a workplace and the employer is not authorized to intervene first hand, in cases such as the accident occurring due to the equipment provided to the personnel - for example, due to malfunctions in the electronic equipment supplied to the personnel, electrocution, etc. Ensuring that such equipment is regularly checked, as it is likely to occur, will also minimize the risks.
  • Within the scope of working remotely, the staff should be guided to create a work environment that is determined in home and comply with the Occupational Health and Safety rules. As permitted by the worker according to privacy of private life, the work environment at home (ventilation, light, work place, chair and desk, whether the equipment provided to the employee is defective) must be inspected on-site in terms of OHS rules.

Paid Leave Practice: The workplace can be made less crowded and become more risk-free by making some employees using their paid annual leaves. As known, the annual leave can be used whenever the employer deems fit and the employer should use such right within the framework of good faith rules. At this point, it is worth noting that it is possible to make the staff to use their annual leave. It will be sufficient for employers to notify the employee of the dates for which annual leave will be used, in writing.

Short-Time Work Practice: As an advanced method to be applied in workplaces, short-time work practice and short-time working allowance may also be in question. Short-time work practice is used in the event that the weekly working hours in the workplace are temporarily reduced by at least one third for the short term of work, general economic, sectoral, regional crisis or compelling reasons, or the work is stopped for a period of at least four weeks without a condition of continuity, (the President can extend such period up to 6 months) such practice provides income support to the insured for the period they cannot work. Although it is envisaged that the said application will be brought to the agenda in general, for economic reasons, the compelling reasons mentioned in the definition shall not be caused by the employer's own referral and administration and cannot be predicted, as a result of which the employer cannot be eliminated, temporarily reducing the working period or resulting in a complete or partial cessation of the activity. It includes periodic situations arising from external influences or situations such as earthquakes, fire, floods, landslides, epidemics and mobilization. During such period, short-time working allowance is paid to workers and the general health insurance premiums of the workers are covered. In order to implement short-time working allowance, the employer must apply to the İŞKUR directorate (Turkish Labour Institution) where he is affiliated by explaining his reasons. If the application is approved by İŞKUR, this practice can be implemented.

Un-Paid Leave Practice: Employer's decision to make the employee take unpaid leave without the consent of the employee is defined as the effective termination of the employment contract within the scope of the case-law of the Supreme Court. In order to give unpaid leave to the employee, the employee must be offered free leave and within 6 working days, written approval must be obtained from the employee. If employees do not have approval for unpaid leave, the options to give paid leave or to work from home can be evaluated.

  1. Retail Sector and Lease Agreements:

The Coronavirus outbreak that grasped the world affected various sectors differently. For example, it is clear that the retail sector is negatively affected by the offline wing, while the rapid consumption and e-commerce sector is positively affected by the substantial increase in periodic panic purchases. In addition to serious problems in supply chains, uncertainties about the situation of employees and workplaces, another issue that challenges the retail sector is manifested in terms of lease agreements. In order to avoid Coronavirus outbreaks, consumers who try to stay away from the crowded street environment with shopping malls (“Malls”) or flagship stores cause decreases in-store sales and this results in different results in terms of rental relationship and sustainability.
With the effect of the Coronavirus epidemic, it is possible for businesses operating in the retail sector to encounter problems regarding the lease agreements. Within the scope of public health measures and / or the number of visitors / customers turning to shopping malls and stores (footfall) is decreasing, the issue of closing the stores for a certain period of time or operating with a lower capacity may come up. In this case, force majeure practices may be brought to the agenda in terms of relevant lease agreements.

Due to the decrease in turnover in the face of decreases in-store sales, it will be possible for the minimum / fixed rental prices to become more burdensome in terms of the retail sector and even the turnover rents will be well below the minimum rent. On the other hand, in terms of investor position, it is necessary to keep the complex rented up and running, to fulfill its obligations to the bank or financial institutions that provide loans within the scope of project finance.

In the retail sector, brands, shopping center investors, street store investors, banks and financial institutions are the rings of the chain that cannot be torn apart from the sustainable cycle. Alternative flexible solutions such as adaptation, temporary incentives, grace periods, mere turnover execution should be preferred in a secure way to ensure a sustainable relationship. Because the epidemic will eventually be defeated, but the parties of the life cycle of the sector will need each other constantly.

  1. Insurance Relations: 

Insurance companies suffer losses on the basis of sectors such as health, tourism, logistics and transportation due to the Coronavirus, and it is expected that they will have ramifications on the industry and manufacturing sector following prior situations. On the other hand, the business world faces the slowdown/stop of operations and the decrease in income due to force majeure reasons and the business world still asks the question of whether the scope of workplace package insurances that guarantee its risk, will provide the same guarantee regarding the Coronavirus.

In terms of health insurance, it is controversial whether the Coronavirus epidemic and related diseases are within the scope of the health insurance coverage.

In terms of work place insurances, it is also controversial whether or not an income loss guarantee will be applied due to Coronavirus epidemic caused pause or halt in production. 

The reflection of these negativities has become more and more evident as mandatory travel health insurance for international embarks being canceled because international fairs and events are being canceled alongside travel restrictions. Tourism companies are also attempting to cancel the package tour insurances they have made for consumers and it is a matter of debate whether the effects of Coronavirus outbreak are evaluated within the scope of the Workplace Package Insurance or not.

  1. Protection of Personal Data

Considering the information to be obtained with the coronavirus outbreak, the Personal Data Protection legislation should also be taken into consideration and violations of the legislation should be avoided while taking measures. Namely; at the time of entry into the workplace the question asked by the employer whether visitors, employees, subcontractor employees and related parties have been to the countries affected by Coronavirus can come up on the agenda.

The need of the employer to request information from visitors, employees, subcontractors and relevant people about whether they demonstrate Coronavirus symptoms as per to suspicion of carrying the virus for quarantine may be in question. Taking all these possibilities into consideration is vital for steps to be taken carefully in the name of protection of Personal Data.

In accordance with the Law on Protection of Personal Data No. 6698, the health data is described as sensitive personal data, and accordingly, health data can only be processed if there is an explicit consent of the data subjects.

Also, the health data can be processed for the purposes of protection of public health, preventive medicine, medical diagnosis, treatment and care services, planning and management of health services and financing, without the explicit consent of the data subject, only by the people under obligation to keep secrets or authorized institutions and organizations. 

Accordingly, the health data of the employees can only be processed by the employer through the workplace physicians. In other words, although an epidemic is at hand, no questions about the health status of the employer can be directed to the employees by the employer.

When employers need to retrieve information regarding the Coronavirus symptoms are present or not, such questions shall be asked by the workplace doctors. In cases where no workplace doctors are present, clear consent regarding the issue shall be given by the employees and it is appropriate to not ask such questions to the employees denying to give the consent.

In addition, it is suggested that to protect the healthy environment in the workplace controls (e.g. measuring the body temperature of the employees) shall not be conducted by the employer or no decision or action regarding the application of a quarantine of the employees shall be taken and if such precautions are desired by the employer, these precautions shall be taken by the employers whom are under the obligation to keep secrets.