14 July 2009

Planning for disaster - swine flu and your business

By Jennifer Mills, Employment Partner with Minter Ellison Rudd Watts,

The news on swine flu is not getting better. According to the New Zealand Herald, this country can no longer count how many cases it has. Below, Jennifer shares advice on how to prepare and plan for business continuity in the face of mounting uncertainty.

There is worldwide concern about the reach and possible impact of the swine flu pandemic. But beyond the headlines, how relevant is it to your business? The impact could potentially be far reaching and more complex than you might at first think.

This update addresses some of the key issues for businesses to consider in relation to swine flu. Some of them are employment law issues, some commercial legal issues, whilst others are general business issues. However you choose to address the risks posed by the pandemic to your business, it will be important to ensure that your senior management team is abreast of the issues such as the ones identified here.

Does your business have continuity plans in place?

  • Is the business equipped to handle a partial or total closure?
  • Does the business have sufficient cash-flow to cope with closure?
  • Can the business maintain "business as usual", despite premises closures or staff absences?
  • How will you notify staff if you need to close the premises and what are your contingency plans?
  • Has the business developed a policy on business continuity planning for a pandemic, and has the business consulted with employees in relation to the implementation of the policy?
  • Do you need to notify your insurers?
  • Will a pandemic give rise to a breach of any banking covenants or a notification requirement?
  • Do you have "material information" which requires disclosure to the market in respect of a listed issuer?
  • Will a pandemic give rise to a "force majeure" under your commercial contracts?

Whilst some businesses will have continuity plans in place as a matter of good business practice, a number will not. It is important to address this now before it's too late.

Employees

The lifeblood of most businesses are its employees. So, how will your business cope if a member of staff is infected with swine flu? Consider:

Can you send sick employees home, if they choose to come in to work? What are your responsibilities to well colleagues if you let a sick worker stay at work?

In the current economic climate, employees may be reluctant to use sick leave as they may be worried about what impression that might give their employer. The legal position is that, as an employer, you have an obligation to take all practicable steps to ensure the health and safety of employees. This may include sending sick employees home, to minimise and, where possible, eliminate the risk of them passing any illness on to other employees. This is a lawful and reasonable direction with which you could reasonably expect employees to comply. At the very least, from the employee's point of view, you are less likely to look like a "shirker" if you are directed to stay home by your employer.

Can you send home well employees who wish to work if a colleague has been diagnosed with swine flu?

If you are required to close your business as a result of a direction from the Ministry of Health, you can legitimately direct employees to remain away from the workplace.
Generally speaking however, employers cannot, as a matter of law, require employees who aren't sick to stay away from work, ostensibly on sick leave, or to take annual leave on less than 14 days' notice. Doing so risks a claim from the employee that they have been unlawfully "suspended". If you are unable to make the workplace safe for employees, you could seek to rely on the Health and Safety in Employment Act 1992 and your obligation to take all practicable steps to prevent harm to employees as a legitimate reason for requiring them to remain at home.
In any event, decisions should be made following consultation with the affected employees, where possible.

Do you have to pay employees who are well, but stay home, either because they have been quarantined, or to take care of family?

Under the Holidays Act 2003, employees are entitled to use sick leave in situations where they are sick or injured, or where their spouse or someone who depends on them for care is sick or injured. If an employee has to stay home to care for a family member who is sick or injured, this is likely to be a legitimate use of sick leave.
Where an employer directs an employee to remain at home, then it is likely that there will be an obligation to pay the employee, although there may be special circumstances where that is not required.
Where the employee wishes to remain at home, at the employee's own election, a compromise may be to allow the employee to use sick leave in the first instance, followed by annual leave and/or unpaid leave.

Can you require staff who are sent home, to work, if you are going to pay them?

Whether an employer can require employees sent home to continue to work will largely depend on any "location" provisions contained in the relevant employment agreements. In the absence of a location provision which envisages the employee working from home, consent will be required. A related issue is whether the employee's home will be a safe working environment.

Do you have to compensate employees for costs incurred should they work at home?

We recommend that working remotely from home and the associated costs are negotiated and agreed with employees. For example, if an employee elects to work from home and is not incurring any extra cost in doing so, compensation should not be an issue. That said, where the employee is directed to work from home and incurs extra costs, in most situations these should be borne by the employer to prevent a possible disadvantage claim.

Health and safety

As noted above, the Health and Safety in Employment Act 1992 requires an employer to take all practicable steps to ensure that the workplace is free of hazards, including health hazards such as swine flu. Whilst employers must look at how employees are deployed as part of this inquiry, other matters, including factors relating to the workplace itself, must also be considered. In essence, it is the employer's responsibility to ensure that its employees, and the place of work which it controls, do not pose an unnecessary risk to employees, and visitors. Consider whether your business can be said to have taken "all practicable steps".

Premises

As swine flu has been declared a pandemic, this affords health authorities extensive powers, including the ability to force people to quarantine themselves and requiring that all premises (including businesses) within a certain area be closed. Accordingly, the closure of your premises, or absences of employees, may be beyond your control.

Will you be compensated by the Ministry of Health if you suffer loss, for example, lost profits?

There is no ability to apply for compensation in situations where premises are closed due to the spread of a pandemic or infectious disease.

Supply and customer issues

Ensure that your business has considered the potential impact of customer and supply issues, such as local or international suppliers being unable to meet orders, or the business being unable to meet an order. If your business is unable to meet an order, this may have flow on effects for servicing of key clients, key contracts, sales and cash flow. In turn, these issues may, as a worst case scenario, impact on the financial viability of the business.

Is swine flu a "force majeure" event?

Consider:

If you default on a critical contract for an important customer because you had to close your factory or office due to swine flu, are you liable?

Many commercial contracts contain a "force majeure" clause, which may be invoked in the event of a "force majeure" event, otherwise known as an "Act of God". In many situations, force majeure clauses will capture swine flu related interruptions given the unprecedented and unforeseen onset of the pandemic. That said, swine flu will not be able to be used as a 'get out of jail card' in all cases. There is wide variation in how "force majeure" clauses are worded. Where a business fails to take reasonable steps to mitigate the risks posed by a pandemic, the courts may be reluctant to allow force majeure to operate.

Do your commercial contracts contain force majeure clauses? What about your suppliers' contracts? Are they drafted in such a way that swine flu could fall within the definition of a force majeure event?

What if it's your supplier who fails to deliver because their plant is closed or operating at half strength, and that causes you to miss a major business opportunity?

Continuous disclosure

Consider:

If yours is a listed company, in what circumstances will you need to notify NZX of a swine flu related event, for example, a plant closure?

  • Under the Securities Markets Act and the NZX Listing Rules, an issuer must immediately release material information to NZX, once it becomes aware of it (with limited exceptions).
  • Material information means information that a reasonable person would expect, if it was generally available to the market, would have a material effect on the price of quoted securities of the issuer.

Notification under your financing documents?

The global economic recession has placed financing, and refinancing at the forefront of many employers' minds.

Consider:

  • Is swine flu within your business a "notification event"?
  • In what circumstances would it amount to a material adverse change?
  • What do you need to tell the bank and when?

Advising your insurer

Consider:

  • Have you checked the terms of your insurance policy recently?
  • If you suffer loss as a result of swine flu, is that covered by your insurance?
  • Do you need to advise your insurers?

Could it get any worse?

There is the possibility that if outbreaks of swine flu continue to increase, decisions about the deployment of employees may be taken from employers and made under the powers of the Civil Defence Emergency Management Act 2002 (CDEM). However, until then, employers need to consider the flow of information to and from employees and the impact on the business.

Are you up to date

With the number of reported cases increasing overnight and development in Health Officials' understanding of the transmission of the virus, it is important to ensure that your business is up to date with developments. The latest information being released from the New Zealand Government and the Ministry of Health regarding the status of the pandemic can be obtained here. International information can be obtained here.

Swine flu has the potential to cause serious disruption to businesses. Responsible business owners ought to act now to take steps to put continuity plans in place and to ensure that they are taking reasonable steps to avoid the spread of the disease in the workplace.

Acknowledgement

Minter Ellison Rudd Watt's Employment Team has extensive experience in all matters relating to employment law, including industrial relations, human resource management, corporate governance and dispute resolution. They provide practical advice to clients regarding all areas of employment legislation such as parental leave, KiwiSaver and flexible working arrangements. They also develop, and regularly conduct, training courses for employers and line managers on the practical application of employment legislation.

For more information please contact:

Employment:

Jennifer Mills, Partner T: 64 9 353 9919
Megan Richards, Partner T: 64 4 498 5023

Corporate:

Cathy Quinn, Partner T: 64 9 353 9951
Lloyd Kavanagh, Partner T: 64 9 353 9976

 

 

Tags: , legal, health and wellbeing

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