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Cazeau & Associés’ Newsletter – February 2020

February 2020

This month, in view of the current events, the firm offers you a collaborative article to try to understand the legal consequences that a globalized epidemic such as the Coronavirus can have.


  • ARTICLEThe legal impacts of the Coronavirus outbreak on business activity


The legal impacts of the Coronavirus outbreak on business activity

It will have escaped no one’s notice that in recent weeks the headlines have been dominated by the Coronavirus epidemic.

Beyond the fear that the prospects of a generalisation of the epidemic may or may not give rise to, it is obvious that this phenomenon already has consequences on the economic activity ;

CAZEAU & ASSOCIES has questioned the legal implications of such a phenomenon.

More precisely, it will be necessary to successively analyse the impacts of the Coronavirus epidemic on current commercial contracts (I.) and on labour relations (II.).

I. What are the impacts for current commercial contracts ?

Epidemic, cause of force majeure in the execution of contracts?

The China Council for Trade Promotion issued the first certificate justifying force majeure due to the outbreak of the new coronavirus to a manufacturing company in Huzhou (Zhejiang province) on  February 2 2020. This certificate aims to exempt the company from some of its contractual obligations that it can no longer assume due to the new coronavirus epidemic. The certificate thus preserves the company’s legal rights.

With this certificate, companies can justify their delays in the delivery of goods and their liability for breach of contract can be fully or partially waived. This certificate is a priority for companies as a legal aid,” explained Yan Yun, vice-director of the Authentication Center of the China Council for Trade Promotion.

Many  companies are currently wondering about the future of their commercial contracts, impacted by the Coronavirus epidemic.

What are the consequences of the epidemic on current contracts, which performance is affected by this event? Is the outbreak of the epidemic a case force majeure? Or is it a case of unforeseen circumstances? Can both regimes coexist?

Many contracts affected by this situation are in fact subject to French law, and the development of the epidemic should lead to a closer examination of the hardship and force majeure clauses in contracts.

Let us recall the main principles of French law:

According to Article 1218 of the Civil Code, “Force majeure in contractual matters exists when an event beyond the debtor’s control, which could not reasonably have been foreseen at the time of the conclusion of the contract and whose effects cannot be avoided by appropriate measures, prevents the performance of his obligation by the debtor.

If the impediment is temporary, performance of the obligation shall be suspended unless the resulting delay justifies termination of the contract. If the impediment is permanent, the contract is terminated automatically by operation of law and the parties are discharged from their obligations under the conditions provided for in articles 1351 and 1351-1. »

The legal framework is therefore well given by Article 1218, but all the work remains to be done!

Indeed, the complexity of the situations which fall within the scope of the above-mentioned cases justifies that the parties should take care to draw up detailed clauses, in which not only the admitted cases of force majeure will be recognised, but also, where the regime of force majeure will be determined, in the event of the occurrence of the facts.

We note today that these situations are far from being academic hypotheses.

Of course, the parties will be able to detail the specific cases considered as force majeure in their contracts, but the technique of casuistry is not necessarily the most efficient, especially in case of forgetfulness.

The clause may also provide for the modalities of implementation and notification of cases of occurrence, or even require a certificate (as here in China) to certify the force majeure nature of the event.

For international contracts, it is very useful to provide for the extent to which the withdrawal or suspension of licenses or authorizations will be considered as force majeure.

The force majeure clause may also manage the period of suspension of the contract, or even adjust it, and this is where a point of convergence with the hardship clause can be found.

The impact of the coronavirus epidemic on the execution of contracts via the theory of hardship.

In this respect, the parties to a contract that has provided for the revision of the contract due to unforeseeable circumstances may apply to the judge for the termination or modification of the contract whose performance has become “excessively onerous” due to an “unforeseeable change in circumstances”.

This infringement of the principle of the intangibility of the contract as the parties originally intended and concluded it requires the insertion of a clause providing for the withdrawal of their contract from the judicial power of review.

The hardship mecanism is contingent on an “unforeseeable” change in circumstances, which must make performance “excessively onerous” for a party, and that party must not have agreed to assume that risk. The epidemic characterizes the hardship.

Article 1195 of the Civil Code is of a suppletive nature, and the parties may well agree in advance to set it aside in order to choose to bear the consequences of the occurrence of such circumstances which would disrupt the economy of the contract.

In the context of a revision of the contract for hardship, the party requesting the revision of the contract must continue to perform his obligations. In the event that it suspends performance, it may incur contractual liability. Consequently, performance of the contract must necessarily continue until the court has given its decision.

In the absence of consensus, the judge can only terminate the contract.

Likewise, in the absence of a clause providing for such a revision, the choice will have to be made either to initiate proceedings for the termination of the contract or to invoke force majeure.

II. What impacts on labour relations?

The impact of the coronavirus epidemic on employment.

Partial activity also known as partial unemployment

Partial activity is a legal mechanism that allows the employment contract to be suspended when the company is in difficulty. The law strictly limits the number of appeals (Article L. 5122-1 of the Labour Code), of which there are two:

  • the temporary closure of the establishment or part of the establishment to which the employee is assigned ;
  • the reduction of working hours in the establishment or part of the establishment below the legal working hours.

In the event of a generalized epidemic, this is certainly the first of these scenarios that employees could face.

However, in order to obtain the benefit of this scheme, the employer still has to consult his “CSE” (Economic and Social Committee) and obtain the agreement of the administrative authority.

Economic dismissal

Economic dismissal, on the other hand, implies the definitive termination of the employment contract. For this to happen, the company must be faced with a permanent cessation of activity or with characterised economic difficulties which, in our case study, could be constituted by a significant drop in a business factor (drop in turnover, orders or operating losses).

Article L1233-3 of the Labour Code does not give an exhaustive list of “economic reasons”, but it does provide valuable clues as to what an “economic difficulty” may be. Thus, according to the legislator, a significant change in at least one economic indicator, such as a significant drop in orders or turnover, makes it possible to proceed with an economic dismissal.

Ultimately, short-time working and economic dismissal mechanisms can be legal solutions to enable the company to face a globalized epidemic.

The Impact of the Coronavirus Epidemic on employer’s Obligations

It is possible to identify several consequences of an epidemic such as the Coronavirus on the employer’s obligations, particularly when the employee is expatriated, but also with regard to his or her obligation of security of results.

The employer’s obligation to provide security – results

In situations where French labour law applies in the event of secondment, for example, or in the event of a sufficiently serious epidemic breaking out on French territory, employers have important safety obligations towards their employees.

A company with more than 50 employees could be alerted by its Economic and Social Committee which, it should be remembered, has the same powers as the former CHSCT.

Article L4121-1 of the Labour Code reads as follows:

“The employer shall take the necessary measures to ensure the safety and protect the physical and mental health of workers.

These measures include :

1° Occupational risk prevention actions;

2° Information and training actions;

3° The establishment of an organisation and appropriate means.

The employer shall ensure that these measures are adapted to take account of changing circumstances and aim to improve existing situations”.

In the circumstances of a serious epidemic, the employer may, on the basis of these texts, be required to take various protective measures (e.g. home office, travel restrictions, setting up an information protocol, etc.).

As it stands, such an obligation has moreover led some employers to prohibit their employees from travelling to China.

Management of field missions in affected areas (mainly China)

During this event, the question of repatriation of seconded or expatriate employees also arose very quickly. Most of the time and even in the event of suspension of the first employment contract, secondment agreements provide for the employer’s obligation to repatriate the employee and his family in the event of danger in the country of assignment.

In the absence of a written agreement, this obligation may be based on the employer’s legal obligation to provide security.

Furthermore, employers faced with this situation will be well advised to check with their insurer whether repatriation is covered by the policy taken out. Secondment agreements usually provide for this obligation to take out repatriation insurance.