Coronavirus and Business Liability

The year 2020 has been a strange one which has altered our reality for now. Coronavirus, also known as COVID-19, is here to stay for the foreseeable future. For business owners who may already be facing a decline or even a boom in their business, depending on which industry they belong to, a set of new legal issues have risen which no business owners can safely ignore, unless they run the risk of running into multifarious legal issues. This article also examines the rights of employees in businesses in the current scenario.

Businesses Facing a Decline

First, declining businesses will be considered. These are the worst affected financially, facing a number of tough decisions such as either borrowing capital to survive or laying off staff. Every business is actively reviewing its policies and strategies on how to go about making these decisions.

In Pakistan, following the lockdown, the economy has been affected and many businesses have come to a screeching halt, including everything from airlines to all non-essential stores and shopping malls. The private sector tends to lose the most as it is dependent on the flow of customers and employees who make the day-to-day functioning of business possible. Without income, the running and overhead expenses and rent payments continue to mount.

Glimmer of Hope?

With this realization, the Government of Pakistan released on March 24, 2020 an economic plan worth PKR 1.2 trillion[1] with a focus on minimizing the economic damage on the vulnerable segments of society.

However, after a perusal of this economic plan, it appears that its main focus is to incentivize the labour industry and other small and medium industries, especially those related to export. Apart from benefits to utility stores, no benefits have been announced for other consumer businesses. The Prime Minister of Pakistan has also announced an economic package for the construction industry.

One positive outcome for businesses has come from the State Bank of Pakistan, which has announced on 17th March, 2020 through a press release[2] that interest rate is to be reduced to 12.5%, which is a reduction of 75 basis points and the first one in 4 years. Other measures have also been announced but they are aimed at the manufacturing and medical sectors.

Ground Realities

On the other hand, borrowing money and taking on debt in testing economic times with the uncertainty of how long this pandemic is going to last is not going to be a strategy favoured by any business. This is because of the legal implications involved. Firstly, for many businesses, borrowing facilities are calculated based on the net inflow and outflow of earnings and inventory. If customer payments get delayed because of cessation of business and lockdown, many finance agreement terms will run afoul of any borrowing base clauses. Many finance agreements also contain clauses regarding the cessation of business and if businesses remain shut for an unknown term, many lenders may seek to invoke such clauses in order to terminate the finance agreement and keep the collateral with them.

Rental agreements for premises are another flashpoint, unless a clause for the suspension of rent payments has been worked into the rental contract, in which case the contract does not become suspended and rent continues to be due.

A positive scenario has been that banks have continued function and remain open, so holders of letters of credit and beneficiaries of similar instruments need not worry as they can still claim amounts owed to them before the due date.

Many businesses such as airlines are looking towards the government for a bailout. This itself presents its own set of legal issues as all similarly situated parties are to be treated the same according to a judgment titled 2010 SCMR 431 Government of the Punjab vs Naseer Ahmad Khan, wherein the Supreme Court of Pakistan held the following in paragraph 4:

4. The doctrine of equality, as contained in Article 25 of the Constitution, enshrines the golden rules of Islam. It states that every citizen, no matter how highsoever, must be accorded equal treatment with similarly situated persons. The principle is well settled that a State may classify persons and objects for the purpose of legislation and make laws applicable only to persons or objects within a class. In fact almost all legislation involves some kind of classification whereby some people acquire rights or suffer disabilities whereas others do not. What, however, is prohibited under this principle, is legislation favouring some within a class and unduly burdening others.

This means that any arbitrary economic package announced by the government or State Bank will be legally questioned for its basis, especially when one sector has been favored over another.

What Comes Next?

Another issue for businesses facing a decline is how to cut running costs to survive in this period. The most rampant practice seems to involve laying off staff. This is creating a crisis in society as employees working in cash-based sectors depend on daily earnings for survival. Legal venues available to employees who have been laid off in such conditions need to be explored.

Firstly, it has to be noted that employment legislation in Pakistan is not confined to any one statute. There are many different Acts and instruments dealing with various aspects of employment matters. Each province also has its own legislation on the matter which has become a provincial subject after the Eighteenth Constitutional Amendment to the Constitution of Pakistan 1973 and the abolition of the Concurrent List.

Secondly, if employers terminate employees, they need to keep two pieces of legislation in mind. If an establishment employs 20 workers or more, the Industrial and Commercial Employment (Standing Orders Ordinance), 1969 (the Standing Orders) governs and regulates the conditions and terms of employment, whereas if an establishment employs less than 20 workers, then the appropriate legislation is the West Pakistan (Shops and Establishment Ordinance) 1969 which has now been adopted by the provinces. For employers, it is important to note that in case of termination of employment, both statutes require the employer to provide a prior notice of one month. In case of immediate termination, one month’s salary is to be paid to the employee, provided that he or she has not been terminated over gross misconduct. Thus, a business owner cannot simply lay off staff without complying with the above provisions, otherwise termination can be challenged as illegal.

Businesses Facing a Boom

The other limb of this discussion is that businesses facing a surge also have legal requirements and liabilities to keep in mind. Certain businesses like supermarkets have seen a surge. These businesses employ a lot of people and also have an influx of customers. In case a person gets sick, would any liability be attributable to the business owner?

For employees, the relevant law here is the Workers Compensation Act 1923 applicable to Islamabad Capital Territory, Sindh and Balochistan, or the Workmen’s Compensation Act 1923 applicable to Punjab, and a similar Act for Khyber Pakhtunkhwa. The Act covers liability in the form of compensation for injury arising during the course of employment. Section 3 of the Workers Compensation Act provides the following:

“3. Employer’s liability for compensation – (1) If personal injury is caused to a workman by accident arising out of and in the course of his employment, his employer shall be liable to pay compensation in accordance with the provisions of this Chapter…”

The provisions include terms according to which if an employee does not follow safety rules then the employer does not become liable for injuries or compensation.

However, it is up to the court’s interpretation whether coronavirus counts as an injury, as the injuries specified in Schedule 1 and the occupational diseases specified in Schedule II do not include infectious diseases. An affected worker may sue the employer for damages in civil court, or proceed under the Act and institute a claim before a workers’ compensation commissioner.

If the injured person is a customer who has been injured inside the premises of the establishment, the applicable laws will be the principles of negligence under tort law. Tort law litigation remains minimal in Pakistan partially due to the general public’s lack of awareness of rights, as well as due to the litigation fees involved and lack of precedent for compensation apart from that awarded in medical compensation cases. Nevertheless, Pakistan’s courts do consider the tort of negligence and have also passed judgments on how to establish its ingredients, such as in National Logistics Cell (NLC) vs Irfan Khan (2015 SCMR 1406 SC).

More understanding on the matter can be developed from a seminal judgment of the UK House of Lords in Donoghue v Stevenson,[3] wherein Lord Atkin stated the following:

You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor. Who then, in law, is my neighbor? The answer seems to be persons who’re closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I’m directing my mind to the acts or omissions which are called in question.”

Whether being affected by coronavirus counts as a tortious injury is up to the interpretation of the courts. It also depends on whether it can be established that a business breached its duty of care, or did not follow the appropriate safety measures, or knew if an employee had been infected but did not report it.

It is imperative for business owners to follow all applicable standard operating procedures (SOPs) laid out by the government, otherwise they will be susceptible to an uncertain legal risk, the magnitude of which is not yet known.


References

[1] Dawn.com, “PM Imran Announces Financial Stimulus Package to Mitigate Economic Fallout from Covid-19 Outbreak” (DAWN.COM March 24, 2020)
[2] ERD/M&PRD/PR/01/2020-24, Dated March 17, 2020 “State Bank of Pakistan announces three measures to address the economic and health challenges posed by the spread of COVID-19”
[3] UKHL 100, SC (HL) 31, AC 562, All ER Rep 1

The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.

Arzaam Bhatti

Author: Arzaam Bhatti

The writer holds an LLM degree with a specialization in International Business Law from Queen Mary, University of London. He is a practising Advocate of the High Court and a member of the Human Rights Committee at Punjab Bar Council. He serves on the legal panel of various government bodies and has acquired experience working in one of the largest banks of Pakistan.

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