(Note: The following is a guest post from Emma Willson, and was not written by our firm).
As the world is still fighting the COVID-19 disruption, the livelihood of many people, including entrepreneurs and daily wage workers, has significantly taken a backseat. COVID-19 has besieged the world into an economic crisis leading to many business and legal impacts.
Organizations around the globe are going through some significant challenges. As of now, there are more than 7.1 million active COVID cases worldwide.
In addition to the toll on human life, this novel disease has left a significant impact on economic activity. The small and medium ventures (SMEs) are dangling on the edge of continuation. Over the last few months, the coronavirus has taped down businesses, scattered demands, and disconnected supply chains everywhere, hitting the hardest over domestic and international companies.
Let’s have a look at some of the significant business and legal impacts of COVID-19.
Business Impact
The impact of COVID-19 on large, medium, and small businesses and communities worldwide are significant. Here are some of the major ones:
1. Shifting towards Remote Work
Many companies have shifted to remote working due to government restrictions and imposed the lockdown of non-essential services. Most governments applied this policy as a safety measure to ensure that the employees were safe and didn’t spread coronavirus.
Based on a survey, almost 70 percent of executives have decided to shift to working remotely for a smooth operation. Besides, business events and activities have also been postponed to promote social distancing. Yet, many organizations are finding it difficult and are unprepared to train people to work from home.
For example, construction businesses and contractors are finding it hard to continue major infrastructure projects due to the lack of blue-collar workers. For these companies, work from home is not an option.
2. Employee Termination
Most governments have advised employers not to fire any employees amidst this pandemic. All public and private employers must support their employees and workers.
But due to the diminishing demand for the companies’ goods and services, reduced cash flows, and increasing overheads, many employers had to lay off staff. Businesses should ensure that they follow labor laws as per their state and fulfill any commitments mentioned in the employment contracts before doing any lay-offs.
Employers will have to consider the coronavirus impact as their responsibility under the Occupational Safety and Health Act 1970 till the time the economy is reopened. The Department of Labor has also recommended guidance on preparing workplaces for COVID 19 to improve the workplace environment.
3. Insolvency
The outbreak of COVID-19 has led companies to face financial distress as they are trying to reduce the financial implications of supply chain issues along with low customer demand.
The businesses which were already suffering from high debt are withdrawing their credit lines from suppliers. As a result, many firms might go bankrupt.
4. Stocks, prices, and real estate
With the spread of the virus, the ultimate impact has been on the financial and real estate markets. Global economic growth has come to an abrupt halt in the first quarter. The stock market has responded to the pandemic with large drops causing trading to stop four times.
Stock prices have fallen, and the oil industry is also facing a doomsday scenario. The demand for oil has dropped so fast that most oil-producing countries are facing a massive challenge to store the excess inventory of oil. With reduced construction activities and low consumer interest, the real estate market also looks gloomy.
The pandemic, coupled with an already experiencing lack of interest from stakeholders, real estate hit the all-time lowest in the quarter ending in March.
Legal Impacts
Below are some of the legal impacts that businesses should be aware of.
1. Review Contracts
Many of the existing legal contracts and agreements between a firm and its stakeholders like suppliers, consumers, and investors, need a revisit.
For example, an e-commerce firm will have to revisit customer return policies in the view of hygiene and social distancing issues during COVID-19. Suppliers to a retail supermarket will have to revisit the firm’s payment terms, and timing as most firms are undergoing a cash crunch. Therefore, suppliers cannot expect a timely payment in these times of crisis.
Firms have to initiate discussions with their investors to review their contractual expectations of profits during the pandemic, as the organizations try to function with minimum lay-offs and reach break-even. Talking about contracts, even marriages are getting affected due to physical and emotional stress during COVID-19. If you are going through a rough patch and looking for divorce, then search for a goodlegal representation of divorce.
2. Business Insurance Policies
The impact of COVID-19 brought to notice unique legal challenges and financial consequences. Corporations are looking for ways to tackle these problematic economic losses. One of the palpable refuges that companies rely on is the Business Interruption (BI) insurance to recuperate the losses during this crisis.
Despite the similarity of the term “business interruption” to the current situation, BI insurance has denied providing an insurance cover to COVID-19 related losses. US legislators and lawyers are in talks with the insurers forcing them to pay the coronavirus related claims made by industry, as excluding it can lead to an “existential threat” to their business.
The current situations are forcing businesses to revise their contracts with partners, suppliers, creditors, and others. The only way to secure relationships from collapsing is by having clear and open communication, which will help reach an agreement between both parties.
3. New ground rules for declaring force majeure
The term “Force majeure” in legal contracts like insurance policies is an event that can neither be anticipated nor controlled and a risk of loss can be averted due to that event.
Since the COVID-19 has been declared a global pandemic by the World Health Organization, most modern legal contracts will likely include COVID-19 as a force majeure, which will reduce the liability of both parties in a contract if either fails to oblige terms under the contract due to COVID-19.
Final Thoughts
It is uncertain how long the COVID-19 will exist and how the situation will get back to normal. Until and unless there is a vaccine for this virus, there is no guarantee on how we are going to emerge from this situation.
It is also difficult to predict how the governments and businesses are going to react to renewed outbreaks. In the meantime, cooperation between the five parties (owners, employees, suppliers, customers, and government) is crucial to minimizing business and legal impacts.