IMPACT OF COVID-19 ON EMPLOYMENT CONTRACTS

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IMPACT OF COVID-19 ON EMPLOYMENT CONTRACTS

The outbreak of COVID-19 has had an immense impact on every sphere of human activity, and apart from the health implications, business activities have been the hardest-hit sector. The reasons for this are simple – with movement restricted and economic activity ground to a halt, neither employers and their staff nor customers and clients can continue as usual, despite their employment contracts.

Beyond the impact on businesses as corporate entities, employees across a wide range of sectors have had to bear the brunt through lay-offs, furloughs, delayed payment of salaries, among other issues. While acknowledging that the current period is a very difficult one for all parties, it is important to outline exactly what the law is to be sure that all parties are aware of their rights and obligations.

Frustration of Employment Contracts

Employment contracts are subject to the legal principles which govern all contracts. One of those which is most relevant in this period is the doctrine of frustration or force majeure which are very similar but distinct as I have outlined in a previous article.

With force majeure, the most important determinant of whether it can be validly invoked is if a clause to that effect is contained in the employment contract. If there’s one, the next step would be to see if the current pandemic fits into any of the situations which would permit one of the parties to nullify the contract. If that is present too, the final step would be to comply with the requirements for properly invoking the clause to nullify the contract, such as by giving notice of a specified period.

If there is no force majeure clause in the employment contract, the doctrine of frustration can still apply to terminate a contract of employment (Revenue Mobilization, Allocation & Fiscal Commission V. Units Environmental Sciences Ltd (2010) LPELR-9205(CA)). The requirements are that the prevailing circumstances must have made it impossible for at least one of the parties to carry out the contract. A distinction must be drawn, however, between a contract that has become impossible to perform and one that has merely become more difficult or more expensive to perform. The common grounds that courts have deemed valid to apply the doctrine of frustration include an outbreak of war and subsequent legislation which renders a contract illegal, among others.

In the current circumstances, the determination of whether a contract is frustrated would be a question of fact that parties would have to prove in court. Businesses whose model require their employees to be physically present at all times in order to work may be able to successfully argue that the contract is frustrated, but tech companies, law firms and others which can effectively (even if to a diminished extent) utilize work-from-home systems may not be successful.

Ultimately though, even without the absence of either of these principles, Nigerian law generally recognizes the power of employers of labour to hire and fire as they please, insofar as they comply with the provisions of the employment contracts and the statutory requirements contained in the Labour Act.

Specific Employer/Employee Obligations

Having established the scope of the doctrines of force majeure and frustration in relation to the current coronavirus pandemic, it’s important to evaluate specific legal obligations which employers and employees must comply with when taking any action regarding extant employment contracts.

Compliance with Notice Requirements

If an employer wishes to terminate a contract as a result of a need to downsize, the contractual obligation to give notice or salary in lieu of notice must still be complied with. The terms spelt out in the employment contract usually stipulate what the entitlement of the employee is, and failure to comply will open the company to potential legal liability.

Leave

An employer cannot send employees on compulsory unpaid leave unless it is part of a disciplinary action as covered by the employment contract. To do so would be to vary the employment contract and such variations can only be validly done with the consent of the employee.

On the other hand, employers can direct that employees take their annual leave during this period, thus ensuring that they would not have to bear the absence of such employees later when work resumes fully. In such an instance, however, the employee must be treated as being on leave and cannot be assigned any work for the duration specified.

Suspension of Contract

With the agreement of the employer and employee, a contract can be suspended to put the employment on hold temporarily. This is with the exception of situations where the employment contract specifically empowers the employer to take such an action unilaterally, which is the more common situation in countries where furloughing of employees is a common occurrence and recognized in law.

Accumulated Entitlements

Regardless of any other circumstances and whether an employer is invoking force majeure, the doctrine of frustration or otherwise terminating the employment of a member of staff, the accrued benefits payable to such staff must be discharged, as held in Ajuna Uche Johnson V. UAC Nigeria. The doctrine of frustration does not apply retroactively, hence failure to discharge such a debt would entitle the employee to commence legal action and claim for the sum with interest.  

Dispute Resolution

In the event of any dispute arising out of actions taken by employers or employees in relation to the Covid-19 outbreak, the appropriate court for such a dispute to be resolved is the National Industrial Court of Nigeria, although many contracts usually provide that parties explore arbitration or mediation initially.

Even where the contract does not specify as such, it’s best practice to attempt alternative dispute resolution methods before resorting to litigation as these often work better to save time and financial expenditure.

Conclusion

It is certain that the ongoing crisis will lead to seismic changes at the macro and micro-economic levels, but companies and employees must ensure to stay abreast of the law and seek guidance to ensure they stay within the ambit of the law in all their actions. Nothing would be worse than to suffer business losses or the loss of a job due to this crisis and to also face financial liability afterward due to the mishandling of a contractual disagreement.

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