COVID-19 – Legal FAQs and their answers

Please consider the following answers our general comments on the current situation. If you are interested in the legal analysis of a concrete contractual relationship, the effect of the current measures on your business, or any other related legal advice, please contact us

COMMERCIAL LAW

Can the pandemic and related governmental measures be considered a force majeure? If so, what point in time shall be considered the onset of the force majeure – the declaration of the state of emergency? Is a withdrawal from a contract (e.g. for accommodation) due to concerns about the coronavirus valid if made before the state of emergency was declared and the prohibition of accommodation services imposed?

Force majeure generally means an extraordinary (meaning exceptional) and unforeseeable situation beyond the contractual parties’ control that has a fundamental effect on their ability to meet their contractual obligations or exercise their rights. In contracts, its precise definition is often modified or its application limited to particular situations, and thus this has to be inspected first.

The exact point in time of the force majeure occurrence may differ in concrete situations. Generally (unless its application is excluded or otherwise regulated by the contract), the time of the force majeure will most likely be the time of a declaration of a state of emergency or the imposition of specific measures that make it impossible to meet obligations or exercise rights under contracts (such as restrictions prohibiting travel to certain destinations or orders to close premises rendering them useless for board or accommodation).

If, however, the relevant contract was concluded only after the pandemic started (though not necessarily after a state of emergency was declared), any related measures might no longer be viewed as force majeure, as they were no longer entirely unforeseeable.

Withdrawal from an accommodation contract when such accommodation was still possible will be hence subject to general contractual and statutory rules and may thus involve cancellation fees.

How should a supplier proceed if a customer notifies them that they are no longer interested in the goods they ordered and does not respond to any attempts to deliver the goods?

It is advisable to carefully analyse the underlying contract whether it contains any special regulation applicable to the situation, including if and under what conditions the goods can be refused. If the customer’s obligation under the contract (in this case, the obligation to accept the goods and pay the price) still exists, you may insist on them meeting this obligation, and enforce it.  In such a situation, it is primarily up to your business partner to enter into negotiations with you and attempt to settle the matter – otherwise they are in breach of contract.

The situation where one of the parties stops communicating and collaborating in performing the contract is regulated by law: the customer who was to accept the goods under the contract is in default, which means that the supplier who was willing to deliver the goods under the contract is not in default, even if they are unable to perform within the deadlines specified by the contract. The customer also bears the risk of damage to the goods even though they were not handed over. The supplier may also deposit the object of the performance (the goods) with the court, while the costs of court custody are also borne by the customer who refused to accept the goods.

If a lessee is unable to use leased property because of the current measures, what impediment does this constitute? Is it a force majeure, a subsequent impossibility of performance, or a substantial change in circumstances? What is the recommended procedure?

Unless the application of the mentioned statutory provisions (force majeure, a subsequent impossibility of performance, or a substantial change) has been explicitly excluded in the relevant contract, all of these concepts may generally apply to situations occurring as a result of the current pandemic, and they may even be combined (only if this is not contrary to the logic of the matter, such as the combination of a subsequent impossibility of performance and a substantial change of circumstances under which performance is still possible, albeit more difficult).

Apart from the above, lease contracts may also stipulate the lessee’s rights to demand rent discounts, to renegotiate the terms of business, or to terminate the lease early.
In any case, it is advisable to inform the lessor without delay that you are being prevented from using the leased premises as a result of the governmental measures.

Section 2212(3) of the Civil Code stipulates that: “If the lessee is disturbed in the use of a thing or otherwise affected by the conduct of a third person, they are entitled to a reasonable reduction of the rent, provided that they notified the lessor of such conduct of the third person in time”. The above provision and the right to claim rent reduction thus apply to cases where the lessee’s right of use is limited or prevented by a third party (by reasons beyond the lessor’s control); at the same time, the lessee has to notify the lessor of this in a timely manner, while the following applies:

  • The law does not prescribe any special form for the above notice, meaning that the lessee may do so in any manner (in writing, orally, by phone, etc.). Nonetheless, in view of possible future disputes, and to prove that the duty to notify has been met by the lessee, it is advisable to notify the lessor at least by email.
  • If the lessee fails to notify the lessor in a timely manner, they lose the entitlement to the rent reduction, but only for the time until the notification is given.

As a result of state authorities’ measures preventing the operation of certain real property (such as accommodation facilities, selected shops), lessees have indeed been disturbed in the use of the leased premises. On the other hand, the restriction was by no means caused by the lessors, who had no control over it whatsoever. It therefore remains questionable whether the above provision would apply to leases of real property whose use is prevented or limited by the measures declared in connection with the pandemic. In this respect, the specific lease contracts must be carefully analysed, while in many cases, a final and conclusive answer will only be given by the courts.

In any case, timely and open communication is crucial. If you manage to renegotiate the contractual conditions or agree on a rent reduction with the lessor due to current circumstances, the effect will be immediate, and you may avoid future disputes with uncertain outcomes.

Note also that on 1 April 2020, the government passed a bill allowing lessees to unilaterally postpone the due date of more than three months’ rent for commercial premises over the next two years. The bill is to be voted on by the chamber of deputies this week.

Is it necessary to adjust contracts or our general terms of business due to the pandemic?

The question has two dimensions: on one hand, it may be asking about the amending of contracts already concluded, where parties may, e.g., agree or represent that the declared state of emergency has no effect on the performance already in progress; on the other hand, the question may concern contracts yet to be concluded.

The suitability of any adjustments always must be viewed in the context of a specific contract and business relationship.

Generally, some provisions of laws regulating, e.g., force majeure, a subsequent impossibility of performance, or a substantial change in circumstances may be excluded or modified by a contract. It is therefore necessary to strictly differentiate between two situations:

  1. We may consider changing the conditions of an existing contract; in such cases, the parties may (or may not), by an amendment to a contract, exclude the applicability of some legal concepts that would otherwise cover the situation (force majeure, a subsequent impossibility of performance, etc.), by agreeing or simply representing that the current circumstances do not constitute an impediment to the due and timely performance of the contract.
  2. A different situation is the conclusion of a new contract during the state of emergency. Once a state of emergency has been declared (even some time before, when its declaration or the imposition of certain measures can be expected, rendering them no longer unforeseeable), it can no longer be viewed as force majeure, a subsequent impossibility of performance, or a substantial change in circumstances. The above will apply without any specific contractual provision to that effect, although the parties may, again, make a representation in the contract or adjust individual contractual conditions in view of any expected future development.

It is also necessary to keep in mind the boundaries set by laws for contractual arrangements in general. If any contractual stipulations result in a waiver of rights by the consumer, they constitute a prohibited clause and shall be disregarded. Similarly, any contractual provision derogating from the law shall not be to the detriment of a consumer or the weaker party, which may even be an entrepreneur. In some regulated sectors or in the public procurement area, further restrictions apply.

May I demand compensation from the state for damage incurred as a result of having to close my operations/premises? Has anything changed in this respect after the measures were declared by the Ministry of Health, effective 24 March 2020?

Generally, two regimes govern damage compensation by the state:

  1. under Act No. 240/2000 Coll. (the Crisis Act), containing a special provision to this effect in Section 36, and
  2. under Act No. 82/1998 Coll., on Liability for Damage Caused in the Exercise of Public Authority by a Decision or an Incorrect Official Procedure (the State Liability Act).

The state of emergency was declared by the government on 12 March 2020 for 30 days. Based on this, governmental regulations were issued imposing, among other measures, restrictions on the free movement of persons and the closing of some shops (an action for annulment of these measures has already been filed, as well as a constitutional complaint). On 23 March 2020 (effective 24 March 2020), the government cancelled the previously declared emergency measures, replacing them with extraordinary measures ordered by the Ministry of Health, with a substantially identical content.

The government might have made this change in an attempt to avoid damage compensation under the Crisis Act. However, as the state of emergency is currently still in place, the possibility to apply the Crisis Act also to the extraordinary measures of the Ministry of Health cannot be excluded. Legal opinions on this issue differ so far.

Nonetheless, it can be expected that the ministries will be unwilling to pay damages (such as loss of earnings) on a blanket basis to all who have in some manner been affected by the imposed measures (such as the ban of retail sale). If the state authority against whom the damage compensation is first claimed refuses to comply, it is still possible to claim damages in court. Final and conclusive decisions on the application of the Crisis Act and the granting of damage compensation (and its extent) will be up to the courts.

Quantifying the damages and supporting them, especially as regard losses of earnings, poses another pitfall. Even under the Crisis Act, only damage incurred in direct connection with the governmental measures and not the pandemic as such should be compensated. This means that common prior period earnings cannot be taken as a basis , while it will be necessary to consider in the calculation also the change in circumstances brought on by the pandemic itself (e.g. a decrease in sales that would have occurred even without the state’s emergency measures). Steps undertaken by the entrepreneurs to prevent or reduce the damage will also have to be considered.

May a customer demand a refund of fees paid for suspended training courses, memberships in sport clubs, fitness centres, etc?

The provisions of law regulating a subsequent impossibility of performance cannot be applied here, as the performance will be possible later, once the restrictions are lifted. Therefore, suspending classes and resuming them after the measures end is a lawful solution, and a rather common one in the market.

Depending on the specific conditions under which the course attendance or membership was arranged, customers may have the right to terminate the contract or withdraw from it. This must always be assessed on a case-by-case basis.

I have booked a vacation that will probably not take place under the circumstances. What shall I do?

First, it must be clarified what is meant by the term ‘vacation’. Please note that a package tour (typically, a vacation ordered with a travel agency) and accommodation (such as a stay in a hotel) are two different types of contracts, each with a specific regulation in the Civil Code; more precisely, a contract on accommodation is a special type of short-term lease.

Apart from this, it is necessary to also consider the time when the planned vacation is to take place. Situations where travel is to take place now (i.e. under the declared state of emergency) may be viewed differently from vacations planned for summer holidays (although it may be expected that cross-border travel will still be restricted then).

Generally, under the law, a customer may always withdraw from a contract before the commencement of a package tour, while they must bear the costs incurred as a result. These costs are usually covered by a lump-sum compensation (referred to as a cancellation fee), which must be reasonable, and the customer may demand its amount to be supported.

Therefore, if you decide to withdraw from a package tour contract well ahead, when it is not yet clear whether it will be possible for the tour to take place, the tour organiser may demand a reasonable cancellation fee.

Contrariwise, if a tour really cannot take place due to a restriction imposed, the customer may withdraw from the contract without paying any cancellation fee, on the grounds of “unavoidable and extraordinary circumstances occurring in the destination of the trip or stay or its immediate surroundings and significantly affecting the tour performance or the transport of persons to the destination of the trip or stay”, to cite the law. On the same grounds, the trip may also be cancelled by the tour organiser, who must return all payments to the customer.

The mentioned unavoidable and extraordinary circumstances constitute a force majeure, which has been described under another question above. In this case as well, situations may occur when it is disputable to determine its exact timing or necessary intensity; this may involve situations closely preceding or following restrictive measures imposed by individual states, when it is disputable whether the tour could or could not have been effected.

The situation is slightly different if you have only booked a hotel room.  A prior booking does not necessarily constitute an accommodation contract, but the conditions for its cancellation are basically the same. The customer may terminate the contract, while they must compensate the provider of the accommodation for costs incurred in connection with this; again, generally referred to as cancellation fees. Here as well, such fees must be adequate to the situation. Remember also that a contract on accommodation in a hotel abroad and any applicable cancellation fees are governed by the laws of the foreign country.

As in other situations, mutual agreement, e.g. on postponing the vacation, may be the best solution. As travel agencies are covered by obligatory insurance, you should not lose your money even if the agency should go bankrupt.

LABOUR LAW

As a result of the current quarantine measures, has it become necessary to make changes to employment contracts of employees who cannot perform their usual work, are working from home, or may only perform administrative activities?

If an employer cannot assign employees their usual work at their workplace because of the COVID-19 pandemic and related extraordinary measures imposed by public health protection authorities, it is first necessary to check how broadly their employment contracts define the type and place of work.

If the new activity (e.g. administrative tasks) and the new place of work (the employee’s home) can be subsumed under the contracted type and place of work, no changes to the employment contract are necessary. Even then, however, we recommend checking whether the employee’s home is suitable for the performance of work, and whether the employer’s internal policies regulate the conditions of work from home. If not, the employer should issue such internal policies or individually agree on the conditions of work from home with the employee.

If the new activity and/or place of work cannot be subsumed under the contracted type and place of work, the employee does not have to perform the new activity or work from home; the situation will thus fall under the impediment to work on the part of an employer, where the employee is entitled to wage compensation in the amount stipulated by law. If the employee agrees to perform the work, the employment contract must be amended by mutual agreement.

We also recommend checking whether the employee is fit for such work in terms of their qualification and state of health.

Must impediments to work on the side of the employer, such as shorter working hours (kurzarbeit) or downtime be applied to a company as a whole, or is it possible to apply them just to specific employees or teams?

In our opinion, it is possible to apply the impediments to work on the side of the employer (such as kurzarbeit) to specific employees or teams; they do not have to be applied company-wide.

How shall we deal with the recommendation to keep a two-metre distance at the workplace if we cannot fully comply with this in our plant, due to the nature of our operation?

In Government Resolution No. 215 (of 15 March 2020), and in the subsequent extraordinary measures by the Ministry of Health (of 23 March 2020), this was only given as a recommendation. Furthermore, it targets the movement of persons in public, not at their workplace, where (mostly) only the employees or the employer’s contractual partners are present. Of course, we recommend keeping the distance, but only if practicable under the circumstances.

Our answers are based on Czech laws (and cannot be applied for instance to contracts governed by other than Czech law). Furthermore, even in the Czech legal environment, the answers may not be universally valid, especially where special legal regulations apply (public procurement, regulated sectors, etc.)

Some of the questions have been edited.

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