This article by legal experts will appear in the March issue of Taiwan Business TOPICS and is being posted online early because of its timely importance.
BY JOHN EASTWOOD, HEATHER HSIAO, ALICE CHEN & DAVID ROSENTHAL
The novel coronavirus or 2019-nCoV brings numerous potential and actual legal risks, ranging from the supply chain to human resource matters. Following the declaration by the World Health Organization (where Taiwan unfortunately has neither membership nor observer status) of a public health emergency at the end of January, businesses need to take precautions regarding affected Chinese suppliers, international travel, trade shows, and potential force-majeure issues. Management will also need to grapple with such other issues as employees in Taiwan working from home and factors that need to be taken into account regarding employee travel to China.
So far only a small number of cases of the coronavirus have been confirmed in Taiwan, so the direct risk can be considered relatively low. Nevertheless, the Taiwan government is among those that have taken a number of preventive measures. Starting February 6, entry restrictions have been applied to travelers who have been to China, as well as Hong Kong and Macau, within the past 14 days (this also applies to those who have transited through affected areas).
Furthermore, the government extended the winter holiday for all public schools (with most private schools following suit) until February 25. As conditions develop, local and national governments may well increase their efforts to contain this outbreak.
Employers in Taiwan have a general obligation to take care of their employees, as outlined in the Labor Standards Act and other work-related rules. This obligation includes preventing and mitigating any health risks employees may face in the course of their work, as well as providing them with a safe working environment. If an employer fails in this duty, it may face liability for any damages incurred by the employee.
In order to ensure the safety of their employees in connection with the outbreak, employers should take appropriate measures to reduce the level of risk of infection. These may include:
- Adopting company-wide policies to prevent the spread of infection, including increasing employee awareness of best hygiene practices and disseminating accurate information about the virus.
- Limiting business travel, especially to affected areas.
- Ensuring that sick employees stay at home
- Providing sanitary products, such as hand sanitizers, alcohol sprays, and disinfectant wipes.
It is important to remember that the preventive measures taken by employers may infringe on the rights of their employees, especially with regard to work and privacy. Careful consideration must therefore be given to employee rights, weighing potential measures against infection risk levels and alternative approaches. For example, subjecting employees to mandatory temperature checks may be a suitable measure if the infection risk level warrants. However, collecting an employee’s temperature and other health data infringes upon privacy rights and may only be done in compliance with the Personal Data Protection Act.
With regard to business trips, employers should also consider employee health and safety as the top priority. According to guidelines issued by the Ministry of Labor, employers should avoid assigning employees to travel to China during this period unless absolutely necessary. Employers are also encouraged to ask employees currently working in China to return to Taiwan. In consultation with employees, employers should devise alternative means of fulfilling job functions, such as working remotely via video conferencing and e-mail. If employers force employees to work in or travel to China, it may be deemed a violation of employee rights. The employee may be entitled to terminate the employment agreement and receive severance pay.
If it is still necessary to assign employees to work in China, employers should first assess the employees’ health status. In particular, they should avoid assigning employees with underlying health conditions, such as chronic lung disorders (including asthma) and cardiovascular diseases. Moreover, employers should educate and train the employees regarding infection-prevention practices, such as personal hygiene and health monitoring, and provide such equipment as masks and personal disinfection products.
Additionally, they should arrange for temperature measurements to be taken at the workplace in China and ensure that the work area is properly cleaned, disinfected, and ventilated. The guidelines state that if employers fail in these duties, employees have the right to refuse assignments to China.
Companies producing medical equipment, such as masks and disinfectant agents, have been faced with a sudden, drastic increase in demand. Similarly, logistics companies and distributors are being asked to facilitate the immediate supply and delivery of these necessary products. As a result, certain employees are having to work extended overtime. The Ministry of Labor has issued an interpretation letter (No. 1090130090) regarding overtime work during the coronavirus outbreak.
Article 32.4 of the Labor Standards Act states that “due to the occurrence of an act of God, an accident, or an unexpected event,” an employer may extend the working hours beyond the regular working time.
This article applies to overtime work on regular working days, as well as on rest days. If employers require employees to work overtime under this article, employers must calculate and pay the accrued overtime wage according to Article 24 of the Labor Standards Act. Overtime accrued under Article 32.4 is not subject to the 12-hour daily limit on work, nor is it subject to the monthly maximum of 46 overtime working hours.
However, employers must notify the labor union within 24 hours of the beginning of the extension. If there is no labor union, they must instead report to the local competent authority for their records. Subsequent to the overtime, the employer must offer employees suitable time off.
According to Article 40 of the Labor Standards Act, “An employer may require workers to suspend all leaves of absence referred to in Articles 36 to 38, if an act of God, accident or unexpected event requires continuance of work; provided, however, that the worker concerned shall receive wages at double the regular rate for work during the suspended leave, and then also be granted leave to make up for the suspended leave of absence.” Further, “the employer shall, within 24 hours after the end of the suspended leave of absence, file a report stating the details and reasons with the local competent authorities for their records and approval of the suspension.”
The provisions in this article apply to national holidays as well as applications for annual paid leave or regular leave. In case of an “act of God, accident, or unexpected event,” employers may suspend employees’ leave and require them to continue with their tasks. In this event, employers do not have to adhere to the principle that employees shall not work for more than six consecutive days. Also, overtime accrued under Article 40 is not subject to the 12-hour daily limit on work, nor is it subject to the monthly maximum of 46 overtime working hours.
However, the employer shall, within 24 hours after the end of the suspended leave of absence, file a report stating the details and reasons with the local competent authorities for their records and approval of the suspension. Employees shall receive wages at double the regular rate for work during the suspended leave, and shall later be granted time off to make up for the suspended leave of absence.
Employees returning to Taiwan may be officially quarantined in a medical institution or asked to isolate themselves for various reasons, such as previous travel to areas affected by the Wuhan virus, showing symptoms when passing through airport health screening, or past contact with individuals reported as possibly infected with the coronavirus.
Being quarantined is legally considered as equivalent to being on sick leave, including all legal protections and rights afforded to the employee. The quarantine notice issued by the responsible authorities in such cases serves as the medical certificate. In case of self-quarantine, returning employees will be asked to stay at home for 14 days to minimize contact with other individuals. During this period, the employees are allowed to work at home but should not leave their residence or designated location. They are also not allowed to use public transportation or leave the country. Self-quarantined workers can expect to receive daily calls from local government officials checking on their health.
Businesses may consider various options for the legal structuring of this absence from work. These may include treating it as paid sick leave, unpaid leave, or any other mutually agreed upon structuring that does not violate the Labor Standards Act.
It is important to note that the government in Taiwan is imposing fines of up to NT$300,000 (about US$10,000) on individuals who violate quarantine regulations.
As the government has extended the winter break for schools until February 25, parents may have the unforeseen need to organize childcare on short notice during this period of time. The government has directed that businesses must accommodate employee needs for time off due to this extended school holiday. But whether or not payment is granted for this duration has been left up to the individual employment relationship and highly depends on the governing contract. In the absence of an applicable clause in the contract, one option is taking unpaid leave.
In light of the quarantine measures and the possibility of increased infections, businesses may consider asking employees to work remotely, which can be an effective measure to reduce the spread of disease. However, certain jobs must be performed on-site. In this case, businesses might consider putting employees on fully or partially paid, or even unpaid, leave.
However, employees generally have a right to work, even if they are granted pay for staying home. Therefore, whether or not a business can force employees to go on leave – and under what conditions – depends on the nature of the work, the level of risk at the time, and the governing work contract.
Assessing the risks
With over 60 million people already under lockdown in China, a major question for businesses is the integrity and stability of their business flow. There is a high probability that China will continue to expand the area governed by the lockdown until the coronavirus has been sufficiently contained. Additionally, over the coming months businesses will likely be faced with further control measures implemented by the government.
The following case demonstrates just how far-reaching and complex the consequences of these measures may be. A company based in Taiwan sends an employee to China to perform necessary maintenance on a production site. Afterward, the same employee is needed by a client in the U.S. to repair a production robot. Although the trip to China was not to a strongly affected region, the employee is barred from entering the U.S., and is therefore unable to repair the robot, leading to a financial loss for the client.
Businesses therefore need to prepare for various eventualities. The first step is to take a close look at their business and identify risks that could cause disruptions. Businesses operating in fields with strict deadlines or high dependency on migrant workers, such as construction companies, will find themselves at a higher risk.
Examples of current and future risks may include:
- Supply chains affected by governmental lockdown measures.
- External service providers prevented from providing timely service.
- Government-imposed travel restrictions.
- Import/export restrictions affecting purchase agreements.
- Customers backing out of purchase agreements.
- Workforce shortages due to new entry restrictions.
Navigating the current situation will be a continuous and evolving process with a multitude of different factors that may adversely affect business continuity. Businesses may find that simple preparation – such as identifying alternative suppliers outside the immediate area of risk or opening lines of communication with clients and suppliers regarding the outbreak – goes a long way in avoiding problems.
Open communication with all stakeholders is recommended. Approaching problems together with partners early and head-on may allow businesses to identify practical solutions that would otherwise not be available or obvious. The dialogue should also include prevention measures already taken or that should still be taken to ensure the safety of all employees working in at-risk areas.
In case the above-mentioned efforts fail, the fundamental question for businesses will be whether they, their suppliers, or their clients are still required to fulfill their contractual obligations under these new circumstances – or if they may be liable for damages due to breach of contract. Businesses will need to analyze their at-risk contractual relationships and determine whether they or their contractual partners have access to any legal remedies.
Force majeure in contracts
The most obvious legal remedy may be force majeure. Such contractual clauses allow the suspension or even discharge of mutual contractual obligations based on the occurrence of a disruptive event over which the affected party has no control and was not reasonably able to prepare for. Whether a party is able to successfully invoke force majeure will depend to a great extent on the individual clause’s wording, as well as the governing law’s understanding of force majeure.
Normally, the invoking of a force majeure clause in a contract involves drastic circumstances. The effects of using it may terrify the parties if the current investment and potential losses are huge, yet in other situations the invocation of force majeure comes as a relief to all parties.
In determining if the outbreak constitutes a force majeure event and if the type of disruption is covered, vital questions will be whether the invoking party could have reasonably prepared for the event and what rights the parties receive from the contractual clause.
As an example of the difficulties businesses face when establishing force majeure, consider a European supplier tasked with installing equipment at a Taiwan production site in China. Due to governmental warnings about travel to China, the supplier decides they cannot justify the risk to their employees and therefore refuses to perform the installation. Is the foreign government’s travel warning sufficient for invoking force majeure?
Chinese authorities have started issuing force majeure certificates. Although these certificates may be required by individual contract clauses, the issuance of such a certificate is usually not binding in the courts. There have also been reports of cases where large corporations rejected their business partners’ invocation of force majeure. When courts have to decide whether this outbreak constitutes a force majeure event, such certificates can play an important role in establishing the extraordinary nature of the outbreak. But they will only be one of a multitude of factors. Whether or not force majeure can be invoked does not depend only on the event itself; perhaps even more important is the event’s actual impact on the invoking party.
If a contract does not include a relevant force majeure clause, the governing law will be decisive in regard to legal remedies, in some cases providing either its own form of force majeure or possible alternatives. Parties may find that they are able to invoke established legal institutions such as “unforeseen changes” (clausula rebus sic stantibus) or the similar doctrine of “frustration” in English law. These general legal instruments may afford parties the same or similar rights as do force majeure clauses.
If a party to a breach of contract dispute lacks access to any legal remedy, the question may become one of damages and liability. Businesses should remember that depending on the situation, they may have the legal duty to mitigate damages as far as is reasonably possible – for example, by making an effort to find suitable alternative purchasers for perishable goods.
Larger business operations usually have insurance that covers business liabilities. In case a business finds itself liable for damages, it will have to determine whether this specific case is covered by an insurance policy.
At this point, the risk of contracting the novel coronavirus on a business trip to Taiwan is low and travel to Taiwan is considered safe. However, it is important for businesses to keep Taiwanese travel restrictions in mind when organizing trips. Depending on their previous travel, employees may be denied entry into Taiwan upon arrival or may be asked to self-quarantine at their residence for 14 days. Restrictions also apply to travelers who merely had a layover at an airport in an affected area. Business travelers should therefore book direct flights whenever possible and check the official status of coronavirus-related entry restrictions before departure, as the rules may change at any time.
Despite the current low risk of contracting the Wuhan virus in Taiwan, other countries may also implement measures impacting people with Taiwan travel history. Besides considering Taiwan’s entry restrictions, travelers therefore also need to check on the regulations of their own country – as well as other countries they will be visiting – prior to departure.
- John Eastwood and Heather Hsiao are partners at Eiger, the Taipei-based law firm. Alice Chen is a paralegal at Eiger and David Rosenthal is a trainee at the firm.