Business Entrepreneur: Covid-19 (Corona Virus) your business and contractual performance

Corona Virus contractual performance

With the announcements made yesterday by the President of the Republic of South Africa, many business owners may be unsure of what to do next and how to prioritise actions they need to take.  A few questions have recently arisen in the context of the corona virus.

What measures should I be taking within my business?  What if my staff refuse to come into work? What if a staff member is suspected of having the corona virus?  What happens if my business cannot perform its contractual obligations?  What happens if I cannot pay my business loans and financing?  What happens if I cannot make my payments for operational expenses?  What happens if my customers fail to make payments?

There can be no doubt that all of the aforesaid questions and how business owners respond thereto may determine whether their businesses will survive the next few months.  This is particularly relevant within the South African context, where countless businesses are already struggling and many teetering on the brink of closure.  Set out below are a few practical matters for the business owner to consider.

As the owner of a business, you have a legal obligation to provide a safe and secure working environment for your employees.  Err on the side of caution if an employee has recognised symptoms and remember that it is your duty to protect all employees.  Put a policy and procedure in place regarding basic hygiene in the workplace, in line with recognised and published guidelines such that reasonable steps are taken to prevent the establishment and spread of the corona virus within the workplace.  Ensure all employees are up to date on the business’ policies with regard to medical leave, annual leave and unpaid leave in the event that an employee decides to self-isolate based on reasonable grounds.  It is not clear in law at this stage whether the mere fear of contracting the corona virus, due to the seriousness thereof, is sufficient grounds for an employee to self-isolate and refuse to come into work.  For this reason, it is advisable that employers adopt a reasonable approach, conduct a proper enquiry as to the employee’s reasons for this fear and seek to achieve an arrangement that works in the interests of both employer and employee.

Forced isolation of an employee for their own protection and the protection of others is a matter that must be carefully considered and cautiously decided upon, based on the facts of each situation, as it could be viewed as forced suspension of employment at employer’s request.  Employers must ensure that previously isolated employees returning to work have an appropriate medical certificate of fitness.

With regard to your business, it is important to understand that your business may be affected both directly and indirectly as a consequence of the corona virus outbreak.  Here I mean both the means of production and the sale of goods and services.  It is therefore imperative that the business looks carefully at their rights and obligations in all critical contracts necessary for the operation and functioning of the business.  Business owners need to understand that the corona virus in itself does not, at least at this stage, constitute a valid reason for failing to perform contractual obligations or accepting the failure of others to perform.

Many business contracts indeed have “act of god clauses”, “force majeure clauses”, “supervening impossibility clauses” and “hardship clauses” in them which may address the specific circumstances of your business.  In essence these clauses excuse a party from making full and/or complete performance in terms of a contract.   Our courts interpret these clauses strictly and caution is necessary before relying on them.  Issues as to circumstances identified, foreseeability, notices, mitigation steps, negotiation and suspension will all be relevant in deciding as to whether such failure to perform was indeed correct and acceptable in law.  Business owners should not merely assume protection under these clauses based on what is happening in the public domain as the consequences thereof  may be detrimental to your business and result in breach of contract or repudiation claims.

For those businesses that do not have written contracts, or their contracts do not have appropriate provisions dealing with such instances, this does not mean that your business is without recourse.  Our common law does deal with circumstances that make performance under a contract impossible and certainly the consequences of corona virus may constitute such impossibility.  However, it is necessary for all businesses to appreciate that each situation and circumstance will be different.

Whether your business is a creditor to some and/or a debtor to others, it is imperative that each business owner takes the time to do a detailed cashflow analysis for their business, at least for the next few months and makes a realistic determination as to the impact the corona virus and consequences thereof will have on their cashflow and, in particular all financing arrangements.  If you expect that your business will struggle to achieve cashflow, or meet financing payments, please do not do nothing.  It is important that you as a business owner be open and transparent with financiers and creditors at this time without committing an act or conducting yourself in a manner that would constitute grounds for breach or repudiation of your agreements.


Please note that the aforesaid information is provided to assist you in identifying critical issues within your business at this time and is not intended to substitute a proper discussion and consultation with your attorney before contemplating any action that could affect your employer/employee relationships and those with the debtors and creditors of your business


For further information, please do not hesitate to contact us.

Barrisford Petersen
Managing Director

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