This Supply Chain Matters blog serves as a side panel to our recent blog update: Impact of COVID-19 Corona Virus Outbreak on Global and Industry Supply Chains- Update Six.
In the latest update commentary, we indicated that this blog would pass along key advice from specific experts related to the many issues that come to the forefront when teams need to mitigate impacts.
One contribution we received was from the global law firm Foley & Lardner, a globally based firm consisting of 1100 lawyers in 24 offices across the United States, Mexico, Europe and Asia. The firm’s Intellectual Property Lawyer, Cynthia J. Rigsby, shares some thoughts on what an effective coronavirus supply chain response plan should be in some specific process areas.
While we share this perspective to provide added information for supply chain or sales and operations management teams, it is obviously important to consult specifically with legal counsel regarding such topics.
Review Purchase and Supply Contracts to Determine What “Force Majeure” Rights and Requirements May Apply: Force majeure refers to a legal doctrine under which a party may be relieved from liability for non-performance if circumstances beyond the party’s control prevent the party from fulfilling its obligations under a contract. Force majeure provisions can vary greatly depending on how they were drafted by the parties, but they usually cover several categories of events that could impact suppliers and customers across the supply chain.
While most force majeure provisions are unlikely to list disease, epidemics, or quarantine specifically, many include general provisions covering such things as natural disasters, “acts of God,” acts of government, or “other circumstances beyond the parties’ control.” The coronavirus outbreak presents a somewhat unique situation in that it includes both a naturally occurring component (the virus itself) and a government action component (including the quarantines and other measures put in place in response to the outbreak). Parties should carefully review the force majeure provisions in their contracts to determine whether they apply. Any party seeking to invoke the force majeure provisions in its contract usually must show that there are no alternative means for performing under the contract, as increased costs alone will not be sufficient to prevail on a claim of force majeure.
Reporting Requirements: Public companies should review and make accurate required disclosures, in the event that business operations are impacted such that a reporting requirement is triggered. All companies who are parties to credit agreements and other financing arrangements should review existing MAC clauses, and potential impacts on the borrower’s financial covenant compliance, in order to determine whether any proactive conversations with lenders may be warranted.
Employment Concerns: The challenges for any business facing coronavirus or any other disease outbreak involve a multitude of conflicting legal obligations.
Under the Occupational Safety and Health Act (OSHA) and similar state laws, employers have a general duty and obligation to provide a safe and healthy work environment, even when the work occurs outside the employer’s physical premises. Furthermore, under these health and safety laws, employers must not place their employees in situations that are likely to cause serious physical harm or death.
Conversely, overreacting by implementing broad-based bans and making business decisions about employees that are not based on statistical realities could get an employer sued under laws that prohibit discrimination based upon disability (perceived or real) and national origin discrimination, among others. Properly planning for and implementing plans to deal with the coronavirus is legally and operationally complex.
Note: The above comments are provided for informational purposes and do not constitute legal or other advice from The Ferrari Consulting and Research Group or its affiliate, the Supply Chain Matters blog.