What a year this week has been. The novel Coronavirus is a reality and here to stay. For a business owner who already may be facing a decline – or vice versa even a boom in their business, depending on which industry they belong to – a set of new legal issues have risen on the horizon. No business owner can safely ignore these. This article also examines the rights of employees in the current situation.
Businesses Facing a Decline
These are the worst affected financially and face a number of tough decisions such as either borrowing capital to survive or laying off staff. Therefore, each business is actively reviewing their policies and strategies on how to go about making these decisions.
In Pakistan, currently, following the lockdown, the economy and many affected businesses alike have come to a screeching halt. These include everything from airlines to all non-essential stores to shopping malls. This private sector tends to lose the most as it is dependent on the flow of customers and employees who make the day-to-day functioning of possible and with no income, overheads and rent/expenses payments continue to mount.
Glimmer of hope?
The Government of Pakistan realizes this and has released on the 24th,of March 2020 a Rs. 1.2 trillion economic plan with a focus on minimizing the economic damage to the vulnerable segments of society.
However, on a perusal of this economic plan, its main focus is incentivizing the labour sector and small and medium industries especially related to export. Apart from utility stores, no benefits were announced for other consumer businesses. The Prime Minister of Pakistan also announced an upcoming economic package for the construction industry.
One positive outcome for businesses was from the State Bank of Pakistan which announced on the 17th of March 2020 vide its Press Release that the interest rate is to be reduced to 12.5% which is a reduction of 75 basis points and the first one in 4 years. There were other measures announced but those were aimed at the manufacturing and the medical sectors.
The ground realities
However, borrowing money and taking on debt in economically testing times with the uncertainty of how long this pandemic is going to last is not going to be a favoured strategy for any business. This is because of the legal implications involved. Firstly, for many businesses borrowing facilities are calculated based on net inflow and outflow of earnings and inventory. If customer payments are delayed because of the cessation of business and lockdown, this would cause many finance agreement terms to run afoul of any borrowing base clauses. Further, many finance agreements contain clauses on cessation of business. And if businesses remain shut for an unknown term, many lenders may seek to invoke this clause to terminate the finance agreement and keep the collateral with them.
Rental agreements for premises are another flashpoint. Unless a clause was worked into the rental contract for suspension of rent payments in such circumstances, the contract does not become suspended and the rent continues to be due.
However, one positive aspect is that banks have continued to remain open and functioning - thus holders of letters of credits and beneficiaries of similar instruments need not worry and can still claim amounts owed to them before the due date.
Many businesses such as airlines are looking towards the government for a bailout. This itself presents its own set of legal issues as all similarly situated parties should be treated the same according to a Judgement from 2010: SCMR 431 GOVERNMENT OF THE PUNJAB vs NASEER AHMAD KHAN wherein the Supreme Court of Pakistan held in paragraph 4 as follows:
“4. The doctrine of equality, as contained in Article 25 of the Constitution, enshrines the golden rules of Islam. It states that every citizen, no matter how highsoever, must be accorded equal treatment with similarly situated persons. The principle is well settled that a State may classify persons and objects for the purpose of legislation and make laws applicable only to persons or objects within a class. In fact almost all legislation involves some kind of classification whereby some people acquire rights or suffer disabilities whereas others do not. What, however, is prohibited under this principle, is legislation favouring some within a class and unduly burdening others.”
Therefore, any arbitrary economic package announced by the Government or the State bank will be legally questioned on the factors behind it, especially when one sector has been favoured over the other.
What comes next?
A second issue with businesses facing decline is how to cut running costs to survive this period. The most prevalent way being seen in practice is to lay off staff. This is creating a crisis in society as employees working for businesses rely on this cash-based sector to make daily earnings – on which they depend for survival. It needs to be seen as to what are the legal venues available to an employee who has been laid off in such conditions.
Firstly, it has to be noted that employment legislation in Pakistan is not confined to any one statute. There are many different Acts and Instruments dealing with various aspects of employment matters. Each province has its own legislation on the matter as after the 18th Constitutional Amendment in the Constitution of Pakistan 1973. And after abolition of the concurrent list it is now a provincial subject.
Secondly, if an employer is terminating their employees, they need to keep two pieces of legislation in mind. If the establishment employs 20 workers or more then the Industrial and Commercial employment (standing orders Ordinance), 1969 (the standing orders) governs and regulates the condition and terms of employment for workers whereas if less than 20 workers are employed then the appropriate legislation is the West Pakistan (shops and establishment ordinance), 1969. For employers, it is important to note that both statutes require with regards to termination that one month’s prior notice should be provided by the employer. In case of immediate termination one month’s salary is to be paid to the employee provided he/she has not been termination on gross misconduct. Thus, a business owner cannot simply lay off staff without complying with the above provisions that termination can be challenged and is illegal.
Businesses facing a boom
The other limb to this discussion is that enterprises facing a surge in business also have legal requirements and liabilities to keep in mind. Certain businesses like supermarkets have seen a surge. These businesses are also employing people and also having an influx of customers. If a person were to get sick there, is there any liability that is attributable to the business owner?
For employees, the relevant law here is the Workers Compensation Act 1923 applicable to ICT Sindh and Balochistan or the Workmen’s Compensation Act 1923 applicable to Punjab and a similar act for Khyber-Pakthunkwa. The Act covers liability in form of compensation for injury arising out in course of employment under Section 3 of the Workers Compensation act provides
“3. Employer’s liability for compensation.– (1) If personal injury is caused to a workman by accident arising out of and in the course of his employment, his employer shall be liable to pay compensation in accordance with the provisions of this Chapter:”
The provisions include such terms that if the employee did not follow the safety rules then employer is not liable
However, it is to the court’s interpretation whether this virus counts as an injury as per those specified in Schedule 1 – and the occupational diseases specified in schedule II do not include any sort of infectious disease in them. An affected worker can sue their employer for damages in civil court or proceed under the Act and institute a claim before a workmen compensation commissioner.
If the person is a customer who has been injured inside the premises then the applicable laws are the principles of Negligence in Tort law. Generally, Tort law litigation remains few and far in Pakistan partially due to a lack of awareness of rights to the general public and also due to the litigation fees involved and lack of precedent of compensation apart from Medical compensation cases. Nevertheless, the courts of Pakistan due consider the tort of negligence and there are judgements on how-to establish its ingredients such as National Logistic Cell (NLC) vs Irfan Khan (2015 SCMR 1406 SC)
More understanding can be had from the seminal judgement of the UK's House of Lords wherein Lord Atkin in Donoghue v. Stevenson, put it thus:
"You must take reasonable care to avoid acts or omissions which you can reasonably foresee would be likely to injure your neighbor. Who then, in law, is my neighbor? The answer seems to be persons who're closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I'm directing my mind to the acts or omissions which are called in question."
Whether being an affectee of the coronavirus counts as a tortious injury is up to to the interpretation of the courts as well as the fact that whether a breach of duty by the business can be established by the fact that appropriate safety measures were not followed or whether it is constrained to extreme circumstances such as where a business owner knew an employee was infected but did not report it. Therefore, it is imperative that the business owner follows all SOPs laid out by the government and applicable to it – or else be susceptible to an uncertain legal risk whose magnitude is not yet known.
Worry is like a rocking chair: it gives you something to do but it does not get you anywhere. In these testing times, it pays to be aware of legal implications when running a business to ensure that the owner takes the least risk and gets through this period smoothly. And keeping in mind the above points, I hope they help a business owner understand their position more and worry less.