Impact of Covid-19 on Force Majeure Clauses

I. INTRODUCTION

In wake of the COVID-19 pandemic, questions were raised on what measures can be taken both in commercial relations and for employees and on what roadmap to follow.

This article covers whether the COVID-19 pandemic will be considered as force majeure in commercial relations and workplaces, with the purpose of setting a guideline during the COVID-19 pandemic, and also evaluates which measures can be taken regarding employees.

II. COVID-19 IN TERMS OF FORCE MAJEURE

“Force majeure” is the unforeseen situation and event that prevents the parties from fulfilling their contractual obligations. Force majeure is an event that may result in the temporary suspension of the relevant legal relationship or the termination of the legal relationship under certain conditions.

What are the implications of the COVID-19 pandemic if it qualifies as force majeure in terms of business affairs, loan payments, and tax liabilities? How will the COVID-19 pandemic effect employers and employees if it’s seen as force majeure? It should be noted that, force majeure plays a role in determining whether the fulfillment of the obligations and operation have become impossible. If the COVID-19 pandemic is considered as force majeure, the measures to be taken for both the employee and the employer will be different from the situation where there is no force majeure.

Whether the COVID-19 pandemic is a force majeure should be evaluated by considering the features of commercial obligations, workplaces and jobs. Unless there is an overarching measure taken by the government, the conditions of the workplace will be effective in this assessment.

1. The Impact of the COVID-19 Pandemic on Labor Contracts under Force Majeure

i. COVID-19 Pandemic in the Framework of Labor Contracts in the Absence of Force Majeure

Even if the COVID-19 pandemic does not directly affect a workplace, it may lead to changes in production and turnover, logistics, additional measures for the wellbeing of the employees leading to slowdown, disruption or decline in production and additional costs.  At this stage, there is no force majeure that might require the suspension or termination of employment contracts. If there are no measures taken within certain period of time, all production may stop due to the pandemic.

a. Therefore, the following measure can be taken for work;

• Removal of overtime work,
• Short-time working allowance
• Shift system
• Allowing annual leave,
• Employees who give consent can take measures to use unpaid leave. It should be noted that unpaid leave, is the suspension of the employment contract depending on the mutual agreement of the employee and the employer, except for cases indicated separately in the law, while it is seen as substantial alteration of the working hours by the Court of Appeals. If the employee does not want to use unpaid leave, unpaid leave as a result of the employer’s request is accepted as a dismissal. It is possible to terminate the employment contract with compensation to the employee who does not accept the unpaid leave if the abovementioned measures are insufficient and the economic situation of the workplace is affected negatively due to the pandemic. In this case, the worker has the opportunity to file re-employment lawsuit while all conditions will be evaluated together for the court verdict.

b. Pursuant to article 22/2 of the Labor Law in terms of employees within the risk group for the COVID-19 pandemic, the employer should consider the employees in the risk group at the workplace to work remotely, and if this is not possible, to encourage annual leave and unpaid leave. Drafting a mutual agreement if employees can work remotely will prevent the employees from making a claim that they have not been reinstated to the workplace. Employees shall write an approval within six days of receiving the written notice on using annual leave and unpaid leave.

It will be appropriate to carry out operations that will transfer the burden of proof to the employees in order to prevent or impede a lawsuit in scope of the precedents of the Court of Appeals.  In accordance with the precedents of the Court of Appeals, it is concluded that the employee has agreed to take unpaid leave and that there is no coercion if (i) it is determined that the employee has received a written notice, (ii) the employee has drafted a reply in writing, (iii) the timekeeping records and payrolls of the dates of unpaid leave are signed by the employee, while the employee is expected to prove otherwise. Despite the employee accepting to use leave, there is no obstacle for the employee to file a lawsuit claiming that the document was forcibly signed to use leave. If the employee accepts unpaid leave from the beginning and subsequently files a lawsuit, it can be set forth that the employee had accepted unpaid leave in addition to proof of consent for unpaid leave with documents and that the employee continued to work at the end of the leave period and it can be also argued that the employee is filing a lawsuit in violation of good faith.

ii. COVID-19 Pandemic in the Framework of Labor Contracts under Force Majeure

Force majeure may occur due to the measures taken by government bodies within the scope of the COVID-19 pandemic or if the pandemic is present at the workplace and leads to the cessation of its operations. In this case, the legal relationship between the employer and the employee will be suspended due to force majeure. Operations will be suspended for at least one week under article 24/III of the Labor Law and employment contracts will be temporarily suspended until the force majeure is lifted.  According to article 40 of the Labor Law, employees shall receive a half-wage payment for the first week.

 “Half wage

Article 40 – due to act of god indicated in paragraph (III) of articles 24 and 25, an employee who is not allowed or able to work shall receive half wage for each day up to one week within the waiting period.”

Pursuant to the rights provided with Article 24 of the Labor Law, employment contracts will be terminated and employees will be entitled to severance pay as operations in workplaces will halt due to the COVID-19 pandemic. The precedents of Court of Appeals state that the suspension of the employment contract due to act of god does not result from the employee and therefore the employee can use the right to terminate if preferred.

According to Article 25/III of the Labor Law, it is possible to suspend sick employees’ employment contract provided that they receive half-wage payments in the first week. This situation can continue from the end of the first week until the reason for the suspension disappears, the employee recovers or the risk of infecting has diminished. If this period exceeds the notice period, the employer’s right of termination arises in accordance with Article 25 of the Labor Law.

“Rightful termination by the Employer

Article 25

…

b… right to termination of the employment contract without notice by the Employer in cases of illness, accidents and maternity and so on, expect for the reasons indicated in subparagraph (a); is acquired after the specified conditions exceed the notification periods, indicated in Article 17 according to the working time of the employer at the workplace, by six weeks…. However, the wages are not processed for the periods where employee cannot go to work due to suspension.

2. The Impact of the COVID-19 Pandemic on Loan Payment under Force Majeure

The issues of non-payment of credit debts to the banks due to the economic damages caused by the Government decree to temporarily suspend all commercial activities as a result of the COVID-19 pandemic is considered in the scope of force majeure. Since individuals have the opportunity to pay their pecuniary debt from their assets or by borrowing credit (debt) from others; it should be noted that the impossibility of performance in pecuniary debts is not valid according to the Turkish Legislative system and the Turkish Code of Obligations.

According to the measures adopted by the Banking Regulation and Supervision Agency (“BRSA”) due to COVID-19, flexibility is granted until 31.12.2020 for late loan payments.  Accordingly, banks have to wait 180 days instead of 90 days before credits are transferred to their accounts and for the conditions for debt restructuring for loan payments, the requirement of the classification as “third group” of loans, whose principal and/or interest payments that have been delayed more than thirty days within a one-year follow-up period or that have been restructured again within this period are to be annulled by the BRSA.

3. The Impact of the COVID-19 Pandemic on Tax Liabilities under Force Majeure

In relation to the COVID-19 pandemic in the scope of tax law, according to articles 13, 15 and 17 of the Tax Procedure Law (“TPL”), severe diseases and disasters that will prevent the performance of tax duties are accepted as force majeure. It was also regulated that the periods regarding tax duties will not be valid during the continuation of the force majeure.

Taxpayers who are struggling and cannot fulfill their tax responsibilities due to the COVID-19 pandemic have the opportunity to apply to the Ministry of Finance and to request more time in accordance with Article 17 of the TPL.

Income tax return for 2019 is to be filed until the end of March as there is no regulation made by the Ministry of Finance. Unlike other taxes, income tax is a type of tax that individuals file individually. Although controversial, the fact that tax payments are not made due to force majeure, it will not be equitable as it is possible to submit declarations electronically. Since the working hours of the tax offices have not been amended by the government, individuals are able to go to the tax offices and submit their statements physically.

4. The Impact of the COVID-19 Pandemic on Commercial Contracts under Force Majeure

Considering the presence of the COVID-19 pandemic, the COVID-19 pandemic will not be considered a “force majeure”.  Parties in the commercial contract should be unable to fulfill their obligations as a result of the COVID-19 outbreak. Conditions that disrupt the parties to fulfill their obligations due to force majeure are; situations that the parties cannot control such as restrictions on transportation and trade imposed by the government, domestic or international limitations to land, sea and air transportation and similar situations that hinders the parties to fulfill their obligations for instance the failure to supply raw materials for the product to be produced using raw material cannot be delivered to the ordering company due to the general measure taken by the government.

III. CONCLUSION

In terms of contracts and commercial relations, it is necessary to evaluate all contracts in terms of COVID-19 in scope of legal relations on how the obligations that the parties must fulfill are affected and is necessary to determine whether it is impossible to fulfill the obligations of due to the conditions of the pandemic that occur independently of the parties.

In workplaces where there are no positive cases related to the COVID-19 pandemic and which are not economically impacted by the COVID-19 pandemic, if official measures such as state of emergency and  quarantine measure are not taken by the state, considering unpaid leave against the consent of the employees as preventive measures doesn’t have a legal basis, appropriate measures in order to minimize the negative effects of the pandemic the workplace and also to protect the employees should be evaluated within the framework of concrete conditions.