Influence of pandemic COVID-19 on contractual and employment relations

Due to the declared pandemic of the disease COVID-19 (coronavirus), we are faced with an unprecedented challenge that is affecting the economy both nationally and globally. In times of health and financial insecurity, a number of questions are raised as to how this will affect contractual and labor relations.

IMPACT OF FORCE MAJEURE CONTRACTUAL RELATIONS

In legal transactions, business contractors are obliged to act with the diligence of a good businessman (and in the case of fulfilling the obligations of their professional activity, with the diligence of a good expert). Essentially, this means that when entering into a contract, they must take into account the usual business risks they may encounter or which may arise during the performance of the contract. However, the question arises how the appearance of coronavirus, officially named COVID-19, affects contracts concluded before its occurrence if we know that, under normal circumstances, no one was obliged or able to predict the occurrence of such a virus and therefore could not even predict it as a business risk?

COVID-19 emerged suddenly, as an extraordinary circumstance that no one could have predicted at the time of the contract, nor could it have been avoided or eliminated. Accordingly, COVID-19, in all its characteristics, matches a legal theory term called force majeure. It should be noted that force majeure could have an effect on the contractual obligations of the contracting parties only if it occurred before the deadline for fulfilling the mutual obligations. In other words, if the contracting party exceeded the deadline at the time of appearance of a force majeure, it cannot be invoked. Also, the subjective element is important, which is manifested by losing the motive that existed at the conclusion of the contract, i.e. losing the wanted economic goal that was meant to be achieved by the contract. Under the conditions set out in this paragraph, there may be an exception to the fundamental principle of Civil Obligations Law which is: Contracts should be respected (pacta sunt servanda). Below, we will show how this exception is regulated in the Croatian legal system.

Amendment and termination of contract due to changed circumstances

If the fulfillment of the obligation on one contracting party would become excessively difficult or could cause it an excessively large loss due to extraordinary circumstances arising after the conclusion of the contract which could not have been predicted at the time of the conclusion of the contract, it may call for the contract to be amended or even terminated. Where one party calls for termination of the contract, the contract will not be terminated if the other party offers or agrees to amend the relevant contract provisions fairly, and in the event of termination, the other party is entitled to a fair compensation of the damage sustained by  termination. A party authorized to amend or terminate a contract due to changed circumstances shall notify its intention to the other party as soon as it becomes aware that such circumstances have occurred, and if it does not, it shall be liable for the damage the other party sustained by failure to do so. The parties may also, by contract, waive the invocation of certain changed circumstances. Therefore, in every contract it is necessary to check whether such provision exists and whether it covers the current situation.

Impossibility to fulfill the contract

When fulfillment has become absolutely impossible due to extraordinary external events that have occurred after the conclusion of the contract and before the obligation has become due, which could not have been predicted at the time of the conclusion of the contract, neither could have been prevented, avoided or eliminated by the contracting party and for which neither party is responsible, the obligation of the other party is also extinguished, and if the latter has fulfilled its obligation, it may request restitution under the rules of unjust enrichment.

THE IMPACT OF COVID-19 ON EMPLOYMENT RELATIONS

In order to prevent the spread of the contagion, many employers were obliged to adapt or suspend their business activities, which undoubtedly reflected on employment relations.

The provision of Article 17 of the Law on Occupational Safety regulates the obligation of the employer to organize and implement occupational safety, taking into account the prevention of risks, in which sense it is obliged to adapt the occupational safety to the changed circumstances. As in normal conditions, the employer is obliged to provide the employees with working conditions in a safe and non-threatening manner.

In accordance with the Decision on the COVID-19 Disease Outbreak and the obligations under the Act on the Protection of the Population from Infectious Diseases, the employer is obliged to follow the instructions of the Croatian Institute for Public Health (CIPH) on the Institute’s official web site, as well as recommendations Civil Protection of the Republic of Croatia on the Civil Protection’s official web site and other competent bodies.

Obligations of the employee and the employer in the case of decision on self-isolation

The employer and the employee are obliged to fully comply with the issued decision or other appropriate act in the manner prescribed by a special regulation.

Failure to perform the contracted work in this case cannot be a justified reason for termination of the employment contract, nor is the employee allowed to act on the instructions of the employer, which would constitute conduct contrary to the order from the mentioned above decision or other appropriate act.

Salary compensation during isolation is paid to the employee at the expense of the Croatian Health Insurance Fund (CHIF) and is paid in 100% of the salary compensation base, with the monthly amount not exceeding HRK 4,257.28.

However, if the employee, in agreement with the employer, organizes the time that he or she is obliged to spend in isolation in the way that he does the work from home or otherwise, he will not exercise the right to compensation at the expense of the CHIF. Instead, the employer pays a salary for the work done.

Employer’s options in the event of changed circumstances due to an epidemic of disease

In situations of disruption of the employer’s business activities caused by the epidemic, the employer could: introduce uneven working schedule, change working schedule of employees, redistribute working hours, arrange reduction of working hours with employees (from full-time to part-time), make appropriate decision that would affect the organization of working hours (e.g., the introduction of shift work, team work, etc.), use possibilities in determining vacations and leave, all in order to preserve employment and jobs and to implement protection measures against the spread of the virus.

Annual Leave

The Annual Leave Schedule shall be determined by the employer, in accordance with the collective agreement, Company’s work regulations, employment contract and Labor Act, by June 30 of the current year, and the employee must be notified at least fifteen days before about the annual leave duration and its period of use.  Given the state of emergency we are in, the employer could adjust the schedule of use of employees’ annual leave to the new situation. The same position was expressed by the Government of the Republic of Croatia.

Unpaid leave

Unlike annual leave determined by the employer, unpaid leave can only be granted by the employer at the request of the employee. Exceptional circumstances have no effect and do not justify the employer sending employees on unpaid leave.

Work Stoppage

Taking into account the decision of the Minister of Health to declare the COVID-19 epidemic in accordance with the Law on the Protection of the Population from Infectious Diseases and the recommendation of the Civil Protection  of the Republic of Croatia, the Government of the Republic of Croatia expressed an opinion that based on these regulations and established measures, the employer could, in order to prevent the spread of the epidemic, make a decision under which employees would not be obliged to work as long as such measures were in force, but the employer would be obliged to pay the full salary to those employees.

Work from home

The possibility of working from home must be provided for by the employment contract and must contain everything prescribed for such work by the provisions of the Labor Law. If such a possibility is not predicted by a specific employment contract, the employer may in agreement with the employee, amend the employment contract by referring to changed circumstances (force majeure), which was discussed at the beginning of this article. The Government of the Republic of Croatia stated that in the current emergency situation an apartment, house or other space where the employee performs low-risk jobs (administrative and similar activities) is not a work-intended facility but an object of residential or other purpose, and therefore cannot be required the fulfillment of all safety requirements for the workplace in terms of occupational safety regulations which will therefore be applied to the extent possible, while ensuring that the safety and health of employees are not compromised.

Special attention should be paid to the fact that it is not a business activity in which work at a separate workplace is prohibited, in which case the employer may be held liable for violations.

​Assignment to work for another employer

When an employer does not require the work of certain employees, he may, based on agreement concluded between affiliated employers and the written consent of the employees,temporarily assign his employee to an affiliated company for a continuous period of up to six months, all in accordance with the provisions of the Corporations Act. In that case, the written consent of the employee is considered to be the Annex to the Employment contract.

Dismissal of an employee

In the event that the employer is severely affected by the current situation and no longer needs an employee who has employment contract for an indefinite period of time, the employer may dismiss an employee (dismissal on economic grounds) in accordance with the conditions determined by the Labor Law. The employer may also dismiss the employee and at the same time propose to the employee the conclusion of the employment contract under the changed conditions (termination with the offer of the amended contract). On the other hand, a fixed-term contract employee can only be dismissed if such a possibility is predicted by the contract.

However, the Government of the Republic of Croatia, when presenting measures to help the economy due to the declared pandemic, made it clear that employers who dismissed the employees would not be able use these measures.