Revision of COVID-19: legal implications and possible solutions. Narmin Mammadova from 18.03.20 - 13:34

COVID-19: legal implications and possible solutions

by Narmin Mammadova

Lawyer at MG Consulting

COVID-19 trending

While COVID-19 is taking over the world, it has already shaken healthcare systems of every country affected. Although governments try to support and balance countries’ economics, various scales of enterprises suffer severe losses due to the pandemics.  

In order to avoid catastrophic consequences of the fast-spreading disease, the Government of Azerbaijan has taken numerous preventive measures during March. In the beginning of March quarantine was declared in all the educational institutions. As the disease was spreading, in the evening of March 15^th the Operative Headquarters under Azerbaijan’s Cabinet of Ministers shared information imposing an array of restrictions on functioning of different level institutions, public and private events, and enterprises.

While the decision has already seemingly decreased crowding and, by thus, potential risks, it has also affected the employers and employees. Over the first weekend after the decision was made, the main question all over Azerbaijani social media, including various fora, blogs and Facebook groups was “How shall we earn money now?”

Suggested case

Let’s assume a fitness complex functioning in Baku center named “ABC Gym”. In accordance with the newly adopted regulations, all the sport halls shall be closed while the restrictions are in force. The “ABC Gym” also fell under the regulations and was temporarily closed. Memberships of the gym visitors are now temporarily suspended and are promised to be prolonged after the restrictions’ termination, which means no income for the gym’s owner for at least a month. The “ABC Gym” staff consists of 4 receptionists, 2 security guards, 3 nutritionists, 6 female trainers, 8 male trainers.

2 questions arise:

How will it affect employees’ income?

How the owner of “ABC Gym” should pay salaries of 23 employees at the end of the month with no income in March?

Existing local legislation

Assessing from the prism of a downtime, in accordance with Art.169 of the Labor Code of Azerbaijan, in case the business interruption didn’t happen due to a misconduct of the employee, the employer shall pay him/her no less than the 2/3 part of the employee’s average salary. The downtime is a business interruption, the time during which production is stopped. There is no concrete list of cases when occurrence of a downtime shall be considered. However, the theory of law suggests 3 general reasons causing downtime:

1. Employer’s fault;
2. Employee’s fault;
3. Reasons not depending on any party (as in the case of “ABC Gym”).

The Art.60 of the Labor Code stipulates that as a preventive solution to downtime, the employer might transfer his employee to another job on his own initiative for the duration of a month. In this case an employee cannot be hired as a result of adverse effects on his/her health, as well as inferior qualifications. During the transfer to another job the employee is paid for the work done, but not less than the previous average salary.

It is up to the employer whether to transfer employee or to offer him 2/3 of the average salary during the downtime, but here arise questions and issues posed above. What if the employer has no alternative job to offer his employees and simultaneously ran out of funds to pay due to enterprise being closed for an indefinite period of time?

The time limits are also important in terms of declaring a downtime. Although there are no time limits imposed for the downtime duration under the Azerbaijani legislation, it is commonly accepted that downtime shall be short-term, long-term, even prolonged, yet it can only be considered for a definite period of time, which is legally impossible to trace in times of quarantine.

The article 146 of the Labor Code spells out paid or unpaid leaves in the event of natural disasters, industrial accidents and other unforeseen circumstances. In this case, the duration of the unpaid leave shall not exceed the two-year period of the basic leave of the employee.

Speaking out of experience, it is somehow possible to approximately calculate the time needed for elimination of an industrial accident and/or natural disaster of medium power in countries having similar precedents in the past, however, it is absolutely impossible to make any calculation in terms of quarantine.

Thus, the owner of “ABC Gym” cannot give any guarantees to his employees and, eventually, will face personnel loss or will need to go under debts in order to provide them with the above prescribed percentage of salary.

International experience

Firstly, it’s useful to turn to the experience of other countries. On Friday, March 13^th, Bundestag passed a law to enable simplified short-time work compensation in Germany. Moreover, the governing parties agreed on making investments of 12.4 billion euros for the affected German companies. Another EU country aiming to support its enterprises is France. The French governments has presented an action plan spanning the sum of tens billion euro to support local businesses during the coronavirus crisis. The government announced guarantees of up to 90% of the amount of claims on loans from small and medium-sized enterprises. The goal of the plan is to ensure that workers forced to take part-time jobs do not lose a cent.

Numerous CIS and former CIS countries are currently initiating petitions to be submitted to the state bodies, aiming to provide mostly affected spheres, such as tourism, transport and gastronomy, with state guaranteed. From our point of view this is not the best solution for developing states, leading to budget devastation.

Insurance

Analyzing rapidly growing insurance system in Azerbaijan lately, be it compulsory medical insurance being implemented in four stages throughout Azerbaijan during 2020 or compulsory insurance of apartments in 2020, we put our trust in insurance as the sole correct regulator under such circumstance. Article 304 of Labor Code stipulates that the employer shall provide compulsory insurance for each employee when concluding an employment contract with him. What is meant by social insurance under the same article? This is a form of guarantee which compensates lost income in the process of labor relations. However, Article 4 of the Law on Social Security spells out concrete list of cases requiring compensation, and, unfortunately, suspension of production and non-possibility to reimburse salary is not included in the list. All in all, social security cannot compensate losses of “ABC Gym” deriving from COVID-19.

Our solution

As the result of conducted research and analysis, in order to prevent terrific effects of similar cases in the future, MG Consulting suggests business interruption insurance to be implied in Azerbaijan on voluntary basis.

As per Collins dictionary, the business interruption insurance is insurance coverage that pays for loss of earnings when business operations have to stop because of property loss due to an insured danger. It first came out in 1938 in England, as a preventive measure to fires, dramatically differing from classical insurance, having it biggest demand during flash of viral epidemics during last 15 years. Present in the Russian legislation, business interruption insurance will help the insured companies to deal with the major losses. Important to mention that many insurance companies, functioning in common law states, refuse to cover losses deriving from Corona virus, as it wasn’t prescribed in the contracts, and from their statements, the amounts clients claim to be refunded are insane.

We believe the presence of business interruption insurance can save business of and income of “ABC Gym”, as suggested in the case, and more small and medium sized enterprises.