The aftershocks of the disruptions caused by attempts to arrest the spread of Covid-19 are only starting to manifest in the economy as demand falls with large sections of the working population staying at home and supply chains derailed by lockdowns imposed by various countries including Rwanda.
Clearly, the measures taken affect all spheres of the country’s life with different legal implications.
However, this article considers potential legal implications on employment and labour relations and ongoing contractual obligations.
Employment and labour relations
The measures adopted to prevent further transmission of the coronavirus are going to affect most if not all businesses, including those that can continue their activities remotely.
The question that arises relates to what employers whose businesses are severely affected by the coronavirus outbreak (particularly those whose businesses cannot be continued remotely) can do to save costs during these daunting times, and if at all possible, without breaching the applicable laws, retrench their employees due to the coronavirus.
Alternatives that should be considered by employers to save costs
1. An employer may be entitled, subject to certain requirements, to require an employee to take leave that has accrued. It should be, however, noted that in terms of article 47 of Law n° 66/2018 of 30/08/2018 Regulating Labour in Rwanda (the "Labour Code”) the annual leave schedule approved by the employer cannot be postponed or brought forward by the employer for more than a three-month period, unless it is so agreed between the employee and employer. This implies that unless agreed by the concerned employee, the employer cannot require such an employee to take leave if such leave was scheduled in a period exceeding three months ahead.
2. An employer can suspend employment contracts with attendant benefits in accordance with article 18 (6) of the Labour Code providing that an employment contract may be suspended in case of suspension of the enterprise’s activities due to force majeure.
This option is only available for employers whose businesses are to be closed due the coronavirus outbreak such as bars and shops selling non-essentials items.
3. An employer and employee may agree to change the terms and conditions of employment, i.e., reduced remuneration.
Other measures could include amending working time or shift patterns, etc. It may be necessary or advisable to negotiate, and agree these changes with employees’ representatives or the employees themselves in the absence of such representatives, and care should be taken not to breach the relevant provisions of the Labour Code.
Can the coronavirus pandemic lead to retrenchments?
1. Conceivably, yes. The coronavirus outbreak may have a crippling effect on an employer’s business. In terms of article 21 of the Labour Code which provides that an employer may proceed with individual or collective dismissal due to the enterprise’s internal reorganisation or restructuring due to economic reasons or technological transfer with the aim of preserving the enterprise’s competitiveness, employers whose businesses (depending on their nature) are severely affected by the coronavirus outbreak would be entitled to dismiss some or all of their employees due to economic reasons.
2. It should, however, be noted that retrenchments would only be considered as a last resort, after all other ways of avoiding retrenchments have been considered and applied or rejected. Further, resorting to retrenchment would require strict compliance with the procedure and requirements provided for by the Labour Code including the applicable criteria for determining employees to be dismissed and those dismissed would be entitled to terminal benefits as provided for under article 31 of the Labour Code.
Ongoing contractual obligations
"Ad impossibilia nemo tenetur” is a Latin adage known to every lawyer and even to some non-lawyers which denotes that nobody shall be liable for failure to perform their obligations in case of impossibility, and this is incorporated into the laws of various countries as force majeure.
The most important question that needs to be addressed during the COVID-19 outbreak is whether the latter constitutes a force majeure event under the laws of Rwanda and therefore, the parties to a contract would be exempted from performing their obligations at least during its persistence or lockdown measures declared by the Government of Rwanda. The answer to this question can be found under 92 of the Law n° 45/2011 of 25/11/2011 Governing Contracts (the "Law Governing Contracts”).
Article 92 of the Law Governing Contracts provides that where a party’s performance is made impossible for reasons beyond her or his control including the absence of the object matter of the contract or another case of force majeure, his or her obligation of performance will be extinguished, unless the circumstances indicate otherwise.
The concept of force majeure is not defined by the Law Governing Contracts, but the Supreme Court of Rwanda has in Rumanyika Jean Marie Vianney and Rusekampunzi Rumanyika Agathe v Ruzindana Egide (RCOMA 0017/10/CS, 2011) put forward three criteria that must be satisfied for a specific event to be considered a force majeure event.
Those criteria are being unforeseeable, unavoidable and irresistible, which clearly suggests that a force majeure is an event that makes the performance of contractual obligations impossible, and accordingly circumstances making the performance of contractual obligations more onerous cannot be validly invoked as force majeure.
Considering the various measures that have been taken by various countries including Rwanda, the Coronavirus pandemic may be validly invoked as a force majeure event but this will have to be considered on a case-by-case basis.
Equally important to note is that most sophisticated contracts include pandemics in their definitions of force majeure, and in such cases, force majeure would be easily invoked except in case the prevailing circumstances may suggest that the pandemic has not prevented a party from performing its contractual obligations.
Parties to contracts should also appreciate the fact that the occurrence of a force majeure event does not in itself suffice for a party to be exempted from the performance of its obligations during the persistence of the force majeure event.
Most sophisticated commercial contracts such as power purchase agreements and EPC contracts would provide for specific procedures to be followed for a party to rely on force majeure, and relevant contract clauses must be properly scrutinised.
The above are general guidelines, please consult your legal advisors for tailored advice.
The writer is a corporate commercial and tax lawyer, and senior associate at ENSafrica Rwanda.
Email: dnzafashwanayo@ensafrica.com
Telephone: +250 788 309 880
The views expressed in this article are of the author.