coronavirus

No jab, no work – FWO’s updated advice still leaves questions for employers

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The Fair Work Ombudsman (FWO) posted updated guidance on its website last night relating to the power of employers to mandate COVID-19 vaccinations for their employees.

This is an issue that we have also discussed before.

Previously, the FWO’s position was that employers are “overwhelmingly” unable to require employees to be vaccinated.

The FWO does provide a useful guide in dividing work into four broad tiers, as follows:

  1. Tier 1 work: where employees are required as part of their duties to interact with people with an increased risk of being infected with coronavirus (for example, employees working in hotel quarantine or border control).
  2. Tier 2 work: where employees are required to have close contact with people who are particularly vulnerable to the health impacts of coronavirus (for example, employees working in health care or aged care).
  3. Tier 3 work: where there is interaction or likely interaction between employees and other people such as customers, other employees or the public in the normal course of employment (for example, stores providing essential goods and services).
  4. Tier 4 work: where employees have minimal face-to-face interaction as part of their normal employment duties (for example, where they are working from home).

The FWO correctly points out that the coronavirus pandemic doesn’t automatically make it reasonable for employers to direct employees to be vaccinated against the virus.  Instead, the drivers as to whether a direction to have the vaccination is reasonable are primarily health and safety related.  In relation to specific individuals, they also might involve consideration of anti-discrimination law requirements as well, particularly where an employee has a valid medical justification for not receiving the vaccination.

Consequently, the FWO confirms that “the question of whether a direction is reasonable will always be fact dependent and needs to be assessed on a case-by-case basis“.

The guidance suggests that employers should consider their workplace consultation obligations, when implementing a vaccinations policy.  It refers to the standard consultation obligations in all awards and those contained in enterprise agreements.  The FWO does not express a view as to whether mandating vaccinations constitutes a major workplace change within the meaning of the standard consultation clauses in awards (which are frequently mirrored in enterprise agreements).  It would be helpful if the FWO expressed an opinion on this.

The issue turns on whether the employer makes a definite decision to make major changes to its production, program, organisation, structure or technology that is likely to have significant effects on employees.  We doubt that mandating vaccines constitutes a “major change” in this regard.

The FWO also refers to consultation obligations under workplace health and safety laws.  There is some tension here between these consultation requirements and the duty of care on an employer when it is located in a “hot spot” where transmission is rapidly occurring.  The FWO itself indicates that mandating vaccinations in this situation “is more likely to be reasonable”.  However, guidance for employers in bypassing consultation requirements in a pandemic situation like this would be useful.

The guidelines state that “where no community transmission of coronavirus has occurred for some time in the area where the employer is located, a direction to employees to be vaccinated is in most cases less likely to be reasonable”.  This does not appear to be sound risk management.  Employers have a duty under workplace health and safety laws to:

  • for employees – provide and maintain a working environment that is safe and without risks to health, so far as is reasonably practicable; and
  • for persons other employees – to ensure that they are not exposed to risks to their health and safety, so far as is reasonably practicable.

Based on the suggested guideline, it would therefore be less reasonable, for example, for employers in most of rural Australia and in Western Australia to mandate vaccinations for their staff because no community transmission at all or of significance has occurred for some time.  This advice seems to miss the fact that we are dealing with a pandemic.  Any area in Australia could be prone to becoming a major hot spot for transmission of coronavirus (just like Sydney currently is) almost overnight.  That is the nature of the Delta strain.  To suggest that it is less reasonable for employers in these areas to take proactive action to address the risks by mandating vaccines before the area becomes a hot spot is unusual.

Two of the significant factors that employers must take into account under health and safety laws in assessing risks are the likelihood of the risk occurring and the consequences if it does.  On any reasonable view, the likelihood of the Delta strain spreading to any area in Australia is high, based on recent examples both here and overseas.  The potential consequences of the strain spreading to a particular area are major to catastrophic, where vaccination levels are low.

On the other side of the coin, the guidelines state that a direction to employees to receive a vaccination is more likely to be reasonable where community transmission of coronavirus is occurring in an area where the employer’s workplace is based.  This seems to be dealing with the issue after the horse has bolted.  In a pandemic situation where we are dealing with the Delta strain, it is too little, too late to wait until coronavirus is occurring in your area before addressing whether the vaccine should be mandated.

For further advice on these issues please contact our employment team.

Victoria announces extension of COVID-19 rent relief scheme for commercial leases  

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On 20 August 2020 the Victorian government announced that as a result of the continuing impact of Stage 3 and Stage 4 restrictions in Victoria, the COVID-19 protection measures for commercial leases and licences would be extended to 31 December 2020.  The existing measures are detailed in the COVID-19 Omnibus (Emergency Measures) (Commercial Leases and Licences) Regulations 2020 (Vic) and the regulations made under that Act.  These regulations currently expire on 29 September.

New regulations will be issued to give effect to the extension, but before that can happen, the Act needs to be amended.  A Bill to amend the Act passed the Legislative Assembly on 4 September 2020. It now moves on the Legislative Council for consideration where debate is due to end on 17 September 2020. There is little doubt the Bill will be passed. The extension has been applauded by the Australian Retailers Association, which reported that 60% of its retailers were still engaged in negotiations with landlords for rental relief.

While the details of how the extension will operate and who will be eligible for extended relief will not be known until the new regulations are issued, we can gain a some understanding of how the extension will work from the government’s press release on 20 August 2020.

Moratorium on rental increases

The ban on rent increases will continue unchanged until 31 December 2020. There is potential for this moratorium to be further extended as the Bill provides a mechanism for the government to make new regulations up until 26 April 2021.

Moratorium on evictions

The ban on tenant evictions is set to continue. However, a notable change is that this moratorium will not apply in “specific circumstances”.  As yet it is not clear what these circumstances will be.

Definition of eligible lease

The Bill alters the definition of an eligible lease. The current regulations only cover leases where the tenant is both an SME and an employer eligible for the JobKeeper scheme. However, a new, broader definition of eligible lease is prescribed by the new Bill. The second reading speech that accompanied the Bill states that the new definition will include sole traders, not for profit businesses and franchisees. Tenants will no longer be required to be businesses with employees to be included in the scheme.

Rent reductions proportional to turnover

The approach under the existing regulations endeavoured to balance the tenant’s reduction in turnover and the landlord’s ability to absorb loss.  The government announcement indicates the new regulations will increase the focus on the tenant’s financial circumstances and establish stronger measures to ensure that rent relief is directly proportional to reduction in turnover.

Increased powers for the Victorian Small Business Commission (VSBC)

At present, landlords and tenants can apply to the VSBC for assistance in resolving rent relief disputes by way of mediation. However, the VSBC cannot make binding orders. In its press release on 20 August 2020, the Victorian government stated that the VSBC “will now also have greater capacity to make an order on rent relief if a landlord refuses to respond to rent relief requests.”

The increased powers were confirmed in the Bill tabled in parliament last week. Under the new regulations, the VSBC will be able to make binding orders:

  • directing landlords to give specified rent relief to tenants; and
  • governing the process for rent relief applications by tenants, including what documents the tenant must provide to the landlord.

The Bill also allows for the review and enforcement of binding orders by VCAT.

Assistance to landlords

While the government announcement suggests the new regulations will place more emphasis on the tenant’s turnover situation and less on the landlord’s financial position, there will be new measures to assist landlords. First, a $3000 grant per tenancy will be available for eligible small commercial landlords. Secondly, a land tax waiver of up to 50% will be available for all landlords who provide tenants with an outright rent waiver for at least 3 months.

Conclusion

The extension means that landlords and tenants can now continue to engage in negotiations without the fear that the protections will end on 29 September 2020.  However, we await release of the new regulations to fully understand how they will operate.

Our Property Team can provide advice and assistance on how to plan and manage the process in accordance with the Initial Regulations and New Regulations, in a way that best protects your rights and entitlements, whether as a landlord or tenant.

with Christian Mennilli, Graduate at Law

Retail and commercial leases in a COVID-19 world

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This post is available as an info sheet: download here

The COVID-19 pandemic has had a devastating effect on retail and other businesses, most of whom occupy leased premises, and will continue to do so for some time.

Tenants are not able to pay rent. Land owners who rely on that rent to service their mortgages, will soon fall into default.  Land owners who do not have mortgages, or would normally have surplus income from rented properties, which they rely on for living and other expenses, will also be in financial difficulty.

In most cases, tenants that are unable to pay rent as a result of the pandemic, are at risk of having their leases terminated.  Rent “abatement” clauses in most leases only apply where trading is affected by physical damage and it is unlikely that the common law doctrine of “frustration” will assist tenants to walk away from their lease commitments.  It’s also very rare for leases to contain “force majeure” clauses and for those that do, it’s rare for them to extend to events like this pandemic.

The Commonwealth, State and Territory governments have signalled their intention to support an environment where businesses can “hibernate” during the worst of the COVID-19 crisis and come back to life after it is over. The National Cabinet has released a statement that it intends to agree to a ‘common set of principles’ that will underpin and govern an Australian response to these issues. However, States and Territories will need to act separately as they each have jurisdiction in relation to retail and commercial leasing issues within their States and Territories.

In NSW the state government has passed amendments to the Retail Leases Act 1994 and Residential Tenancies Act 2010 empowering the relevant Minister to make regulations under any relevant Act which may provide for the following matters, for the purposes of responding to the public health emergency caused by the COVID-19 pandemic:

  • prohibiting recovery of possession by a lessor/owner/landlord
  • prohibiting termination of a lease or tenancy by a lessor/owner/landlord in particular circumstances
  • regulating or preventing the exercise or enforcement of another right under the relevant Act
  • exempting a lessee/tenant or class thereof from the application of any provision under the relevant Act.

On 30 March the Victorian premier issued the following release via Twitter:

‘Today we announced a ban on rental evictions. From hospo to retail, if you’re struggling to get by due to coronavirus you won’t be evicted just because you can’t pay the rent. It’ll last six months – and it means one less thing to worry about for Victorians doing it tough’

The Victorian government will soon pass legislation to give effect to this ban or moratorium, and it is expected the legislative approach will be similar to that taken by NSW, giving broad regulatory powers to the relevant Minister.

The implications for land owners of this proposed moratorium on tenant evictions are uncertain and potentially prejudicial to land owners.  We will need to wait for more details from the State and Territory governments as to how they propose to deal with these issues, but there is a limit to how far these issues can be addressed by legislation and regulation.  For these reasons, the Prime Minister and State Premiers have urged land owners and tenants to talk to each other and endeavour to reach agreement on terms that will make this “hibernation” workable for both of them.

There are some common issues which may be relevant for consideration in discussions between land owners and tenants. These issues will depend on the circumstances of each lease, and the details of the legislative and regulatory measures implemented in each State and Territory.

Eviction – the proposed moratorium is on “eviction”, meaning a land owner will not be able to terminate a lease and take back possession during the moratorium period. It does not appear, at least at this stage, to provide for a release or waiver of rent during that period.

Waiver of rent? – consideration will have to be given as to whether the rent is to be waived for the moratorium period, or some other period. If the rent during that period is not waived, then it continues to accrue (with interest) and in theory a land owner would be entitled to commence a termination process immediately after the moratorium period ends.While many tenants will find it very difficult to pay rent during this period, waiver of the rent will have the effect of passing this commercial loss fully to the land owner, who may receive no corresponding relief for loan liabilities, other than deferral (see below). Other possible arrangements that could be considered by the parties, include waiver of default interest, deferral of the rent payment, possibly with repayment over time, subject to the business achieving certain post-pandemic performance hurdles or a restructure of future rentals, release of part of the debt or a combination of these measures.

Performance security – where tenants are in arrears, should land owners have the right to access performance security (e.g. cashing a bank guarantee) to apply to the rental arrears, without necessarily terminating the lease? No mention has been made so far in public announcements on this subject.  It is possible, if not likely, that land owners will be prevented from accessing security with respect to pandemic related defaults.

Pre-pandemic defaults – there will be existing tenant defaults, and possibly enforcement and termination proceedings already in train, with regard to pre-pandemic defaults. As yet, it is unclear whether these will be affected by the moratorium.  Will these be “frozen” until the end of the moratorium period?  If so, this could be prejudicial to a land owner and possibly postpone the inevitable, and tie the land owner’s hands in the meantime.

Bank concessions – the Australian Banking Association has announced that Australian banks will provide a range of relief measures to certain land and business owners during the 6 month moratorium period. Land owners with total loan facilities not exceeding $10m, will be granted loan repayment deferrals (with interest capitalised), on condition they undertake not to evict current tenants for rent arrears as a result of the pandemic.

Small business owners (many of whom are tenants) impacted by the pandemic will also be granted loan deferrals for a corresponding period.

It will be important for land owners and tenants to clarify with their financiers whether they are offering relief, exactly what is being offered and what the terms of that relief will be.

Based on the public statements so far, the required undertaking not to evict tenants during the moratorium period will not prevent land owners simply postponing rental payments during the moratorium period, and not waiving them.

Early re-start – it may be that the impacts and restrictions associated with the pandemic subside earlier than currently anticipated. If a tenant is able to commence trading again after, say 3 months, should rent recommence, or perhaps partially recommence at that time (or perhaps a month later)?   If partially, on what basis will that rental portion be determined?  If an arrangement is agreed for early recommencement of rental (whole or partial) will this affect concessions granted to the land owner by the bank, and result in an early end or partial removal of the loan deferment concessions?

Outgoings – consideration should also be given to liability for rates, taxes and outgoings. The treatment of these expenses may vary in each case, and depend on the financial ability of parties to pay;

Unoccupied premises – the moratorium is intended to prevent land owners terminating leases and evicting tenants during the moratorium period. Therefore, tenants will retain possession of the premises during this period.  For some leases, for example, stand- alone properties, thought should be given to whether the tenant can make use of the premises for an alternate purpose (perhaps not consistent with the permitted use stated in the lease), and possibly earn alternate income.

As the occupier under an ongoing lease, the tenant will normally have responsibility for securing and protecting the property. Thought should also be given to the cost of security and insurance, and whether the risk and insurance cost associated with an unoccupied building in the pandemic environment may increase;

Extension of term? – given that land owners will face loss of rent for 6 months at least, and the tenant may suffer absence of income for an equivalent period, it may be appropriate that the parties agree that the current term is extended for a term equivalent to the moratorium period, or perhaps longer;

Short term leases – where leases only have a short term left to run – for example, if they expire during the moratorium period or within a short time afterwards, the parties may prefer to end the lease by agreement. Consideration would have to be given to the possible impact on “loan concessions” granted by the bank for the duration of the moratorium period;

Renewal options – if a renewal option has been exercised, for example before the full impact of the pandemic became evident, the renewal will nevertheless be binding, unless agreed otherwise. Where the renewal term is to commence during the moratorium period, with a market rent review to apply, this review may be prejudicial to the land owner.  Apart from the difficulty, and potential unknown impacts on market valuations during the height of the pandemic, it would seem unfair for the starting rent for a renewal term to be determined by reference to market rates at the height of the pandemic, in circumstances where the parties will in effect be “freezing” the lease arrangements for 6 months, with the land owner possibly foregoing rent for that period.

Where an option will be due for exercise during the moratorium period, or possibly during a post pandemic “recovery period”, it may be appropriate for the parties to agree to postpone that renewal. Alternatively, it may be agreed that the tenant commit to the renewal, and possibly an agreed commencing rental, as part of an agreement with the land owner for a range of “pandemic concessions”;

Rent reviews during moratorium period – where rent reviews (such as fixed percentage and CPI reviews) are due during the moratorium period, it may be appropriate that the review is calculated and the rent adjusted accordingly, but not take effect until the end of the moratorium period.

Market rent reviews during the moratorium period will be problematic – see our comments above. It may be appropriate for the parties to agree that market reviews are deferred until after the moratorium period ends, or the tenant is able to recommence trading. It may also be appropriate that a suitable “recovery period” be allowed before a market review, so that the market rent is determined in a more normally functioning economy (as far as that is possible) and not distorted by the extraordinary pandemic conditions; and

Land owner finance issues – any lease variations or restructuring will affect capital value as well as income, and be critical to ongoing finance arrangements for land owners with mortgages. Land owners must liaise closely with their financiers in relation to proposals and negotiations with tenants with regard to these matters, and obtain any necessary consent before concluding any new arrangements with tenants.

 

The National Cabinet has also announced a moratorium on eviction of residential tenants. This article is focussed on retail and commercial leasing, but we acknowledge that many land owners who have invested in residential rental properties will face substantial difficulties where rental income is affected, in circumstances where the land owner is prevented from taking any action.  The JobKeeper support package announced by the Commonwealth Government on Monday 30 March may have an impact on this particular sector, not anticipated when the eviction moratorium was announced. It would be unfair if residential tenants, with the benefit of this income support, were in a better position to afford to pay the rent, but could avoid doing so, while the land owner was unable to take any enforcement action.

The impacts of the pandemic on our society and economy are massive, unpredictable and changing on a daily basis.  The effects on legal and commercial arrangements affecting real estate and leasing will be difficult to predict, but undoubtedly significant.  There are no legal precedents for responding to these momentous events.  The issues are extremely complex and will involve a mix of legal, regulatory and commercial measures.

We will keep our clients updated and assist them navigate the developments in this area. As always, do not hesitate to contact our property team to understand how COVID-19 might be impacting your specific circumstances.

 

Steve Aitchison
Principal
Melbourne
T +61 3 8602 9217
F +61 3 8602 9299
E [email protected]

Francis Qi
Lawyer
Melbourne

Emily Clapp
Graduate-at-Law
Melbourne

ASIC announces a change in its regulatory focus during the Covid 19 emergency

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The announcement by ASIC on Monday 23 March 2020 that it is recalibrating its regulatory priorities to focus on COVID-19 challenges is a welcome relief to the finance industry in these challenging times.

ASIC states that it will now afford priority to matters where there is the risk of significant consumer harm, serious breaches of the law, risks to market integrity and time-critical matters.

ASIC announced that it has:

“immediately suspended a number of near-term activities which are not time-critical. These include consultation, regulatory reports and reviews, such as the ASIC report on executive remuneration, updated internal dispute resolution guidance and a consultation paper on managed discretionary accounts”

Stakeholders will be shortly be notified of the deferrals and new arrangements.

ASIC also announced that it will:

  • suspend its enhanced on-site supervisory work such as the Close and Continuous Monitoring Program;
  • be mindful of the difficulties encountered by firms in complying with their regulatory obligations due to the impact of COVID-19 and work constructively and pragmatically with those firms, and
  • provide relief or waivers from regulatory requirements where warranted.

While ASIC will continue with its enforcement activities, it will focus on action necessary to prevent immediate consumer harm, “egregious” illegal conduct and other time critical matters. The expression “egregious” means “outstandingly bad – shocking”

Only time will tell whether ASIC actually “walks the talk”

Coronavirus – The legal impact on international supply chains

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The coronavirus outbreak represents an unforeseen and uncontrollable event.  The global focus is rightly on the human impact and in an effort to limit the spread of the virus, Governments are taking measures that are significantly impacting international trade.  These measures are shutting down the world’s manufacturing hub and the impact may be felt for months.

The legal implications of the coronavirus will come down to a mixture of the terms of the relevant contracts, which country’s law applies, and the actions of the parties.

Likely impacts – supply contracts

The natural consequence of an extended business closure in China together with restrictions on the movement of people and cargo will be the failure to supply goods by the nominated date, or at all.  This could be caused by an inability of a Chinese manufacturer to obtain materials, extended factory shut downs, delays in obtaining required documentation or inability to ship goods to Australia.

The end result is a failure by the supplier to deliver goods when promised.  Losses could be the loss of purchase monies paid and/or the consequential loss of profits resulting from the non-delivery or delayed delivery.

What does the contract say?

Force Majeure Clause

The first step is to review any written contract and identify if it contains a force majeure clause.  This is a clause that will enable a party to avoid performance of an obligation where that performance is affected by the occurrence of an event beyond that party’s reasonable control.  The coronavirus and the resulting Government action, is likely to satisfy most force majeure clauses.

However, this is not the end of the matter.  Force majeure clauses usually require the effected party to give notice of the force majeure event and take reasonable steps to mitigate the impact of the force majeure event.  Further, the force majeure event cannot be used as to excuse non-performance disconnected from the coronavirus.

Governing law

If there is no force majeure clause the governing law become even more important.  Under Australian law a force majeure clause will not be automatically implied into the contract.  However, as set out in the alert from our Chinese Interlaw partners, Zhonglun W&D Law Firm  a force majeure clause will be implied under Chinese law.

Australian importers wishing to make a claim against Chinese suppliers will need to consider the extent to which such a claim would be enforced by a Chinese Court.

Frustration

The law does not hold parties to contracts where completion becomes impossible due to an unforeseen event.  In such a case the contract may become frustrated and be automatically terminated from the point of frustration.  Due to unexpected Government imposed shutdowns and restrictions on the international movement of people, some contractual obligations may now be impossible to perform.  This is most likely to be the case for time sensitive obligations.

However, it is all about timing.  What was an unforeseen even in January, may not be in February.  Frustration cannot be claimed where a party is aware of a risk and elects to take that risk.

Contracts of Carriage

The coronavirus has had an immediate impact on the movement of goods through Chinese ports.  With the dramatic reduction in passenger flights, air-freight options are reduced.  Further, there are increased instances of goods being unloaded at nearby ports for future transhipment to China.  This means delays and increased logistics costs.  Those costs will come in the form of storage, container detention and transhipment expenses.

Freight forwarders

Under most contracts of carriage, the shipper, and not the carrier, will be liable for these unexpected additional costs.  For freight forwarders we recommend the following:

  • as early as possible make your customers aware of the potential for extra costs;
  • where possible provide guides as to those additional costs, such as daily detention and storage costs;
  • seek written agreement from the customer that it is aware of the costs and agrees that it will be liable for these costs (a letter of indemnity is best);
  • take what steps are reasonably possible to try lower the cost; and
  • depending on the customer and risks involved, consider obtaining security from the customer for the expected costs.

Legal rights are much more likely to be enforced where the customer was made fully aware of the potential costs and their legal liability for those costs.  Early and upfront disclosure is much better than the tactic of not raising the issue in the hope that the issue will go away.

Shippers and consignees

If the shipment of goods is delayed and/or unexpected costs are incurred, as a first step we suggest informing your insurers.  Whether costs associated with delay are covered will depend on the wording of the policy.

It is important to also notify insurers if goods are delivered to a different port than expected.  This is because insurance coverage may end on the discharge of the goods, even if it is not at the intended port.

Shippers and consignees should make an early assessment regarding potential costs.  It is all too common to see storage and container detention charges exceed the value of the relevant goods the subject of the original dispute.  If the length of disruption remains uncertain, it may be prudent to take whatever steps are necessary to unpack goods into cheap storage and return containers that incur costly daily fees.

The message is clear – communicate and take reasonable steps to limit costs

While much is in the hands of Government bodies, there are still some actions that can be taken by parties to improve their circumstances.  Reviewing contracts, notifying other parties of the impact of force majeure events, terminating contracts that can longer be performed, moving goods to cost effective storage away from ports are all steps that should be taken early.

Whether the issue is in Australia or China, Hunt & Hunt through our network of Interlaw firms can help you assess and mitigate the consequences of the Government response to the Coronavirus.