Rachida El Johari participates in the IR Global Disputes Virtual Series – COVID-19: Unprecedented Times, Desperate Measures

Rachida el Johari


Foreward by Andrew Chilvers

The coronavirus pandemic has caused governments across the world to take measures that impact the movement of people rarely if ever, seen in peacetime before. Understandably, this has adversely affected businesses and created a host of employment law issues in every country.

When the first case of coronavirus – or COVID-19 – was reported in Wuhan, China in December 2019, nobody could have guessed that within three months it would spread across the globe at lightning speed. Indeed, from the start of March hundreds of thousands of cases of the disease have been reported in more than 160 countries and territories, resulting in thousands of deaths.

The speed of the spread of the virus – declared a pandemic by the World Health Organization on March 11 – caught governments across the world off guard. And many have since reacted with draconian action. This includes travel restrictions, quarantines, curfews and event cancellations, and advising people to avoid all but essential contact with each other for the foreseeable future.

Of course, this has had a tremendous impact on employment and with employment law in ways that have never been seen before. For instance, with employees being told to stay at home, flexible working has become more common than ever, although in some professions it just isn’t feasible. What this means for employers and employees – especially in terms of payment for those employees who have to take time off because they are sick, to quarantine or self-isolate, or to take care of dependents – has never been tested and different jurisdictions are reacting in different ways.

With the COVID-19 crisis and the response to it among different countries evolving daily, employment lawyers are advising employers on what they can or cannot do to safeguard their businesses and their employees under existing legislation. And the disease is spreading faster than laws can be adopted – although some countries are starting to respond quickly to take care of workers and ensure that businesses stave off bankruptcy.

How are companies responding to COVID-19 (the coronavirus) and what practical suggestions do you have?

Coronavirus has been expanding at a very high pace over the past two weeks in the Netherlands. We are currently in semi-lockdown. Everybody has been requested to stay at home. Employees are working remotely, restaurants and the entertainment industry are closed, schools and daycares are closed since March 16th, 2020.

Going outside is discouraged and it is emphasized to only go outside for groceries, or work that cannot be done remotely. We need to keep 1.5 meters distance and failure to do so can result in fines of almost 400 euros. People are requested to limit visitors in their homes to max 3, so the lockdown measures are reaching into the people’s private homes. Last but not least all courts have been shut down for an indefinite period of time. Only urgent legal cases are being processed.

In the Netherlands facilities for employers and employees are already embedded in law, they have not been created because of the coronavirus. If you are on sick leave, you are protected for two years: during your continued period of illness, you remain entitled to your salary for two years.

People who are asked to work from home are, of course, not sick. So, if they are requested to stay at home and cannot work remotely, then that’s a risk that is for the employer. Employees remain entitled to their salary because the only thing you need to do to remain entitled to salary during employment is to keep yourself available for work. So, when the employer decides that you need to stay home and does not have the facilities or the capability to offer you work from your home, then that’s a risk for the employer. And he is under obligation to continue salary payment.

On March 17th, 2020 the Dutch government announced crisis measures to mitigate the effects of COVID-19 on businesses and loss of jobs. The measures are detailed in the so-called “Noodfonds Overbrugging Werkgelegenheid” (the “NOW-fund”). The NOW-Fund is of a temporary nature and will have immediate effect. Under certain (still to be determined) conditions the NOW-Fund can be extended for another 3-months.

As soon as the NOW-Fund is codified in legislation (the government said that they endeavour to do that within 2 weeks from March 17th) and the application process becomes operational, all applications for compensation under the NOW-Fund must be filed at the governmental body called UWV.

Companies that expect that their revenue loss will be at least 20% can apply for the compensation under NOW-Fund.

The NOW-Fund replaces the reduced working time facility (the “RWT Facility”) that applied until 17 March 2020. Pending applications for the RWT Facility will be transferred to the NOW-Fund. If the RWT Facility permit has already been issued, this remains in force for the duration of the permit. It is no longer possible to extend the permit.

All new applications for compensation under the NOW-Fund will have to be filed at UWV. Applications can be filed once the legislation and regulation of the NOW-Fund come into effect.

The NOW-Fund will compensate for a maximum amount of 90% of the wage bill (loonsom, that’s the entire wage sum on the employer’s payroll and for which payroll tax is paid in The Netherlands), depending on the percentage of decrease in the company’s revenues.

Based on the NOW-Fund application, UWV will provide an advance payment of 80% of the expected compensation. For applications above a certain compensation amount (maximum amount still to be set by the government), an auditor’s report will be required.

The actual revenue loss will be determined retroactively. A correction will be applied if the wage bill appears to have decreased during the NOW-Fund period. Any excess amount pursuant to the UWV 80% advance payment will need to be paid back. How the correction will be implemented has not been communicated yet.

The NOW-Fund will apply to employees who are on the employer’s payroll with a fixed number of hours per week but also to on-call workers with flexible hours and agency workers.

Companies applying for compensation under the NOW-Fund must meet/agree to the following conditions:

  • they must demonstrate that they expect their revenue loss to be at least 20% since 1 March 2020;
  • they are not allowed to dismiss an employee for business;
  • reasons during the NOW-Fund period; they must continue paying the employees’ contractual salary.

It is not yet clear whether these examples will be included in the legislation. It is also not yet known what the exact definition of the “wage bill” is or will be. The main question is whether the compensation will also cover the (very) high salaries of managers and executives. Also, it is not clear whether the compensation will also cover other salary benefits like pension and company car.

The coronavirus is moving faster than the law – how are lawyers responding and adapting to this evolving crisis?

The virus is definitely moving faster than the law. Away from employee income where we are currently anxiously awaiting the rules for the application process and eligibility for relief under the NOW-Fund, there could be an impact on privacy laws, for instance. How to balance privacy and a need to deal with unprecedented consequences that reach into every corner of our working and personal lives.

Also, employers need to fulfil their duty of care to ensure employees are in a safe work environment. And if that means that employees need to be removed from the work environment or restricted in their liberty to move around because they create a risk for the work environment, then that’s a decision that an employer must take and deal with the consequences when they reach that point. From a legal perspective, employers have a very valid set of arguments to defend any decisions they make that are sensible, objective and would be aimed at protecting their employees and others. This is a novel situation; it’s unlike anything we have seen before in my working career.

As lawyers we are working around the clock to keep track of all developments, to ensure that we are prepared to guide our clients through the barrage of information they get on a daily basis towards a selection of the key elements for their own business. We are in continuous contact with colleagues in the Netherlands and our best friend firms abroad and the IR Global Network. Also in the legal profession, this virus requires cooperation and a joint effort towards solutions. As legislation is still pending in the meantime we are guiding clients as best as we can in interpreting the government’s announcements, assessing the legal merits of announced relief measures. We are also guiding employers in terms of taking cost-reduction measures and preparing for restructurings and forced dismissals if these become inevitable. Given the profound and global impact on our economy, our expectation is that all the state funds and relief measures that are being made available will not be able to prevent substantial lay-offs.

How are specific industries or sectors and their employees impacted and what are the potential legal consequences?

The European Commission sent out a communication almost two weeks ago that they will not allow any company to go bankrupt because of coronavirus “Whatever it takes”. Hundreds of billions of euros are made available by the EU and some countries including the Netherlands to offer basically a sort of state aid.

As for sectors that are being severely impacted, the events and entertainment industries and restaurant businesses in the Netherlands are really being hit very hard because they have been completely shut down. Also, the hotel industry and aviation are being hit very hard with business and leisure travel being reduced to an unprecedented minimum. In the past year, we have also had a huge rise in contractors, and if they are working in a sector where there is a lockdown and people are not allowed to come and work on-site, these people are not paid. They are not the same as employees. It means they are not insured, they will not get the unemployment benefits, they will not get sick leave payments. If the company that engages their services tells them they no longer need their services, there is no obligation to pay them unless it was agreed in the contract. So this huge pool of people can be severely impacted. That’s a point of great concern.

Under the NOW-Fund independent contractors are offered the perspective of compensation at a minimum level. Nothing compared to continued pay for employees who work for companies that are eligible for relief compensation.

The bottom line is that we are dealing with a situation where the law is not always to guide us. Our motto is that law does not run a business, its common sense that runs a business. That motto couldn’t be more true in these COVID-19 situations. You need to use your own common sense, using your legal compass with the help of your lawyers, upholding integrity and an aim to do the right thing for your employees and business interests. Sometimes a business cannot wait for politics to offer the legal framework and rules of the game. Decisions may need to be made without a full picture of the legal framework, and hence with substantial or calculated risk. Maybe some decisions will prove to be bad ones but that bridge needs to be crossed when one gets there. If your business decisions are necessary you need to take them, but make sure that they are at minimum sensible, objectively defendable, aimed at securing business continuity and preserving jobs. By ticking all those boxes you will have a good chance successfully defending your decisions in a court of law. That’s my advice to employers. In terms of COVID-19, the minimum you should do is make sure that you are legally protected, to follow the instructions of the government, the World Health Organization, the Ministry of Foreign Affairs of Health. From a legal perspective, if you do not observe that bare minimum that creates exposure and liability. It is not difficult to hold someone liable who did not follow up on the nationwide communicated instructions for personal gain from a catastrophic crisis.