With stringent ‘lock-down’ measures in place in New Zealand and around the world to deal with the COVID-19 pandemic, it’s a cliché that working from home is the new normal. While most businesses are working through the implications of this for their employees, many are also considering their key contracts and suppliers. Some will need to implement urgent measures to ensure that people providing their key outsourced functions (like customer services) can continue providing services from home or in a different way.
If this is something that you’re currently working through, here are few things to consider:
Force majeure clauses: These standard clauses (which generally allow contracting parties to avoid their obligations in genuinely unforeseen and unavoidable circumstances) are certainly having their day in the sun. Google the phrase and you’ll be confronted with a long list of articles from law firms about force majeure in a COVID-19 world. However, they are generally a blunt instrument to deal with contractual issues caused by events like pandemics. In the most extreme circumstances they can permit termination of the agreement, but for most outsourcing relationships, early discussion and renegotiation of core areas will be preferable to termination (or long-term non-performance).
Frustration: If there is no force majeure clause in your existing contract, you may still get relief on the basis that your contract has been “frustrated”. Frustration means that the obligations in the contract become impossible to perform because of unforeseen event(s) which are outside of the parties' control. While COVID-19 may create some grounds for frustration, there is a very high threshold required to establish that a contract has been frustrated – so if you want to go down this path, you should explore this with your lawyer.
Navigating existing outsourcing arrangements: If you'd rather keep things moving, then you might have to speak with your suppliers/customers about tweaking your existing arrangements. Ideally, you don't want to completely renegotiate your existing contracts. Instead, you should focus on tackling the key issues that will enable your business to continue as safely as possible during the COVID-19 disruption. To unpick the key issues, you should be asking the following questions:
- Is there any ‘flex’ in your existing outsourcing agreement to facilitate working from home?
- Is this something you can easily build in using the change management clauses?
- If you are a customer making changes that impact or control workers’ behaviour, how do these sit alongside your supplier’s own employee policies? Could you agree that the supplier remains responsible for the actions of its workers and be comfortable that the supplier manages the nuances of that – while retaining core contractual obligations like confidentiality and protection of intellectual property?
- Could you implement activity tracking tools to monitor productive hours in a similar way as would be the case if workers were ‘on-site’? This is particularly important for ‘time & materials’ engagements where customers are paying by the hour or day.
- Are there any other assumptions that you have made about the location of the service or how it will be provided that will need to be addressed? For example, are there any reporting lines that may need to change as personnel work remotely and as team members are side-lined onto other COVID-19 projects?
Cyber Security: Do you need to change or add requirements around cyber security? You may discover that your existing contracts have security requirements that are not feasible for the ordinary person working from home. Could you avoid total shut down by reconsidering the ‘must haves’ and adding other cyber security requirements to give you some comfort? For example:
- requiring workers connect to the internet using either a network cable or a secure password protected Wi-Fi connection;
- requiring that workers do not use public Wi-Fi; and
- requiring workers to log in using a Virtual Private Network (VPN).
Privacy protections: Could you put other pragmatic privacy protections in place to reduce the risks? For example:
- requiring the use of privacy screens;
- requiring workers to lock their computer when not in use;
- requiring workers to have sensitive discussions away from other members of the household; and/or
- generally reminding workers of their confidentiality obligations.
Liability: Parties may want to review liability caps in outsourcing or services agreements to reflect the increased risk of a confidentiality or privacy breach. Suppliers and customers will probably have differing views on what the results of these reviews should be, so implementing practical measures to reduce risk and considering the underlying insurance position may help both suppliers and customers to get comfortable with their respective liability positions.
Duration: How long should these new measures last? Do you want a quick and easy mechanism to restore the previous contractual position once lock-down measures are loosened (i.e. the ability to revoke the new clauses on notice)? If so, this should also allow for the possibility that lock-down measures will be re-implemented later on.
As business continues during COVID-19, you’ll also need to consider what measures are appropriate when agreeing new contracts. Tweaking a template force majeure clause to include “pandemics” is unlikely to cut it. COVID-19 is now a known quantity, and the best agreements in this new world will consider and reflect its impact with as much detail and clarity as possible.
For more information on these topics or help with anything else during these unprecedented events, please feel free to get in touch.