Only Responsible Business Will Survive a Crisis
Mar 30

Neither our state nor businesses have ever faced this kind of crisis – it has touched all companies and organisations to a greater or lesser extent and people were forced to review contracts and make changes. For many, it has become unclear how to act when the business activities are suspended or limited, how to deal with the questions related to labour law, what to do if you are unable to fulfil your contractual obligations and whether quarantine allows to apply force majeure. All experts agree that now the most important thing for the businesses is to communicate, negotiate a win-win situation and make decisions while feeling responsibility and solidarity.

“The announcement of quarantine does not relieve organizations of their responsibilities or performance of their contractual obligations. By working closely with businesses, we feel a great confusion – they do not know how to fulfil those contractual obligations when their activities are limited or suspended. Every day, our clients ask us, what kind of relief will be applied, whether the terms of the contracts are really mandatory and what kind of state support is available. Everyone is trying to minimize their losses and avoid any major mistakes in business” says Daina Klepone, Director General of entrepreneurship and export promotion agency “Enterprise Lithuania”.

The state provides support for businesses

Marius Skuodis, Vice-Minister of Economics and Innovation, said that over the past week, the ministry has received around a dozen letters from different companies and associate business structures with problematic issues and suggestions on what businesses need most at the moment.

“The first thing we did after the quarantine was announced, we allowed businesses to apply to the State Tax Inspectorate and defer all taxes. The second important point – the government has decided that businesses who will suffer because of quarantine will receive compensations for the downtime. This week, the government will publish lists of businesses that will be able to receive 60 percent subsidy for the downtime and businesses that will be able to get even more – 90 percent. The third issue of particular importance, which needs to be resolved this week – measures to ensure corporate liquidity. Business support packages will be categorized according to the condition the businesses will be in as a result of this crisis” – Vice-Minister M. Skuodis introduces the State aid measures for businesses.

Negotiations regarding the performance of contractual obligations 

Almost every contract includes force majeure condition. Often, it is included without discussion of its implementing provisions, in the hopes that this circumstance will not occur. Today, the situation is changing and businesses are hoping that force majeure will help to overcome the crisis.

“The announcement of quarantine, certain state restrictions or prohibitions do not in themselves constitute the circumstances of force majeure. This is an exceptional thing, with very high standards of proof and a very large number of circumstances that are taken into account. First of all, it is necessary to carefully review what was written in the contract, what decisions were taken by the state, what restrictions were imposed, what measures were taken to reduce the risk, what are the cash flows of the company and so on. Force majeure can only be applied on a case-by-case basis,” says Indrė Barauskienė, contract law expert and senior lawyer at “TGS Baltic”.

According to her, until now the practice of requiring companies or organizations to fulfil their financial obligations has been applied to the issue of force majeure in the courts. In the event of an emergency situation, the lawyer recommends that both sides would first sit down at the negotiating table and discuss all possible alternatives to fulfil their obligations.

“Even our Civil Code imposes an obligation on the parties to cooperate. After the quarantine was announced, companies simply cannot fulfil their obligations or after they fulfil their obligations they may have to be declared bankrupt. It is important to start communicating with the other party quickly. The solution can always be found – to extend the payment term, to split it in parts and so on. If the issues cannot be resolved by negotiations, then one has to choose – whether to wait and hope that everything will be fine or to take the initiative and choose the legal route, because the time when everything “will be fine” may not come”, advises I. Barauskienė.

Openness helps to get the approval of the employees 

Now about 80 thousand of employees in Lithuania took unpaid leave. Economists predict that as many as 25 thousand people will lose their jobs by the summer. What businesses should do to avoid such drastic measures and to minimize the losses incurred.

Dr. Tomas Bagdanskis, an employment law expert, “iLAW” managing partner, says that the most appropriate measures depend on each company individually. “One business may depend on cash flow here and now, another has financial liabilities over the longer term. If the quarantine completely closes the cash flow to the businesses, they may opt for more drastic measures – negotiating with the employees to take unpaid leave or to fire them especially when the conditions for state support for the downtime are not yet fully known, ” says Dr. T. Bagdanskis.

According to him, it is very important to be open with employees. “It may seem unethical to negotiate a salary or working time reduction with an employee but with an open presentation of the company’s financial position, compromises can be found. By showing what the company’s obligations to suppliers or partners are, what its cash receipts are, what its total salary costs are, they will be more likely to negotiate and accept to temporarily get a lower salary. When the workload is reduced, businesses are considering whether, for example, they should fire half of the employees and leave the rest with the full workload, or whether it is better to reduce working hours for everyone while retaining all workers and after the crisis to return everything to normal.

In times of crisis, social responsibility is also important 

Valentas Neviera, Head of Sustainability Communication at “Ignitis Group”, the Board Member of the Lithuanian Association of Responsible Business (LAVA), confirms the importance of open communication with employees and other stakeholders, especially in times of crisis. 

“Open communication and an honest approach can help manage anxiety among employees and partners, therefore, changes can happen faster and you can expect a better result. Trust and unity are important when managing the crisis and minimizing its effects. Humanity must be kept in mind. If we have to change the working conditions of our employees, we need to talk about it, answer questions, and make sure that our employees are provided with all the necessary tools. If, during the coronavirus outbreak, the workers cannot work from home, we must provide safe conditions – responsible employers, “LAVA” members improve hygiene, provide protective measures, maintain distances, change work organization and even offer special transport to allow workers to come to work as safely as possible, ” says V. Neviera.

According to the specialist, the decisions made by companies today will influence their future reputation, so when considering the financial position of a company, it is worth considering the decisions from the point of view of corporate social responsibility.

 “Coronavirus Legal Challenges for Businesses: Talk to Experts” live streaming video can be found here.