Cross-border legal considerations in the COVID-19 era

Lorraine:    Good afternoon, everyone, and thank you very much for joining us today. We are thrilled to be speaking with you this afternoon on Cross Border Legal Considerations in the COVID-19 era. My name is Lorraine Mastersmith and I am a partner and the head of the business law department in the Ottawa office of Gowling WLG and I've been practicing corporate M&A and commercial law for about 25 years.

I'm joined today by my colleague, Melanie Polowin, a partner in our employment, labour and equalities group. Mel advises private sector Canadian and international employers of all stages and sizes on everything of the employment life cycle. She has practiced exclusively employment law for more than 20 years because she says, "Nothing else is as much fun."

Mel and I are so pleased to have the opportunity to present to today with two leading experts from the New York office of Venable LLP, Jessie Beeber and Nick Reiter. Jessie is a partner in Venable's commercial litigation group in New York. She has litigated a wide variety of commercial disputes with an emphasis on entertainment, copyright, trademark and insurance coverage matters. Her latest accomplishment is baking a loaf of bread that her teenage son said was as good as store bought. Well done, Jessie.

Nick Reiter is co-Chair of Venable's national labour and employment group. He regularly advises employers regarding employment actions and defends employers against claims brought in court, arbitrations and before government agencies such as the National Labor Relation Board.

Before I turn the discussion over to Nick and Mel, just a couple of housekeeping points. First, as lawyers, we need to include a disclaimer which is that our presentation will be a high level overview and should not be considered to be legal advice. As you all know the situation with COVID is fluid and is changing, if not on a daily basis at least on a weekly basis, so please contact your legal counsel for any specific advice you may need. Second, we will be monitoring the chat function for questions so please feel free to send us your questions and we will be pleased to answer as many of them as we can during or at the end of each part of our presentation.

With that I am pleased to pass the floor to Nick and Mel who will walk you through the myriad of employment law issues that this COVID-19 era has presented. Over to you, Nick and Mel. 

Nick:    Thanks very much, Lorraine, and welcome everyone to our webinar about Cross Border Legal Considerations in the COVID-19 era. I know my co-presenters and I, we can probably do a whole day long webinar on this topic if we had time, but what we really want to offer today are just some quick hitting practical tips for you all related to some of the issues that we've seen arise in the last few months for our clients that operate in the US and in Canada. As the employment lawyers on the panel, Melanie and I are going to first discuss some employment law topics and then we're going to hand over the baton to Lorraine and Jessie for some contract law considerations.

So, the first topic that Melanie and I want to discuss with you all, you see it on the slide here, telecommuting employees. Telecommuting is really something that probably every employer around the world has had to embrace to some degree since the pandemic hit us back in March. I think we can all agree it's a bit of a mixed bag. There's advantages, there's disadvantages and some of those disadvantages are listed here. Some of the risks. Certainly, of employee telecommuting, you have threats to your confidential information. Employees aren't in the office being monitored as closely. They're not behind that firewall, necessarily. It might be easier, for example, for a disgruntled employee who's about to join a competitor to download something like a customer list. So obviously threats to confidential information are an issue. Of course, ensuring employee productivity is an issue. Some employees might be more productive telecommuting. I know some of my clients have found that. But other employees will abuse telecommuting if given the opportunity.

Another issue are wage an hour issues and that's because if you have hourly employees who are entitled to things like overtime or not exempt from overtime wage requirements, I know Melanie deals with this too, the employer's still obligated to track those work  hours. When an employees coming into the office it's easy. They punch in, they punch out at the beginning of their work shift. But it's different when that same hourly worker might be telecommuting now, because of the pandemic, the employer still needs a procedure for tracking their hours. What I really want to get to for this slide is this last risk, telecommuting as a privilege, not a right. Because what some clients now, in the US, they're starting to see especially with optimistic news of a vaccine, one day we will be going back into the office hopefully, employees might say, "I don't want to go back into the office. I want to keep telecommuting." My clients and Melanie's clients are asking, "What do we do? Are we allowed to require them to come back into the office or are we required to permit them to continue to telecommute?" The answer is it depends. In most cases the employer is allowed to say, "No, you have to come back into the office." so long as it's safe to do so. There's not a Government Order requiring it.

But another issue that comes up in the US, certainly, is the employer's obligation to accommodate, provide a reasonable accommodation, of a disability. What I mean by that is under the Americans With Disabilities Act if it doesn't pose an undue burden, and if the accommodation doesn't prevent the employee from doing his or her job, an employer might need to give the employee something because of a disability, because of a medical condition. If I say to my employer, "Well, my back hurts. I can't stay seated for more than 60 minutes, I have a back condition." my employer might need to let me take breaks every 60 minutes in order to stretch my back. They might need to provide me with a standing desk, for example. Well how does this relate to telecommuting? We anticipate that even when the pandemic ends, even when it's safe to return to the workplace, you might have some employees say, "Well, I want to telecommute to accommodate my broken foot. I can't come into the office everyday. I can't commute." Some employers might unknowingly, right now, be setting themselves up for a situation like that where they're not really allowed to credibly say, "No. You need to come into the workplace to do your job." Because that employee might say, "Well I've been telecommuting for the last 6 months, for the last year, why can't I continue to telecommute now to accommodate my broken foot or my disability?" So how does an employer limit that risk. What can an employer do when a part of an employee's job actually requires him or her to be in the office?

There's two things. Everybody who's has telecommuting employees should have a written policy or an agreement where their employees acknowledge that this is a temporary arrangement. This is because of an unprecedented, or once in a 100 years pandemic, and that telecommuting is a privilege, not a right and that the employer might require the employee in the future to come into the workplace. The second thing to do in tandem with that, I recommend my clients always have written job descriptions for the roles, especially the roles where being in the office is required for some of the essential job functions. That way when that same employee says, "Hey, I want to telecommute permanently now because of my disability." the employer is legally and can credibly say, "No. Part of your job duties requires you to be in the office. Let's discuss an alternative accommodation, an alternative to telecommuting, to possibly accommodate your medical condition." I know that was a bit of a crash course in telecommuting but I'm going to hand it off to Melanie because I know there's some Canadian issues too that she wants to discuss. 

Melanie:    Thank, Nick. What I'm going to focus on are where there are differences between Canada and the US and there are two key areas where there are differences. First of all, generally speaking, we have much more robust human rights laws across a broad variety of areas. Not so much in the area of disability where there's a lot of sort of comparable protection but in other areas including in areas related to family or care taking obligations. Those have human rights protections in various Provinces. Before I go further, because it's relevant to later on, you need to understand that in Canada the governing legislation that's going to apply to you, and to any specific employees, is going to depend on two things. First of all, what industry are you in. For most industries you're Provincially regulated on the employment and human rights front. So it will be the Province where that employee sits. Not where you are. Where they are. For some industries, airlines for example, international tracking, you both are Federally regulated industries and you're human rights and employment laws are at the Federal level. So I'm just going to talk more generally now.

At the end of the day there are at the Federal and Provincial level a wide variety of grounds of human rights protection. So the biggest difference between the US and Canada is when might you be required to permit telecommuting. Not just when it's reasonable accommodation of a disability but also, potentially, reasonable accommodation of family or care taking obligations. Same kind of assessment that you do when it's a disability. What's the evidence that's required? What are the various options and measures that are reasonably available that might address the needs? What's a balance between what's fair to the employer or fair to the employee but you still have to go through the analysis and you must not have, as Nick said, you can't have a knee jerk reaction and say, "Nope." You have to actually analyze the request and the reasonable options available. Second biggest difference is that our burden of accommodation is a burden of undue hardship. Now, it sounds like it doesn't sound all that different from the United States but I can tell you that in terms of the law surrounding what defines undue hardship, it is a incredibly difficult threshold to meet. Undue hardship requires, in a lot of places, that it would practically wreck your business for you to be able to do this. I'm exaggerating but not as much as you might think.

As Nick said, one of the silver linings and downsides of the pandemic is it has demonstrated how readily many people can do their jobs by telecommuting, and therefore makes it much harder for an employer to say, "No, no, no. We can't accommodate that without undue hardship." because all you have to do is look and say, "You've just been accommodating that for the last 6 months during our government shutdown, thank you very much." So the range of situations where you must permit telecommuting and the burden and threshold that you have to meet, satisfied, to be able to actually say no without breaching human rights. Those are the two key differences here in Canada. We limit the risks the same way and when it comes to a request for accommodation you absolutely must go through the analysis process, because even if you are right in saying no, if you say no without going through the analysis process, failing to go through the analysis is in of itself a breach. That's I think all for that. Back to you, Nick. 

Nick:    Thanks, Melanie. If we could have the next slide, please. Another thing we want to discuss with you all today during our limited time are some US centric employee release agreement requirements. Unfortunately, because of the pandemic, a lot of employers have had to downsize. They've had to refer to as reductions in force. There's some unique requirements in the United States when an employer is going to offer severance or separation payment in exchange for a release of claims, and when that employee is 40 years or older, and therefore that general release of claims is going to include a release of age discrimination claims. There's three things that the law called the US Older Workers Benefits Protection Act requires that be included, in writing, in the separation agreement if the employee is 40 years or older. The first you see here is a 21 day review period. The separation agreement must tell the employee that he or she as at least 21 days to review the terms of the separation agreement, and the offer contained therein, before that agreement can be rescinded. So what that mean is an employer cannot tell an employee who's potentially waiving age discrimination claims, who's 40 years or older, you can't say, "Hey this is a deal that expires in a week. We'll give you a month or 2 months pay. Sign on the dotted line. If you don't sign in a week you get nothing." You can't do that in the United States if it's an employee who is 40 years or older and you want to have a valid release of age discrimination claims. You have to wait until the 22nd day to rescind the offer, if you want to do so.

The second thing that the agreements needs, if the employee's 40 years or older, there has to be a 7 day revocation period for the release of age discrimination claims. This a weird concept when clients hear it for the first time. But what it really is a statutorily required buyer's remorse period. Where an older employee, 40 years or older, they sign on the dotted line and then for 7 days after they sign the agreement they could still change their mind and say, "Actually, I don't want to waive my age discrimination claims. I want to consider maybe filing a law suit for age discrimination. So I changed my mind and I revoke my release of age discrimination claims." Now beware of this requirement because a big mistake that even some experienced employment lawyers make is they apply the revocation period to the entire release. You don't need to do that. You can limit the revocation right just to the release of age discrimination claims. That way, in the unlikely event that an employee decides to revoke, it's just for age discrimination claims and you've got a valid release for all the other potential claims. Wage an hour claims, whistle blower claims, retaliation claims, harassment claims, whatever, that general release still applies. You can even make it in the agreement, I draft it this way all the time, but if they do revoke they only get say, 10 or 20%25 of the original separation payment offer. That's completely legal. The third requirement is written notice to consult with an attorney or legal advisor. That has to be in the agreement, in writing. You can tell them that it's at their own expense, the employer's don't have to pay for it, but it has to be in there. If you don't have those things you might say, "What's the penalty?" It means that the release of age discrimination claims can be revoked by a court at a later time, if the employee challenges it, and then the second topic here on this slide, what if there's a group layoff? A group layoff is it can be as few as two or more employees. 2, 3 or 200 employees. It's all the same. That's a group layoff in the US and if that's the case, if it's one of those larger more widescale reductions in forces, which so many employers unfortunately had to implement recently, then there's additional requirements. One you see here, it's a 45 day review period, not a 21 day review period for employees 40 years and up. Then this concept of an age notice to affected individuals, this is another one of those weird things the first time a client hears it, but if there is a group layoff then you have to provide a form to all the 40 or older employees that sets forth the job titles and ages and the work location of all individuals who are selected, or considered, within the decisional unit for the layoff decision. You don't have to give names but you have to give ages, job titles and job locations and whether they were selected. The legislative reason for this is it let's the employees make an informed decision about whether they want to release their potential rights to sue for age discrimination. They get to see a snapshot of the ages of all the employees who are considered for the layoff. That way they can decide whether it looks like to them, or their lawyer, whether a disproportionately high number of employees were selected for the layoff.

I know it sounds strange, and as much of a cliché as this sounds, this is why you consult with experienced labour counsel because these are trip wires that can easily be triggered if you don't do it right. Again, the penalty is that the release of age discrimination claims can be invalidated at a later time. We will have an opportunity to take questions later but before we wrap up the employment law portion of this I'm going to hand it off to Melanie one more time to talk about some separation furlough and temporary layoff issues. 

Melanie:    Okay, next slide, please. Alright. So, some of you think of temporary layoffs as furloughs, or use that terminology, so I've put both of them in there. There's something you need to understand about the Great White North. First of all, unless the person's employment offer or employment agreement specifically says we have the right to temporarily lay you off from time to time, or it's an industry where it happens all the time and it has happened with that employer on a regular basis, there is no automatic right, at law, to temporarily lay somebody off or furlough them at all. For any period of time. All the legislation, the employment standards legislation that I spoke about a moment ago, at a Federal and also at the Provincial level in each of the Provinces, they all have provisions that say if you're going to do a temporary layoff this is how it has to work. A lot of employers mistakenly think that that gives them permission to do temporary layoffs. No. All it does is say if you're going to do one, from an employment standards legislation point of view, you have to follow these rules. So even if you follow those rules, normally, if you do that the employee can still say, "You've breached my employment rights under my employment contract." and you have what we call constructively dismissed me. In other words you've more or less terminated me because you've made this unilateral adverse change. Put me off work for 6 weeks without pay. I didn't agree to that. Now you owe me a termination package. That argument has legs. That argument often succeeds. Not always and it's going to depend on the circumstances.

These days we don't know what courts are going to do with that kind of argument because millions of employers had to do layoffs. Some of the governments, across Canada, made special rules that changed or suspended the layoff rules that you would ordinarily have had to contend with here, for COVID purposes. But that's a temporary fix and once COVID is over that temporary fix will be gone. So what you just need to understand is you need advice before you throw people off onto temporary layoff because even if they comply with statutory rules, or even if the Province says, "Hey employer, it won't turn onto an automatic termination if you exceed this threshold.", from a common law perspective, an ordinary law perspective, the employee may still be able to say, "You've constructively dismissed me.", or, "You breached my contract and you owe me damages even though I'm not leaving you.", or, "I'm claiming both the termination package and back pay for the time that you put me off." Very complicated about whether or not these kinds of things succeed. Next slide, please. 

Speaking of terminations, if you do find yourself in a situation where you either deliberately terminated somebody because you had to riff people because of COVID, or for other reasons, or because they were just crappy at their job, or because you had a temporary layoff situation that went South and went wrong and now you're facing a constructive dismissal, what are you looking at in terms of analysis? Well you need to understand that there are three different layers, actually four different layers, here in Canada that you have to worry about. Three of them make sense and the fourth one is a pain. First of all, what are the base line statutory rules for that particular employee, depending on what the jurisdiction is. Generally speaking there are mandatory minimums across Canada, and at the Federal level if you terminate somebody. They're purely service driven. If they've been here for this amount of time you have to give them a minimum of this much, this much and this much.

There are two jurisdictions that have unjust dismissal protection that can complicate things. One of them is Nova Scotia, for some reason. Somebody who's been there for 10 years has unjust dismissal protection. At the Federal level there's unjust dismissal protection? What do I mean by that? What I mean is, without getting into it too much into the weeds, if you don't have a good legitimate reason like a risk or cause or a close down of a division to terminate somebody then, in theory, you might not have the right to terminate them. This is really a leverage negotiation issue. They still want the termination package. They still want your money it's just they have better negotiating leverage than other employees in other jurisdictions. That's the first thing. What are the statutory rules. The second thing is what is the employment offer or employment agreement say about termination, if anything? Is there a clause in there that limits rights on termination? Is it enforceable?

Enforceability is a complicated thing, partly you have issue of how it was drafted, how it was signed up and how the employee was treated after that. Things can happen after a properly drafted, signed up agreement that can actually prevent you from relying on that agreement. If you don't have anything enforceable in the contract then you're into our reasonable notice principals. What does that mean? In a nutshell, in Canada generally speaking except for the places that have unjust dismissal protection, you can terminate somebody at anytime as long as the reason isn't discriminatory or retaliatory, as long as you provide them with reasonable advance notice or compensation in lieu of that advance notice, or some combination of the two. What does that mean? It almost always means a much more expensive package than just the minimum standards of the legislation would require. You have to consider all kinds of factors, primarily, how old are they, how long have they been there, what's their level and role inside the organization but other factors come into play. It's a very complex analysis. You have to consider every single compensation element that they have in their basket. Their salary. Their vacation. Their benefits. Their RRSP, or what you would think of as a 401K, for the US people on this call. The turkey money that they get every Thanksgiving. You have to think of everything. Their RSUs. Their PSUs. Their stock options. All the things they would have gotten if they continued to work for you during that period of time are potential liabilities for you as an employer. So there's an analysis that you have to go through to determine whether you have a viable argument to say, "You're only entitled to this much." If you don't have a viable argument for that you can expect to be in a negotiation. Again, success of these kinds of claims depends on many factors and the pandemic is just making it worse because what we don't know is, Canada is, generally speaking, a very employee friendly jurisdiction. You think? But we don't know whether courts will give employers a break where terminations are genuine because of the financial hardship related to COVID. 

With that, I'm going to turn it back to Nick. See if we have time for a couple of questions. Nick, there was one question that came up about the telecommuting issue that, several of them are Canadian and I dealt with those, but the one that's for both of us is this. Question is, what if an employee wants to telecommute from a country where the employer is not legally entitled to operate and the employee is not legally entitled to work? There are lots of situations that came up during COVID where people said I want to go back home to India. I want to go back home to Yugoslavia. That kind of thing. From a Canadian perspective the answer is this. If they cannot legally work in that country then your answer is we cannot allow you to telecommute while you are away but you might give them an unpaid leave, in that circumstance. Or you might not. But you don't have to allow somebody to telecommute from a place where it's going to get you into legal trouble. Nick, what about in the US?

Nick:    Yeah, it's a lot of the same analysis and it's come up in a lot of our clients. You shouldn't be paying someone to perform services in a place they are not allowed to operate. Say if there's, for some reason, sanctions or other governmental orders in effect that prohibit operations in a certain jurisdiction. At the same time there have been one off instances. It's not a black and white answer all the time and the risk of detection can be very low if, and I'm not advising anyone to do anything that's improper, but if it's a fleeting thing, if someone's going to be going away for a month and their bank account is going to stay in the US or Canada and their permanent residence is going to stay in the US or Canada but they're going to be happy for that month to logon from time to time and to perform work, that's a very different situation than when someone's picking themselves up and saying, "I'm moving back to this country. My bank account," especially that's one of the biggest factors in the US for where the money is going to be deposited in exchange for the services rendered in the employment relationship. That latter situation where bank accounts are changing, permanent residences are changing, that's where you need immigration counsel. You might need regulatory or foreign affairs counsel to talk about the ability to operate in that country. That's where different red flags should be going up for an employer. 

Melanie:    I know that the Venable tax people and Gowling tax people think that they should do a seminar like this one about the tax aspects and tax implications that arise because of pandemic related telecommuting and other pandemic related issues. So stay tuned all you participants for a notice about that and you may be able to get those kinds of questions answered there easily. 

Nick:    I'll just say that there's a couple of other questions that we're not going to be able to answer live here but we do have them and we're going to reach out to the folks who did ask them. So don't worry. We just want to turn it over to Jessie and Lorraine because we're hitting about the half way portion of our presentation. 

Jessie:    Thank you so much, Nick and Melanie. That was great. If we could have the next slide. So shifting gears entirely here. Lorraine and I are going to talk about some contractual issues that have come up because of COVID. Specifically, what ability you might have to get out of a contract or, on the other hand, the other party to the contract might be able to get out of it because of what's going on in the world. So we're going to start with a discussion of force majeure clauses. Basically, what a force majeure clause, in a contract, it says that the performance of either of the parties may be excused if something happens that's outside of their control. That's sort of the most basic statement about what a force majeure clause is. It's French for 'superior force' and basically it says this event that has happened was unanticipated and, because of no fault of the parties and it did occur, and therefore the parties can get out of their contractual obligations to each other. Lorraine, if you want to talk about the Canadian part. 

Lorraine:    Yeah. For sure. Thanks, Jessie. So, similarly in Canada, the concept of force majeure, it stems from in Canada, the French civil code. So it's not a principal that's been developed through common law. Therefore if your contract doesn't have a force majeure clause in it then you can't claim or rely upon it. Unless, of course, you're in Quebec which is governed by civil code. We are only going to be discussing Canadian common law today because we've got a pretty short period of time to be with you. As in the US, in Canada the purpose of the force majeure clause is to protect the parties from liability under the contract for delay or non-performance when an external force or an event beyond a parties control is causing the delay or the performance issue. The clause will relieve affected parties of penalties or liabilities under the contract if it can't perform. But it's really important to remember that that event has to be beyond the affected parties control and it has to be unforeseen. Over to you Jessie. I think next slide, please.

Jessie:    Yes, please. It's exactly the same basically, Lorraine, in the US as what you just said. Some of the underpinnings of this doctrine, why do we have force majeure clauses. The idea is to allow parties when they're entering into the contract to think about what risks there might out in the world and to decide between them what will happen if one of these risks occurs. Will it be something that will excuse one of the parties from performance? Generally in contracts you have one party who is obligated to pay money, or to do something required under the contract, and another party who was receiving the money or the performance of that obligation. Depending on who you are in the contractual relationship you might have a different view about whether force majeure clause should be included and what it should protect. For instance, I have a client who runs an annual event and they have sponsors sign up to promote the event each year. They would like to be able, I think, to even if they can't put on the event have some of the consideration that's owed to them under the contract being retained by them. I'm going to talk a little bit about that in a couple of slides. It's equivalent to an affirmative defense. That's just the legal way of saying if somebody sues you for breach of contract, and you have one of these force majeure clauses that excuses your performance, you put that into the court as your defense and it excuses you from the claim that's been brought against you for breach of contract. Now this bullet is really the most important thing, in terms of US jurisprudence, which is what does the contract actually say? What categories does the contract enumerate that will be force majeure? Then if you have a catch-all at the end of that, how will courts interpret that? As Lorraine said on the last slide, whatever happens, whatever the force is, it has to be beyond the parties control and not because of something that they did. We're talking about external forces over which the party has no control that has come to pass during the contractual relationship. Then besides the force majeure clause the contracts might have other requirements or limitations. If a force majeure event occurs you have to give the other party 90 days notice or material adverse change clauses which maybe, Lorraine, we can talk about at the end if we have a little bit of time. I saw those on your last slide too. I think we can go onto the next slide. 

Lorraine:    Thanks, Jessie. So similar to what Jessie's described, in Canada your force majeure clause there's no real standard template clause. It may very substantially from contract to contract. But there are some key elements including relief from damages or penalties due to delay or non-performance. The event must be beyond, as we've said, the non-performing party's control and the clause generally includes a list of events giving rise to this defense. In today's COVID-19 world you're going to be looking for references in your contract to things like pandemics, epidemics, global health emergencies, infectious diseases, global outbreaks, ... actions, emergency measures, bans, restrictions, shutdowns and that sort of thing. So those are sort of key elements that you're going to expect to see in the context of COVID. Next slide, please. 

Jessie:    Exactly. So here's where I thought it might be helpful to talk about a specific clause that one of our clients has, again, for an annual event which has sponsors who supported through money that they pay to the event holder in exchange for advertising or being known as a sponsor of this event. So, the provision says, "Neither party shall be deemed in default of this agreement to the extent that any delay or failure of performance of its obligations results from any cause beyond the non-performing party's control." That's the first element that we were talking about on the slides before, and then here comes the list, "and without such party's fault or negligence such as acts of God, acts of civil or military authority, embargos, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, strikes, or lockouts." To me, when the client presented this clause to me in the context of COVID what were their obligations and rights under their sponsorship agreement, I was really struck by how robust that list is that I just read, Lorraine. I don't know if you see other contracts that have like quite so much detail about the list of events. It actually gave me some comfort in advising them because, as Lorraine said, I saw epidemics was specifically noted in the clause as well as acts of civil or military authority. Here in the US we've had governors, mayors, other governmental officials say, "Under my governmental authority I am ordering everybody to shutdown certain events or to limit the ability of the public to attend them or other restrictions." and that would fit exactly under an act of civil or military authority in this clause. So the proof is in the pudding. The first thing you have to do if you're considering about whether a force majeure clause affects your particular contractual situation is to sit down and read the words of the clause. One thing that we're going to talk a little bit about is what if the clause doesn't say epidemic, and what if the clause doesn't say civil authority, but has what I read to you before which is just sort of any cause beyond the non-performing party's control. Can you use that sort of catch-all language to say, "Because of the global pandemic, or because of governmental shutdowns, my performance is excused." I don't know in Canada, Lorraine, but in the US the jury's still out on that. We have had some decisions come down in the time that COVID has gone on but nothing that specifically said, "Okay. Here's a clause that doesn't say epidemic. Here's a clause that doesn't say governmental authority or civil authority but nonetheless we are going to find under this catch-all provision that the party's performance is excused." That's just right along with New York and other states that say these force majeure clauses should be narrowly construed. They should be strictly enforced and it's all about the list. Go on, please. 

Lorraine:    Yeah, thanks, Jessie. Similarly here, your force majeure clause isn't meant to be easily relied upon to justify your non-performance. You need to be able to demonstrate a number of things including that the event was unforeseeable. This means that every day that we live with COVID the foreseeability window is closing. You must be able to consider how you can mitigate and lessen the impact of the unforeseen event and the performance must be truly impossible. So you need to prove or provide evidence that your performance delay or failure was directly caused by the force majeure event. That event must be beyond your control. So, let's say your a manufacturing plant and you're not an essential business and the government ordered a closure of all non-essential businesses. Well, you're likely to be able to rely on that because it's outside of your control, your damages are directly caused by it. But it's also important to note that near financial hardship is not enough to prove a force majeure event. It can't just be too difficult to perform or too expensive. If it costs you, let's say 10 times more to produce the same product due to all the health and safety compliance measures, and the social distancing steps, and the new equipment that you have to equip your staff with from a PPE perspective, increased wages you may have to offer your staff to keep them coming to work, none of these matters would trigger your ability to rely on a force majeure. Next slide, please, Shannon. 

Jessie:    I think it all comes down, again, to knowing what your contract says and, as we go forward in the COVID era knowing what you want your contract to say, which will depend on who you are in that particular contract and what you're obligations are under the contract. We are going to talk in the next part about what kind of remedy can you get if you have a force majeure clause, and what if your contract doesn't have a force majeure clause at all, or that contract is not helpful. To remedy, basically, it excuses your performance which means you could act as though the contract never existed, or you could terminate your obligations under the contract, at which point the clauses in the contract that had to deal with termination would come into play. Back to my sponsorship agreement, this was an interesting one to me because it said that if this force majeure condition occurs and it affects the event owner's ability to perform, then the sponsor had two choices under the agreement, which were written out in the contract. The first was that they could suspend the agreement or any part thereof during the time of the force majeure and get some sort of a credit back from the event organizers for that suspension. Then the other choice was that they could terminate the agreement under the termination clause in the agreement but then would have to abide by all those termination provisions. Again, I think at the time that this agreement was drafted somebody had the foresight to think if a force majeure occurs what do I want as the contractual party to the agreement? Do I want the other party to be able to terminate? Do I want to be able to try to make good to them in some way or what other remedies would be available? So, again, the first place that you have to look for a remedy is back at the contract itself. I think we're now going to go on to what do you do if you don't have a force majeure clause? Or the force majeure clause doesn't have a list of things that includes your situation? Are there other doctrines or other things that you can rely on? 

In the US there are a couple of common law doctrines; impossibility, impracticability and frustration that come in even if you don't have a force majeure clause to make an argument for you that your performance is excused under the agreement. Impossibility is sort of an older doctrine. It basically has to do with whether the subject matter of the contract is so destroyed or your performance under the contract is so impossible, objectively impossible, no way for you to do it. Then you can get out of your obligations. That's always been a very high bar to achieve in the United States. Impracticability is basically the same thing except maybe it's a little softer on the impossibility. Instead of it being like there's absolutely no way that you can do it. The words are it's not commercially practical to do what you were supposed to do under the agreement. But back to a point that Lorraine was making earlier, it can't just be I'm not going to make this much money under this agreement as I would have otherwise. Or my performance is going to be a lot harder now than when I entered into the agreement. We're even seeing in some US cases that when somebody's arguing impracticability or impossibility, the courts are actually saying, "Well, you could perform some aspect of your agreement so you should owe the other party some amount of performance even if you can't do the whole thing. Which is kind of an interesting approach to that, I think. This is like the same sort of remedies as are available with force majeure. Do you want to get out of the contract completely? Do you your money damages if you're the other side? What sort of remedy do you want? And, again, you have to look back to the rest of the contract to answer those questions. 

Lorraine:    Thanks, Jessie. So, just before I get into the Canadian common law doctrines I just wanted to mention also that what we're seeing in terms of parties negotiating their way around whether or not they've got a force majeure clause in their contract or not, and whether in trying to rely upon COVID as being an unforeseeable event, because governments are changing regulations, at the beginning definitely almost on a daily basis, so you could have an argument, what's essential versus non-essential changes daily, so you could have an argument that you couldn't have foreseen that your business was going to be declared as either essential or non-essential, depending on the approach. We're also finding a lot more clients engaged with their contractual counterparts and having open and frank discussions about how to manage their way through this time. These often lead to amendments to the contracts, or sometimes mutually agreed terminations, depending on if you actually can't perform then the parties may agree that termination is the best alternative. It might not be a good alternative though if either of the parties wants to preserve that relationship post-pandemic. So, it's really important before you decide how you want to proceed is to, as Jessie said, make sure you thought through what's your desired outcome. You may end up realizing that you both actually want the same result and you can negotiate your way through that and then you don't have to end up in court over it. Which is probably in the best interests of both parties. The other thing then, just getting into Canadian common law doctrines, if your force majeure clause isn't helpful you may be able to turn to other clauses, as Jessie's mentioned, in the contract. Things like you might have an excusable delay clause. You might have an unavoidable delay clause. Relief events. A notices clause. Cancellation or termination. You might even have clauses that require the other party to cooperate with, or to assist you, or to provide you access in order for you to perform your tasks. In the case where you don't have those helpful clauses then you might want to look at frustration. Unlike force majeure, in Canada frustration is a common law concept that courts might be able to read into your contract as an implied term. Even if you don't have a force majeure, if you can claim frustration, you might be able to present a set of facts that you can rely upon in that respect. That applies where an unforeseen situation has arise, that the parties have not addressed in their contract, and that situation renders the performance of the contract by the affected party a thing radically different from that which was undertaken by the contract. Like force majeure, frustration has a very high standard and it's not necessarily easy to claim and to succeed in a claim. So if you're successful in claiming a frustration of contract and your contract is also going to come to an end and be terminated, not just suspended. So, again, you have to be careful if you're going to claim frustration that you really want the contract to be terminated. Next slide, please. 

Wanted to just mention, I don't know, Jessie, if you wanted to mention something else before I get into the M&A stuff. 

Jessie:    No. That's fine. That's fine.

Lorraine:    Okay, sure. So, wanted to talk a little bit about COVID in the context of M&A transactions. We all know that there's been a myriad of government subsidy and economic support programs rolled out since the pandemic began. Those have been rolled out at unprecedented speed and in unprecedented amounts. As a result in any M&A transaction a purchaser's going to want to conduct a very detailed diligence on the amounts that a target company might have received. The validity of the basis on which those amounts were received and what repayment obligations might arise post-closing. We're also seeing additional reps, warranties and covenants as well as disclosures in purchase agreements, to cover all applicable or available programs that might have been accessed by the target company, and that the company met the actual tests required to qualify for such programs. I'm not sure about in the US but in Canada they were a little bit loosey-goosey in terms of the tests to qualify for the programs. So there is a risk that that money might have to be repaid if there's an audit done after the fact. I know that in Canada CRA is actually in active audit mode of claims that have been made. I have clients that are undergoing audits on the claims that they've made right now so. So it is a definite risk that needs to be addressed if you're thinking of acquiring a company during this time. There's other considerations like material employment related liabilities that Melanie alluded to including any actions that might have been taken to implement workforce reductions or terminations or material changes to compensation or work schedules. The purchaser will want to have assurances that the target has taken steps to prevent the spread of COVID in the workplace. That the target has no knowledge of diagnosis or presumption of infection in the workplace. The preventative actions that have been taken in the event any infected employees attended the workplace and that there have been no allegations that the target has failed to provide a safe working environment. Appropriate equipment or accommodation in relation to COVID-19. Over to you, Jess.

Jessie:    So I think we're seeing very similar things in the United States especially, as you mentioned, just how quickly legislation is changing and how quickly requirements are shifting. The qualification for these benefits can really change in an instant and you could be caught in a situation where you spent money that now is not going to be able to be reimbursed because of the change. I think contractually we're seeing the same sorts of things. I wanted to, since I think we have a few minutes, talk about material adverse event clauses in agreements because I think that's another place where in the past, and now going forward, we could think about structuring transactions in a way to address the risk of COVID-19 and of other epidemics that come up. Just basically, that's a clause in an agreement that says if a specific thing happens that is a material event under the contract and it will have an effect on one party's performance. There's a case that came around, after COVID, in the United States where Victoria Secret, there was going to be an M&A transaction with them and a company called Sycamore, and there was a material adverse change clause in the agreement that said an epidemic is not a material adverse change and does not change the obligation of Sycamore to go forward with this M&A deal. Then COVID happened, Sycamore tried to get out of the deal, and Victoria Secret sued saying we've got this clause here that says even if there's an epidemic that's not a material adverse change. So everybody was sort of waiting to see what happened with this case because it was not a force majeure clause and it was not an argument of impossibility or impracticability. It was centered on this material adverse change clause. Then the case went away. Victoria Secret said, "Fine. Let's forget about the purchase. We're not going to sue you. We're not going to go forward and try to enforce this clause." That was sort of the end of it. Which made me think as a litigator, you never know what's going on in this sort of dispute, but were they concerned about testing this material adverse event clause and did they think that could have repercussions beyond this particular situation. Lorraine, I'll just throw it back to you. I wonder if you have any comments on that. 

Lorraine:    Yeah, no. Really interesting scenario and you're right. I suspect they were concerned about repercussions beyond just the specifics of that transaction and didn't want to actually have that tested in court because they probably would have been facing potential other claims. Right? So, yeah, no, really interesting case. I don't know if we've got any other questions from the audience. If not, then Melanie and Nick, are coming back on. 

Jessie:    We have a question that says, what about wording where they say it's not foreseeable in a force majeure clause? Lorraine, I think you addressed that, to some extent, especially now with COVID I think you would have a hard time arguing in the future that an epidemic, a pandemic, a governmental shutdown was not foreseeable because here we are living through it. Again, it just depends specifically on the contractual language that is in that particular contract. But not foreseeable really has changed in the last couple of months. 

Lorraine:    Yes. I agree and I think if it says something is not foreseeable, in order to succeed in a claim of force majeure, to claim our force majeure and rely upon that, what has happened has to have been not foreseeable. As I said, as we continue to go through this COVID, it gets more and more difficult to claim that a shutdown is not foreseeable because we've lived through it in several sort of rotating events. Maybe at the beginning of the contract you wouldn't have foreseen it but now it's difficult to say that it's not foreseeable. I'm hoping that answers the question. 

Jessie:    Then I had a question, what if there is a governmental authority that shuts you down but then that authority itself is challenged and how does that affect your performance and your excuse of performance under the agreement? It's an excellent question. I don't know of a case that's addressed this specific issue but my thought would be that if there's a governmental shutdown you have to, until it's overturned, obey it. You have to abide by it. So if your business is shutdown, or there's some other effects because that happened that is enough to excuse your performance, even if it's later undone. I don't think a court would say, "No. You should have defied that Order and kept your business open, or whatever it is, because you should have known that it would be overturned." I don't know. Nick, do you have any thought on that one? If I can call on you for a US perspective. 

Nick:    I think I'd be hard pressed to advise the client and a court later overturning the constitutionality of government action. I will say though that if your client is in that position you may want to consider, I understand it's an additional expense, but commencing your own challenge to the Government Order in court, if one hasn't been brought already, only because then it goes to show your good faith in acting and saying that, "I think the constitutionality of this Order is going to be in question. Look, we even commenced our own challenge to the Order." 

Jessie:    That's a good point. I don't see any other questions. Lorraine, do you?

Lorraine:    No. I don't. I think somebody had asked if the presentation was going to be made available and I think the answer to that is, yes. 

Jessie:    And the slides as well. And if anybody wants to submit a question, in writing, we will absolutely try to get to them and answer them. Even after this presentation is over. But I think unless anybody else has further comments we could wrap it up. We're at 2:57pm so not bad on time. 

Lorraine:    Yeah. Keeping everybody within the hour so that's excellent. So, we'll thank everybody very much for joining us this afternoon. And again, as Jessie said, please do not hesitate to reach out if we can be of any assistance to you in navigating these issues during this challenging time. 

Nick:    Thanks, all. 

Melanie:    Stay safe. Wear a mask. Wash your hands. 

Lorraine:    Yeah, right. 

Jessie:    Definitely. 

Lorraine:    Thanks, everybody.