CPAs are being asked for insights on how to deal with emerging business issues resulting from COVID-19. Many of these issues are legal in nature, but CPAs should be aware of the issues and potential implications in advising clients. The following are a number of issues CPAs are currently being asked about, as well as links to relevant legal resources:
Enforceability of commercial contracts
Generally, contracts are enforceable unless they contain a specific force majeure provision that applies in the particular circumstance, or the contract can be considered impossible or frustrated at common law. View more information on how this applies, and what to consider in terms of whether a contract is enforceable in the context of COVID-19.
Construction project delays
The general rules applying to commercial contracts, including force majeure and frustration, apply in the context of construction projects. However, construction projects generally have built-in delay provisions where delays occur that are outside the control of the parties, as well as associated notice provisions that should be compiled with. Read explanations of considerations specific to managing construction projects during the pandemic.
Business interruption insurance coverage
Business owners are asking whether their business interruption insurance policy covers forced closures resulting from COVID-10. While the wording of insurance policies differs, most such policies include an exclusion for pandemics and/or a physical damage trigger, which precludes coverage for COVID-19 closures. Nonetheless, in early April, a national class action lawsuit was filed against a number of Canada's large insurance companies for their refusal to pay coronavirus-related business insurance claims.
In a non-COVID-19 context, the Ontario Superior Court of Justice recently released a decision interpreting the term "physical damage" to include the loss of property, even in the absence of actual physical damage, for the purpose of interpreting business interruption insurance coverage. There is nothing in the decision that means that clear exclusions for pandemics or the actual terms of insurance policies limiting the basis for coverage due to business interruption are altered by COVID-19, but the case is a signal that courts may choose to interpret insurance policy language broadly to include business interruption resulting from the pandemic.
Despite a change in operations due to COVID-19, environmental obligations—whether originating from governmental statutes and regulations or internal standards or agreements—are ongoing. Businesses should be reviewing their obligations and documenting compliance, as well as familiarizing themselves with consequences of non-compliance.
Pivoting production due to COVID-19
Health Canada issued an Interim Order for Health Canada to expedite authorization for the sale of medical devices to meet the need created by COVID-19. Organizations pivoting their manufacturing or distribution to provide personal protective equipment to meet these demands need to be aware of the specifications published for such equipment, as well as specific guidance and pathways for approval.
Beyond regulatory approval, organizations also need to look at how pivoting production to manufacture such devices changes their risk profile, including sources of potential liability as well as mitigation tactics.
Organizations may be collecting additional information about individuals' health, exposure/interactions with other individuals, or travel history as a result of COVID-19. All of this is personal information, subject to the organization's governing privacy legislation. Here's more information about applicable legislation and considerations.
While some statutory barriers to virtual shareholder meetings have been relaxed in light of the pandemic, there are still a number of factors that should be considered when determining how to deal with annual shareholder meetings. Organizations should pay careful attention to statutory requirements, technology risk and the risk of an improperly called or constituted meeting.
Rent deferral — GST/HST obligations
GST/HST on commercial rent is payable on the earlier of the day the rent is due under the lease and the day it is paid. As such, landlords who are deferring tenants' rents need to do more than agree that the tenant can pay the rent at a later date if they wish to be relieved of remitting the GST/HST payable on that rent. A formal rent deferral arrangement should be put into place that also postpones the day on which GST/HST is payable by changing the due date under the lease.
Managing work refusals
Employers may be facing work refusals by employees as a result of COVID-19. Generally, health and safety legislation allows employees to refuse work in dangerous situations, although the specific occupational health and safety legislation in each jurisdiction determines the applicable rules. Collective agreements may also have work refusal provisions. A work refusal may involve an employee refusing to do anything from a single task to a complete refusal to work altogether. The threshold is different in different Canadian jurisdictions but must be a legitimate health and safety concern rather than a preference, taste, or personal comfort, and is fact-dependent as to whether it is reasonable in the circumstance.
NOTE: Resources created by external organizations were not reviewed, developed or approved by CPA Canada. CPA Canada accepts no responsibility or liability that might occur directly or indirectly as a consequence of the use, application or reliance on these external resources.