This summary describes some of the legal aspects relevant to our clients regarding the appearance of the new coronavirus (COVID-19) in Hungary. Our aim is to point out that the measures that companies are planning to implement or have already put in place must also comply with existing legislation, while it is also necessary to bear in mind that reference to the coronavirus crisis does not automatically override private law relationships. Our summary examines the effects of COVID-19 in five aspects:
- the coronavirus epidemic as a ‘force majeure’ in contractual relationships;
- the coronavirus epidemic: an event subject to disclosure or notification requirements?
- the privacy aspects of conducting the health checks of persons entering a facility, including the recent guideline of the Hungarian National Authority for Data Protection and Freedom of Information (NAIH) on the coronavirus;
- coordination of measures regarding coronavirus amongst market players – competition law implications;
- certain employment law aspects of the coronavirus situation.
Coronavirus situation as 'force majeure' in contractual relationships
Due to the worldwide spread of the coronavirus and its recent appearance in Hungary, it is expected that more and more questions will be raised in Hungary in the near future, about the impact of the epidemic itself, and that of the measures taken by authorities (e.g. quarantine, closure, etc.), on the performance of contracts and the exemption from the consequences of a delay or other breach of contract.
In the context of a worldwide epidemic such as the coronavirus, situations may emerge, where a contracting party - referring to force majeure - fails to perform the contract or does not perform the contract in accordance with its terms. According to the Hungarian Civil Code, a party may exempt itself from its obligation to pay damages caused by a breach of contract, if it can prove that (i) the breach of the contract occurred as consequence of such circumstances that are outside of its control, (ii) such circumstances were not foreseeable at the time of entering into the contract, and (iii), it could not be reasonably expected to avoid such circumstances and to mitigate the resulting damage.
Based on the above, the various events of 'force majeure' qualify as reasons for exemption from performance, although Hungarian laws do not have an exact definition and itemized list of 'force majeure' events.
Relevantly, however, according to the Civil Code and the prevailing Hungarian case law, the mere existence of a force majeure event does not automatically result in the exemption of the party from the consequences of a breach of the contract. It is also necessary that the given force majeure event meets the following criteria:
- it has a direct effect on the performance of the defaulting party;
- it was demonstrably not foreseeable at the time of conclusion of the contract; and
- at the time of its occurrence, it could not be expected from the party concerned to prevent its consequences.
Based on the Civil Code and the case law, the party invoking the force majeure event must evidence the existence of the said circumstances.
However, the parties may have regulated the scope of force majeure events, the notification rules to be followed in the event of a force majeure event and also the legal consequences of force majeure specifically and, in a more detailed way compared to the general rules of the Civil Code. Where the contract in question contains a specific force majeure clause, it usually contains a notification procedure, and the non-compliance with such procedures could have a significant effect on the contractual consequences of force majeure. It is therefore necessary to carefully review those clauses in the light of the present situation.
Under Hungarian law, the coronavirus outbreak would not necessarily qualify as a force majeure event exempting a party from the legal consequences of a breach of contract. First and foremost, the parties should review the relevant clauses of their contracts. Unless the parties have agreed upon specific rules for force majeure events in their contract, the coexistence of the three conceptual requirements described above must be examined and evaluated.
In this respect, the following aspects are generally worth considering, among others:
- in the case of contracts concluded prior to the appearance of the coronavirus in December 2019, it can be generally stated that the parties did not have to anticipate the worldwide spread of the COVID-19 virus, whereas in case of contracts concluded since early 2020, this circumstance needs to be individually assessed and demonstrated;
- the party invoking force majeure must demonstrate, in the specific context of the contract, why and exactly how the coronavirus outbreak affects the performance of the contract - the mere reference to the appearance of the virus is not usually sufficient to support it; and
- the party invoking force majeure also needs to demonstrate why it cannot be expected to counteract the effects of the coronavirus outbreak on the performance of a particular contract – e.g. why the effects of the epidemic on the contract cannot be treated by employing another supplier, or advising employees to work from home.
In summary: the COVID-19 virus is not a generic "blank cheque" for refusing to perform contracts – the effects of the outbreak must be examined individually in the context of the specific contract, which involves assessing the specific terms of the contract and the legal requirements described above. In addition to the force majeure provisions in contracts, it is essential for companies concerned to review the situation and prepare for the necessary steps by reviewing the notification and dispute resolution provisions.
Coronavirus epidemic: an event subject to disclosure or notification requirements?
In case of companies subject to disclosure obligations (typically listed companies) particular consideration should be given as to whether circumstances might emerge that the company must disclose in the context of its disclosure obligations, including, among others, the following:
- significant disruption to a company's business, such as a significant supply, production or service outage in a supply chain, the elimination of large orders from certain countries, or the disruption of existing markets;
- major change resulting from the outbreak and public / official measures taken to prevent the outbreak affecting the business plan of the company; and
- major events planned / organized by the company or even delays or failures affecting transactions.
In addition to the disclosure obligation, the events mentioned above by way of example may trigger, among others, certain material contractual obligations such as notification or information covenants.
Due to the coronavirus epidemic, some companies may suffer significant business disadvantages, or at least go through changes, that they may need to report to their creditors (e.g. banks, bondholders) under the terms of their financing arrangements. To this end, it is particularly important for the companies concerned to review the relevant provisions of their credit agreements, bond prospectuses, including, in particular, the notice, consent, approval and termination provisions thereof.
Privacy aspects of the health check of persons entering a facility
As part of protection against the coronavirus, the intention may arise on the part of employers and facility managers to perform a screening of their employees and/or guests asking them to provide information on their medical condition, personal contacts, or recent travels in order to be able to identify persons potentially infected with the coronavirus. Such screening methods might include applying surveys and tests, or the measurement of body temperature, typically with the assistance of the receptionist colleagues or security guards.
It is important to note that health data is considered as a special category of personal data. The processing of such data is generally prohibited pursuant to the General Data Protection Regulation of the EU (the GDPR) and is allowed only under exceptional circumstances defined under Article 9 (2) of the GDPR.
While explicit consent of the data subjects may be a possible legal basis for the processing of such sensitive personal data, in case of employees, this solution might not be feasible since their consent is not always regarded as a voluntary, which is a condition for the consent to be valid. This could be the case, for example, if the control is mandatory or the data subjects consider that they have no choice in giving their consent.
Further provisions of the GDPR that allow the processing of health data for important public interest and labour safety reasons may be considered as a possible legal basis. The use of these legal bases, however, is only permitted if the Member State legislation makes it possible by providing adequate safeguards in addition to the GDPR. Such additional Hungarian legislation does not currently exist for epidemiological situations, and at most, the employer’s general obligation to ensure circumstances of safe work as set out in the Hungarian Labour Code might be considered as such requirement.
If, however, the employer implements a measure involving the processing of health data in relation to the coronavirus situation, it must exercise caution. In particular, the employer must consider the principles of data minimisation, necessity and proportionality in order to see whether it is possible to achieve the intended purpose by other means that do not involve the processing of health data that is considered to be sensitive personal data.
A possible solution might be that the employer makes use of a contracted health care institution for any examination, as health professionals have much broader rights to process health data.
Based on its guideline issued on 10 March 2020, the Hungarian National Authority for Data Protection and Freedom of Information (NAIH) does not consider to be necessary and proportionate, in the current epidemic situation, those measures taken by the employer which in general order use of diagnostic tools (e.g. thermometer) for all employees. The primary duty of an employer is to ensure the safety and health of its employees by providing information to them (e.g. information about the coronavirus) and implementing organisational measures (e.g. rescheduling business travels, application of disinfectants, providing opportunities for home office, restriction of customer interaction, etc.). In case a measure taken by an employer is connected to the exposure of a certain employee (e.g. if the given employee has been in a particularly high-risk territory or in a country), then according to the NAIH it is possible for an employer to use personal data (e.g. accepting notifications from the employee, using questionnaires), provided that the employer has conducted preliminary assessment and determined that such measure would be necessary and proportionate to the purpose, and that the private life of the employee is not disproportionately limited (e.g. by observing the details of the private travels). The NAIH emphasises that the processing cannot include even in this case the medical history of the data subjects, and the employer cannot request the employee to submit health documentation.
The measures taken by employers in relation to the coronavirus outbreak must therefore always be evaluated in terms of compliance with data protection related rules because employers have increased obligations in the case of special categories of personal data and the exposure to fines is higher in the event of infringements.
Coordination of measures regarding Coronavirus amongst market players – competition law implications
In light of the coronavirus, the businesses may need to align the measures they have taken for precaution and safety, or to maintain their undisturbed operation, with their business partners, either because the partners themselves have already adopted such measures, or because the partners might be unable to continuously supply or operate. Such coordination, provided that it is only related to precaution, health-related measures or that it is strictly necessary to maintain business cooperation within the current, changed circumstances, usually does not raise competition law concerns. Nevertheless, businesses must assess the possible effects of their coordination, and the measures taken pursuant thereto, on other businesses or consumers and clients. For example, reserving scarce resources and goods, depending on the market position of the parties, could have the effect of precluding other market players. Thus, measures relating to market behaviour, supply or sale should be considered from a competition law perspective too.
Even more prudence is required if businesses align their planned or implemented measures with competitors. In some cases, such coordination is lawful (for example, the design of strictly safety and health-related measures within an industry association), however, if the coordination may have an impact and may influence the market behaviour of competitors, it is likely to raise serious competition law concerns. Thus, in crisis situations, when the risks of market operations are higher, and, thus, the incentive to coordinate competitors’ market behaviour is stronger, businesses must be particularly mindful of such competition law risks, because the competition authority will unlikely accept such coordination as lawful, and could sanction it.
Certain employment law aspects of the coronavirus situation
Is an employee entitled to refuse to work, referring to the fear of the coronavirus?
Generally speaking, an employee cannot refuse to be present and work at the workplace by referring only to a fear of the coronavirus. In case the employee refused to work and could not properly justify his/her absence, he/she would be in breach of the duty to be available at the employer’s disposal and to perform work, which could even serve as a ground for termination with immediate effect. Legitimate absence from work may take the form of annual leave, unilateral exemption by the employer from the requirement of availability and work duty, or teleworking or “home office”. However, all of these forms require the consent of the employer (excluding the seven working days of annual leave which the employer is required to provide at the time requested by the employee).
What happens if an employee is quarantined?
If an employee is subject to official isolation or epidemiological lock-up for public health reasons, the employee will become incapacitated to work and will be entitled to sick pay in accordance with applicable laws. However, it is important that in such case the employee must immediately inform the employer about the fact that official actions were taken in relation to him or her.
Possible preventive measures by employers
If an employee is subject to official isolation or epidemiological lock-up for public health reasons, the employee will become incapacitated to work and will be entitled to sick pay in accordance with applicable laws. However, in such case, the employee must immediately inform the employer about the fact that official actions were taken in relation to him or her.
- It is highly recommended to inform employees about the measures to be taken to prevent the coronavirus, which should be regularly reviewed and repeated;
- Appropriate hygiene equipment necessary for occupational safety (e.g. hand sanitizer) must be provided;
- Where the nature of the work allows, the employer may decide to provide the possibility of teleworking or “home office” by way of amending the employment contract or by way of an internal policy;
- The employer may unilaterally exempt the employee from the obligation to be available and to work, in which case the employee would be entitled to base wage;
- The parties may freely agree on the exemption from the obligation to be available and to work. In case of a mutually agreed exemption, the parties may agree whether the employee shall be entitled to any amount of remuneration during the absence.
Teleworking / home office
Teleworking and “home office” are two closely related yet different concepts under employment law. Teleworking is regulated as an atypical employment relationship by the Hungarian Labour Code, an essential feature of which is that the activities are performed on a regular basis at a place other than the employer’s facilities, using computing equipment, where the end product is delivered by way of electronic means. The parties must agree to teleworking in the employment contract. Unless otherwise agreed, the work schedule of the employee performing teleworking is flexible and the employer’s right of instruction is limited solely to the definition of duties to be discharged by the employee.
Unlike teleworking, “home office” means occasional (i.e. not regular) work from home under Hungarian employment law. In case of “home office”, the employer, grants the right to the employee, agreed by the parties in the employment contract or unilaterally by the employer, to choose the place of performance. It is recommended to set out the rules of “home office” in detail in the employer’s internal policy and communicating to the respective employees. Naturally, the terms and conditions of employment must continue to be maintained at the place of work specified in the employment contract between the parties, since it is primarily up to the employee to choose where he/she wishes to perform his/her work.
The Hungarian Labour Code, by regulating derogation from the employment contract, gives the employer the opportunity to temporarily (i.e. for a term not exceeding forty-four working days or three hundred and fifty-two working hours) instruct the employee to work at a place (even at his or her home) other than the one specified in the employment contract. However, beyond this period, the employee may not be instructed to perform additional “home office” unless his or her employment contract expressly provides so.
Companies are facing unprecedented challenges due to the COVID-19 virus, therefore the necessary organisational measures have to be adopted after careful consideration. We are at your disposal in connection with any questions regarding our summary and/ or the coronavirus situation.
Dr. Kristóf Ferenczi
Managing Partner, Kinstellar, Budapest