COVID-19: LEGAL CONSIDERATIONS FOR BUSINESSES IN UGANDA
On 18 March 2020 President Yoweri Museveni announced a raft of measures aimed at minimizing the public opportunities for the spread of COVID-19 in Uganda.
These include temporary closing of educational institutions, banning of religious, political, cultural and similar public gatherings and banning travel of Ugandans to 17 countries (mainly in Western Europe and Asia), that have many confirmed cases of COVID-19.
On 19 March 2020, the Chief Justice of Uganda issued guidelines to be followed as the court infrastructure scales down its operations as an initial response to the pandemic.
While it is still too early to determine the actual effect of this pandemic on Uganda, what is undoubted is that the economy will be significantly impacted.
To assist our clients, we have highlighted possible legal issues arising out of the COVID-19 crisis on businesses operating in Uganda as well as areas to be considered by businesses, investors and transaction teams during this period. These include the effects on:
- contractual obligations and rights;
- labor relations;
- business operations;
- tax compliance;
- real estate stability;
- data control;
- the provision of essential services;
- specific sectors (e.g. tourism, hotels, air travel, medical tourism etc.); and
Owing to the travel, import, export, transport restrictions and other measures being taken by governments across the world, there is a high likelihood that contracts entered into by parties may either be temporarily or permanently impossible to perform. In general, non-performance of obligations under a contract amounts to a breach of contract under Uganda’s Contracts Act 2010. However, frustration is recognized as a plausible defense in an action for breach of contract. Although statutorily recognized, it is essentially the extension of the ‘force majuere’ doctrine which permits parties to be discharged of respective contractual obligations owing to the independent occurrence of unforeseen, unpredictable and difficult-to-mitigate events that effectively make it impossible to perform contractual obligations.
Reliance on a force majeure clause does not necessarily mean termination of the contract altogether; depending on the drafting of the clause, the performance of the contract can be suspended or be otherwise postponed for a certain prescribed period. In addition, to frustrating a contract or suspending performance of obligations, issues around refunds of monies paid may arise.
Given the unpredictable and rapid manner in which COVID-19 has spread worldwide, and the general paucity of similar pandemics in the recent decades, it is unlikely that many contracts would contain, in their force majeure clauses anything in the magnitude of COVID-19. Consequently, it is important that contractual parties undertake various measures to mitigate potential contractual liabilities in the event that the effects of COVID19 makes the contracts temporarily or permanently impossible to perform.
Guidance for Contractual Parties
- New Contracts: Depending on your contractual position (for example, as a supplier or a customer), ensure that your new contracts have a boilerplate clause on force majeure and consider whether the clause should include pandemics or curtailment of transportation services or utilities as a supervening event. Ensure that the clause provides for a notification requirement and deals with the issues that may arise if a force majeure event (such as COVID-19) occurs e.g. care of the project pending completion works. On the other hand, you may also rely on breach of contract where the contract does not contain a ‘force majeure clause’ and the counterparty does not or delays the performance of their contractual obligations.
- Existing Contracts: Parties should review their existing contracts to identify whether their force majeure clause covers pandemics such as COVID-19 and the notification requirements and remedies agreed between parties. In the event that the contracts do not have provision for pandemics, parties should initiate mitigation measures such as amending/varying or entering into consensual agreements on potential liabilities that may arise. In addition, businesses should initiate the force majeure requirements under their existing contracts such as notifying their counterparties, in the event of delayed or impossibility of performance.
- Commercial Mitigation: Parties should take pro-active steps to mitigate their commercial risks as a result of COVID-19 event and prepare for the interruption of their operations or those of their commercial counterparties arising from impossibility to perform existing contracts.
Note: It is impossible to propose a one-size-fits-all solution and every contract will have to be examined on a case-by-case basis.
We believe that COVID-19 will have various effects on the existing employment contracts/relationships, as well as on independent contractor arrangements. We highlight the various legal issues that are likely to arise amid the outbreak as follows:
- Sick Leave: WHO and Government agencies have been recommending 14-day quarantine periods for people likely/suspected of having been in contact with the virus. Uganda’s Employment Act 2006 stipulates that only employees who have been in employment for two consecutive months are entitled to sick leave. It further provides for a 30-day sick leave with full pay and a further 30 days with half pay, each year. Termination is permissible when this sick leave period is exhausted. If the Act is followed, employees who are taken ill are kept in employment for at least 60 days before separation occurs. For half of that period, they would be paid and for the other, paid only at half-pay. Thereafter, such employee would have no earnings.
- Workplace Safety: The Occupational Health and Safety Act 2006 imposes a duty on employers to ensure the safety, health and welfare at work for all persons working at the workplace. The Act therefore imposes a legal obligation on employers to take various measures to protect their employees from the spread of COVID-19. Failure to observe the obligation could lead to a claim for workers compensation.
- Salary Reductions: An employer cannot unilaterally change the terms and conditions of an employee’s engagement where such a change is detrimental to the employee. If an employer wishes to implement salary reductions, it would need to obtain the employee’s written consent. Where an employer unilaterally implements such changes, the employee may succeed in a claim for constructive dismissal.
- Redundancy: If the effect of the pandemic is long-lasting, it is likely that a number of employers will need to declare redundancies. The Employment Act 2006 contains specific provisions on the procedure that must be followed.
- Place of Work: The Employment Act 2006 requires that employment contracts should state the place of work and it is likely that many existing employment contracts have place of work provisions. Where employees opt to or are required to work from home or remotely from work because of the outbreak, such options may result in lack of productivity in the absence of supervision and a total breakdown in the ability to render any external services. Data safety is also likely to be compromised where all work is done offsite, and technology deployed or relied on to create a semblance of a normal working day.
- Performance: Certain employment contracts may require their employees to travel for work and we anticipate that such employees may be unable or find it impossible to perform their employment obligations due to the travel restrictions and territorial lock downs across the world. Alternatively, cases of insubordination are likely to increase.
- Independent Contractors: No statutory requirements for contracts with independent contractors exist. General contract laws will be applicable.
Guidance for Employers:
- Sick Leave: Employers may enter into addendum contracts temporarily waiving the sick-leave provision and providing a fully paid 60-day sick leave for employees who may require to be in self-quarantine. We note that although this may affect employers’ cash flow, it is a necessary step to ensure that affected employees enter into self-quarantine for both their safety and that of the workplace.
- Place of Work: Employers should waive their rights under employment contracts by entering into temporary agreements/addendums allowing employees to work at home to mitigate the risk of spread of COVID-19 at the workplace. In addition, as far as it is practical, employers should deploy online means of conducting business between its employees, and clients. However, we recognize that this guiding point may be difficult for employees who may not be able to work remotely such as industrial employees.
- Workplace Safety: Employers should conduct trainings, prepare information charts and regularly circulate safety/health information to its employees with respect to COVID-19. Employers should also provide health and safety materials at the workplace such as sanitizers, for use by employees to be legally compliant with workplace safety laws.
- Redundancy: Employers must ensure that they follow the specific provisions outlined in law in effecting a redundancy. The most important part of a redundancy exercise is ensuring transparency throughout the process. Employers should bear in mind when considering declaring employees redundant that there are 2 distinct notices that must be issued. Where employees are members of a trade union, a slightly varied procedure applies.
- Salary Reviews: To the extent possible, we would recommend no changes to a salary structure. If the employer has no option, the employer must obtain the employees’ consent to legally reduce their salary.
- Reduction in Hours of Work: To the extent such a reduction in working hours will be associated with a salary reduction, the employer must obtain the consent of its employees.
- Forced Leave: Depending on the employer’s policies and employment contracts, it may be possible to require employees to take annual leave at a specific time.
Due to the globalization and interconnectedness of the business world today, the measures taken by governments across the world are likely to result in minimal movement of people and goods, affecting business operations in Uganda. Given Uganda’s trading history with China, Europe, Kenya and other neighboring countries and the ban on travel to several countries where COVID-19 has struck, the impact on supply chains is likely to be significant.
A reduction in the movement of people and goods means that we are likely to have reduced foreign investments, transactions and supplies. In addition, the low economic environment is likely to lead to business failures, insolvency cases, debt and mortgage repayment default, layoffs/redundancies, profit warnings by public companies as well as lack of credit access due to the strain caused on financial institutions by loan defaults and diminished cash flows/deposits. Further, we anticipate in a worst-case scenario that a shutdown/slowdown of government services which will make it difficult for businesses to obtain relevant permits, approvals and comply with other statutory obligations. Notwithstanding the potential shutdown/slowdown, we think that businesses may find it difficult to comply with statutory obligations such as annual reports and tax filings due to the strain on their operations and human resources.
We briefly highlight below measures that businesses can take and recommended rescue measures that the government can take to mitigate the ripple effects of COVID-19 on business operations:
Guidance for Businesses
- Conduct a proper review and assessment of your business to understand the risk and potential impact of COVID-19 on your operations and financials; and take appropriate mitigating measures.
- Review all your contractual obligations and communicate with your contract counterparties on the potential impact of the crisis on your performance of the contract obligations; and possibly reach a consensual agreement on future performance.
- Review your financial obligations under existing loan agreements and your ability to perform those obligations in light of an imminent reduction in revenue/profits; and engage with lenders on possible variation of existing terms.
- Review your cash flow practices, immediately take measures to ensure the survival of the business in a low business environment, and in what is likely to be a strained credit market.
- Ensure that you consult your relationship partner at Bowmans before taking any mitigation measures that may result in legal liabilities such as layoffs/redundancies, non-performance of contracts.
Notwithstanding the crisis, businesses are still required to comply with their tax obligations under the various Tax Laws unless there is a change in law or policy by the government.
Guidance for Businesses
- Extension of time to submit returns: Where a business is unable or foresees challenges in submitting tax returns due to operational challenges, the Tax Procedures Code Act (the TPCA) allows for the extension of time to submit the returns. Businesses requiring this extension should make the application in writing to the Uganda Revenue Authority (the URA) well ahead of the submission deadline. This further exempts the business from late submission penalties. However, we note that an extension of time to submit returns does not alter the date for payment of the taxes due.
- Extension of time to pay tax: Where a business is unable or foresees challenges in paying their taxes in time, the TPCA allows for the extension of time to pay the taxes. Businesses requiring this extension should apply in writing to URA seeking for either an extension of time or an arrangement to pay the taxes in instalments to avoid incurring late payment interest.
- Objections/Appeals to Taxation Decisions: There are time limits for the lodging of objections against URA’s tax decisions and appeals to Tax Appeals Tribunal. However taxpayers may apply to extend the time within which to lodge an appeal out of time, with reasonable cause.
- Execution/Enforcement measures by URA: We would urge the URA leadership to adopt an attitude that supports payment of taxes in a manner that recognizes the challenges that will come with a shut-down based on COVID-19.
We believe that the effects of the COVID-19 will be felt in the Ugandan real estate sector. We anticipate the following issues to arise for both landlords and tenants; and highlight various mitigation measures below:
- Closure of the Lands and Collateral Registries: This will have an impact on transactions due to challenges in the registration of instruments/documents and related matters. Further, borrowers may see delays in obtaining facilities from banks, as the bank will not be able to perfect the securities obtained from the borrower.
- Default of Lease/Rent Obligations: The crisis may lead to the country being potentially locked down and accordingly, commercial tenants may not be able to access their leased premises. In such a scenario, would commercial tenants have the right to withhold payments of their rental obligations? In order for a commercial tenant to withhold payment of rental obligations, they would need to prove frustration. There would need to be clear cut events which would allow the tenant to rely on the doctrine of frustration, to withhold the payment of rental obligations. Nonetheless, the ability of the commercial tenants to rely on the doctrine of frustration would be governed by the terms of the underlying lease.
- Suspension and Keep Open Clauses: In some commercial leases, there may be direct clauses with respect to suspension of rent upon the occurrence of a certain event. In addition, the leases may contain “keep open” clauses, which the tenant may not be able to perform during a lockdown.
- Landlord representations: We also note that landlords should err with caution in making representations to their tenants during this time, owing to the doctrine of promissory estoppel. For example, a landlord making a representation on the possibility of suspension of rent during the subsistence of a lockdown, would be bound by such a representation and may not later claim for unpaid rent from the tenant.
- Construction: The effects of the crisis will likely lead to difficulties in the performance of construction contracts and businesses in the construction will need to undertake mitigation measures to eliminate or reduce potential losses and liabilities.
Guidance for Businesses
- It would be advisable for commercial tenants to review the terms of their lease, to see if there are any clauses with respect to either withholding or suspension of rent. If the leases provide for either the withholding of rent or suspension of rent, then the provision would need to be analyzed to assess if it can be operationalized during this time. If the leases are silent on this, it is advisable for commercial tenants to continue to perform their obligations, to avoid being in breach of the terms of the lease.
- Landlords should seek legal advice from their relationship partner at Bowmans before making any representations to their tenants, as these may become binding due to the doctrine of promissory estoppel.
- The terms of existing building contracts would need to be reviewed to see if the force majeure events cover pandemics and assess if, in particular COVID- 19 may directly make it impossible for the parties to perform their obligations. For new building contracts, parties may include provisions to deal with the allocation of risk of delays caused by pandemics. For new construction contracts, it may be wise for parties to include bespoke amendments to allocate the risks of any delays caused by pandemics or rely on the existing time extension clause, allowing the contractor extra time to complete construction works, in the event the government or local authority exercises statutory powers that may directly affect the execution of works.
Information that will be collected will include information about the health status of an individual (data subject) including whether they tested positive or negative, travel information, information about those individuals who have self-isolated and in certain instances, information about family members who have self-isolated or who have shown symptoms. This information will be considered as personal data under the Data Protection and Privacy Act, 2019 (DPPA) and the health data collected is considered as ‘special personal data’ under the DPPA afforded special protection. The collection and processing of personal data and in particular special personal data will be subject to various legal restrictions that businesses must adhere to. Under the DPPA, businesses should only process personal data where they have consent of the data subject and if they have in place appropriate safeguards or where the processing is done for legitimate purposes. In addition, personal data is not to be collected, processed or held in a manner that infringes on the confidentiality of the data subject. We note however that an employer may process data pertaining to health where it is necessary for the performance of a duty imposed by law on an employer.
The DPPA also allows for further processing of personal data where it is necessary to prevent or mitigate a serious and imminent threat public health or safety or the life or health of the data subject or another individual. We consider the COVID-19 pandemic would be covered under this although this in itself does not exempt business from compliance with the data protection principles and as such, we recommend the following guidance for businesses:
Guidance for Businesses
- Businesses should only collect information of their employees if it is strictly necessary and essential to its operations and safety of the workplace.
- Where businesses collect the health information of their employees, they should ensure that they have in place appropriate data security measures such as encryption to protect the data collected.
- Where businesses wish to transfer the health data of their employees outside the country, they should ensure that they have appropriate data security measures for the transfer and that the recipient of the data has appropriate safeguards and commits to the security of the data.
- Businesses should check their privacy notices and employment contracts to ensure that the proposed collection and processing activities align with their contractual documentation. In the absence of any documents, privacy notices should be put in place to address the proposed activities.
In various countries where there has been an outbreak of COVID-19, there has been consumer panic that has led to a run on essential products, goods and services. We believe there is also a likelihood of suppliers overpricing essential goods and services, creating artificial shortages of supplies to the detriment of fair competition among businesses. These actions are likely to hurt businesses and people that depend on the affected supplies leading to reduced profitability, supply chain disruptions, et al. There is also a likely negative effect on food security. In addition, considering that most essential goods are imported into Uganda, the effect of interruption in imports for several months will be massive. To ensure that the business environment remains competitive and there is fair dealing between business parties, we recommend as follows:
Guidance to businesses
- Avoid the temptation to over-price essential goods or services
- Consider supporting import substitution efforts which could in fact lead to value addition and job creation
Increased home stays and remote conduct of business and transactions due to the COVID-19 pandemic means that the country’s telecommunications sector will be burdened and strained in the coming weeks. We are likely to see increased phone calls, messages, use of the internet and heavy media consumption. This may result into operational strains for telecommunication businesses in their compliance with the statutory duty to provide quality service and may invite the jurisdiction of the Uganda Communications Commission (UCC). We have also seen in recent days that some telecoms have slashed prices of internet data at certain times; fees on some mobile money transactions have also been slashed to allow for less contact with cash that may be infected with the virus.
Guidance for Telecommunication Businesses
- Telecommunication businesses should monitor their networks and traffic to ensure that they comply with the statutory license conditions on quality of service.
- Telecommunication businesses should stay in constant communication with the UCC on any abnormal spikes of traffic and work together with UCC to mitigate any potential network failures/outages.
- Telecommunication companies should also desist from anti-competitive behavior at such a time in a bid to get ahead or take advantage of the greater need for their services.
Guidance for General Businesses
- Where a business implements ‘work-at-home’ policies and online means of business, it should ensure that existing contracts with telecommunication/internet companies offer adequate performance warranties to ensure their continuity and minimizes disruptions in operations during the affected period.
- Businesses that do not have existing contracts should enter into new agreements for the provision of internet/telecommunication businesses with the necessary warranties to ensure their continuity and minimizes disruptions in operations during the affected period.
Going by the disruptive path COVID-19 has left where it has struck, it is not inconceivable that the negative effects to the economy and social life in Uganda could be devastating. It is anticipated that there will be significant effects on the airline industry; the hotel, hospitality and tourism industry; exports of produce to various destinations; foreign exchange rates etc. Many of the effects cannot be mitigated without concerted engagements between the public and private sectors, including the quick and deliberate exchange of relevant information on preventive actions, relevant support and recovery efforts. Business are advised to be on the look-out for the effect on any sectors and seek advice on mitigation measures.
In view of the difficulties in international travel, investment promotion activities and efforts will be significantly impacted by COVID-19. A significant slow-down in foreign direct investment is not unexpected especially considering that most investments hitherto have come out of countries that are now shut-down and inaccessible. Whereas some might venture to come to Uganda, the need to self-quarantine for 14-days on arrival makes Uganda, even without a single confirmed case reported, wholly unattractive for the foreseeable future, or until the pandemic is controlled globally.
We have only discussed a few consequences of COVID-19 on the Ugandan business environment. As our world copes with this pandemic, developments on legal issues affecting business will occur rapidly. We will keep you updated on the impact of COVID-19 in the coming days and weeks, as the developments occur.