Chief Legal Officers facing Covid-19 crisis: how to avoid the domino effect?

As we speak, all the companies’ executives are calling daily crisis meetings in order to manage the consequences of the containment and business slowdown imposed by the pandemic in France. According to the Cercle Montesquieu and our own contacts with Chief Legal Officers, they are closely involved in these crisis meetings and are mobilized to manage priorities. At the times of writing, there are 3 types of priorities.

1. Managing new relationships with customers and suppliers

1. Checking the dates of signatures: this is where unforeseeable and unpreventable characteristic must be systematically checked.  This quickly becomes a Chinese puzzle. Indeed, the first thing to do is to check the date of signature of the contracts. In France, the date to remember according to a MEDEF note would be the date of force majeure, i.e. 29 February. So for contracts signed before February 29, the force majeure clause would apply automatically (without the need for the contract to expressly mention an epidemic). From this date on, however, the coronavirus epidemic is no longer unpredictable and it was to be expected that measures would be taken in case of a worsening of the epidemic. It would therefore have become essential since that date to adapt the contractual relations to the new situation.

In any case, the applicable law has not yet been decided: which date should be used, the date of containment in China (23 January 2020), the WHO declarations (January 30th), the declaration of force majeure in France, containment in France?

1. Analyze the impact of force majeur on the execution: is it a case of partial impediment (the only case where the debtor is released from its obligations under the contract, e.g. spare parts partly coming from China)? Is it a case of temporary impediment, in which case, an analysis of the operational consequences for the creditor who can invoke termination of the contract in view of the loss in value of the transaction must be made? Is it a case of permanent impediment? In this case, a renegotiation is to be expected and the parties must be returned and reinstated on the day the contract is formed. We see in these different cases the importance of proof and the chain of impediments from one actor to another. The decision-making processes by which these cause-effect relationships are established will be key: amicable settlement, mediation, procedure, etc.
2. Check the insurance contracts when force majeure cannot be retained. In this case, it is necessary to approach the company’s insurance. Be careful, however, because almost all insurance contracts covering companies with operating losses, supply chain breakdown, non-delivery, etc. exclude the event of an epidemic. It is because an epidemic can have an impact on global economic activity that it affects all sectors and its consequences are uninsurable.
3. Take the initiative to renegotiate contracts on the grounds of unforeseen circumstances (especially for contracts concluded after the effective date of force majeure). In the event that a company is impacted by the Covid-19 epidemic, without being able to invoke force majeure, it may ask its co-contractor to renegotiate the terms of the contract due to an unforeseeable change in circumstances making the performance of its obligation excessively onerous. This makes it possible to reduce the financial impact (e.g. penalties for late delivery). However, the unforeseeable change in circumstances at the time of the conclusion of the contract must also be demonstrated.

2. Secure business continuity through the accelerated use of telework and new modes of collaboration

On the whole and since at least March 17, 2020, most legal teams have been working remotely, with senior managers and legal directors in crisis rooms and sometimes – still these days – in the company. The containment measures most likely reinforced and extended from the week of March 23rd will end up making legal teams 100% remote.
Under these conditions, and once the time for crisis videoconferences is over, legal organizations will have to generalize operational work tools to manage work in task force mode :

1. Use video conferences for negotiations (with stakeholder management via virtual rooms).
2. Use artificial intelligence to automatically search the contract stock for red zones in contractual terms, e.g. contractualisation dates between 30/01 and 29/02, insurance clauses, the possibility or otherwise for getting around the contract in case of impediments encountered in its execution, etc.
3. Accelerate the implementation of contractual robots to industrialize the formalization of new contracts or new clauses related to the new period.
4. Set up legal chatbots to answer urgent, often repetitive questions from operational staff undergoing renegotiation (HR teams, Sales teams, Purchasing teams, R&D, etc.).
5. Find the most clever interfaces between tools: for example, coupling a daily collaborative platform (Teams or Hangout type) with more robust tools to manage a large number of contributors (Zoom, Tamashare) or even some tools that make almost any physical meeting configuration possible, including brainstorming, agile project management, team animation, etc. (Klaxoon, Blue Jeans)

As soon as the personal data of employees is touched, questions arise: what possibilities does the employer have for collecting data on an employee who has a special authorisation to visit his workplace during the period of confinement?  Can the employer share employees’ COVID-19 related health data with the competent authorities? What are the risks for the company in the context of telework? Is there a difference to be made between the case where the employee uses a private computer and the case where he uses a computer lent by the company?

In response to these priorities the Cercle Montesquieu, an association of Legal Directors, set up on March 13 a Covid-19 platform with 7 business themes where the notes of law firms are shared in a royalty-free format

Avoid the domino effect

Beyond these crisis responses, this period is an opportunity to anticipate a New Deal 2020 by defining a new reference framework that will have to regulate a profound change in the state of market forces.

In total, the current period of derogatory rights linked to the Covid will lead to another period – in 2, 3 or 6 months – which will be the time to take a step back and start drawing lessons of that experience. On our side, our first observations make us believe that the Legal Departments will grow and become even stronger if:

1. They will have accelerated the opening up of data allowing them to get a better idea of the new Covid-19 law, industry per industry, and thus participate in the national effort to be resilient during a major crisis.
2. They will have entered fully into the era of extended collaboration and digital technologies,  through the work they will have managed to forcibly achieve in record time
3. They will have succeeded in playing a strategic negotiating role in all critical renegotiations (new suppliers, new logistics routes, new offers, etc.).
4. They will have entered the era of digital learning thanks to the generalisation of the use of e-learning platforms, particularly for soft skills.
5. They will have succeeded in “getting out of Covid law” in the most reactive and flexible way possible by writing the contractual arrangements allowing them to get out of it without endangering the stakeholders and in particular the SMEs that depend on their company. For the behavior of the actors will be very much observed by the public sphere and the responsibility of the large corporate will be exposed in this national test.

In other words, the companies that will emerge great from this period will be those that, initially, will not be short of cash and, secondly, those that will have been able to anticipate the new playground in their areas of excellence and extend their survival innovations into innovations for the common good

More info on the Covid-19 platform from the Cercle Montesquieu

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