The Journal The Authority on Global Business in Japan

On Monday, March 30, the American Chamber of Commerce in Japan (ACCJ) Legal Services & IP Committee (LSIP) held a webinar as part of the chamber’s Covid-19 virtual event series. More than 70 people attended to hear about challenges and solutions facing companies as to their employee’s health data, role changes, and work-from-home issues. Also covered was how to handle contract delays and performance with customers and suppliers.

The panel, moderated by LSIP Co-Chair Catherine O’Connell featured Vice-Chair Chris Jacobson speaking on commercial con­tracts and force majeure, as well as Takuo Misaki addressing labor law. Additional comments were provided by Co-Chair Scott Warren.

As a caveat: this is not meant as legal advice for your specific issue, which likely will require a detailed review of the pertinent facts involved. Instead, this provides generic information that may help you understand and consider the overall legal land­scape involved in handling Covid-19 effectively.

STAFF ISSUES
May I temperature-scan my employees and require them to submit their personal health data?
This question poses issues on two fronts: personal information and employment law. Regarding the personal information aspect, Japan’s Act on the Protection of Personal Information (APPI) states that a business shall not obtain personal infor­mation by deception or other wrongful means. It does not require the consent of the subject in each event of personal information collection.

However, the same law (and its enforcement ordinance) states that, regarding certain health records, the consent of the subject is required. Therefore, it would appear the law considers health information as a more sensitive category of personal information. Accordingly, it is desirable to obtain consent prior to conducting a temperature scan to avoid any risk of giving raise to claims based on the APPI or perhaps even an invasion of privacy tort claim.

However, it is unclear specifically what form of consent is needed. For example, as a practical matter, an employer may issue an email to its employees, update its work rules, and perhaps post signs indicating its intent to temperature-scan employees for the express purpose of Covid-19 prevention. Unless the employee objects, it may be considered consent (keyword being “may,” as it is unclear how a case would be decided).

If an employee refuses to consent, whether a disciplinary action is possible gives rise to an employment law issue and will be viewed, in part, by balancing the need to conduct temperature scans to protect the safety of the workplace against the need to protect the privacy of an employee. As the employer is obligated to procure the safety of its employees and its work­place—and as the severity of the Covid-19 crisis deepens—the balance may tip in the direction of allowing disciplinary action against a refusing employee.

In the United States, it has generally been accepted that, due to the current Covid-19 pandemic, employers may temperature-scan employees to ensure a safe working environment. This is in contrast to most countries in the European Union, which generally prevent an employer from collecting such data. Other countries will often have their own regulations.

No matter where the data is collected, it is important to ensure that such sensitive health data be properly collected, securely stored, visible only to essential employees, and kept for a shortened retention period.

What steps are required to shorten workers’ hours and temporarily change employee roles during the Covid-19 crisis?
Unless there is an employment or labor agreement to the contrary, employees generally do not have the right to legally demand that employers allow them to work. Whether the employer shortens working hours or exempts an employee from working entirely is up to the discretionary decision of the employer (note: salary payment in such cases is a different issue discussed in the following answer).

Changing an employee’s role will generally depend on the scope of labor set forth in the employment contract. If the employer is demanding that a chef work in accounting, that will likely be outside the boundary of what the employer can ask of its employees. (Even if there is no written employment contract, it is likely to be assumed that the contract with the chef involves cooking in a kitchen and not working a computer in an office).

Can employees’ wages be lowered for shortened work hours?
Under Japanese law, unless the labor agreement specifies other­wise, this generally depends on whether the shortening of working hours is due to reasons attributable to the employer. The basic thinking is that, if an employee is being prevented from working due to reasons of the employer, the employee should not lose out on getting paid.

The Covid-19 crisis presents a conundrum in this respect. The situ­ation in Japan has been that there is no government edict preventing people from going to work. So, if the employer refuses to allow its employees to work, this may be seen as a discretionary decision (i.e. attributable to the employer). With the April 7 declaration of a state of emergency by the government, the impossibility of labor may be seen as being due to such declaration and not the decision of the employer. (Again, the operative word is “may,” as it is not clear how this may be determined by the courts.)

There is also an issue regarding whether 60 percent or 100 percent of a worker’s wages need to be paid. Generally, 100 percent is due when an employer decides to stop work even though work is possible, and 60 percent when work becomes impossible due to a reason which is not controllable for the employer, such as the failure by a supplier to deliver supplies, but is still within the scope of issues which the employer should manage.

CONTRACT ISSUES
How do I deal with delayed performance of my supplier?
In this unprecedented situation, the first thing you must do is read the terms and conditions of the agreement, purchase order, or other document you have with your supplier, assuming there is one.

If you have such, please identify if it has what is known as a “force majeure” provision. These provisions cover circum­stances where performance of the contract is delayed or frustrated. Many such clauses cover “acts of war, terrorism, nature” and other similar situations. Some also have clauses that specifically mention pandemic, health, or governmental order relating thereto that prevents performance. Such a provision will be the basis for you to start discussions with your supplier.

Note that neither Japanese law, nor most US state or other countries’ laws, have explicit force majeure statutes. However, Japanese law provides for the freedom of contract and allows the parties to insert a force majeure provision in agreements.

California, for example, provides for the basic principle for force majeure in Cal.Civ.Code 3526: “No man is responsible for that which no man can control.” This recognizes that a force majeure event, sometimes referred to as an “act of god,” makes performance impossible or impracticable enough to be excused.

There are local-law variations interpreting these provisions. For example, New York law provides that specifying a force majeure event, such as earthquakes and tsunamis, precludes the inclusion of other force majeure events. California is not so strict and interprets force majeure to include a non-listed event that is “unforeseeable at the time of contracting.” You should ask your own attorney about your specific situation.

The potential remedies may include rescission of the order with your supplier or voiding of the contract, adjustment of the scope or steps for performance (such as timing and method of delivery and alternative products), forfeiture of some paid-in-advance costs or fees, release from a refund obligation, and excusing the breach or otherwise releasing a party of liability.

A few items to note:

  • Of course, the force majeure provision may also benefit your supplier, who may be looking at it just as you are doing.
  • You need to be careful not to abuse the right to assert a force majeure provision, and most jurisdictions will require reasonableness in handling and mitigation of the situation by both parties.
  • Some force majeure clauses, or other parts of the agreement, may have specific notice and dispute handling provisions that must be followed. Please review the contract carefully to ensure you comply with all of the relevant obligations.

If you do not have an agreement with a force majeure pro­vision, there are no detailed terms and conditions in the order or other document, or your transaction is orally based, consider the alter­natives to force majeure discussed below.

What legal and practical options are available to me to cancel contracts in addition to force majeure?
Where there is no force majeure provision, or no contract, most jurisdictions may provide for other remedies.

In Japan, there are a few rules that may apply:

  • Rule of impossibility
  • Rule of exemption from breach of contract liability due to a reason not attributable to the breaching party
  • Rule of significant circumstantial change

Note that, in general, the interpretation by a court in Japan will tend to be very strict, looking only to the wording of the provision (if a force majeure provision or other provision exists) or nar­rowly construing the fact situation causing the impossibility.

In the case of California, and most other US jurisdictions, the doctrines of impossibility and frustration of purpose will apply when a party’s contractual performance is made impossible or impracticable by intervening and unforeseeable events. Cal.Civ. Code 1511(2) states that performance can be excused “. . . when it is prevented or delayed by an irresistible, superhuman cause, or by the act of public enemies . . .” Again, the scope of appli­cation will differ by state and jurisdiction, so consult your own attorney about your specific situation.

An indirect, but important, concern is whether such an event may be covered by any business interruption or other relevant insurance you or your supplier may have. In general, such insur­ance is often based on physical property damage that prevents performance, not on contagion. After the spread of severe acute respiratory syndrome (SARS) from 2002 to 2004, some business insurers added provisions to exclude the effects of contagious diseases from coverage. However, it is important to review your insurance policies to see if such policies may provide some relief.

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