Autore: Lisa Fortmüller

Suggestions for performance of public contracts

Posted on by Lisa Fortmüller


The Ministry of Development is working on the so-called “Anti-Crisis Shield.” The draft act amending the Act on Special Solutions Related to Prevention and Combating of COVID-19, Other Infectious Diseases and Crisis Situations Arising from them,” as well as amending selected other acts (the “Draft Bill”), covers (among others) the public procurement law (“PPL”) and agreements executed on its basis.

The final part of this report includes our recommendations for contractors and contracting authorities, which may help complete the ongoing projects despite the current state of epidemic. In our opinion, the Draft Bill does not introduce any revolutionary changes to PPL. It revolves predominantly around flexibility in cooperation of the parties to public contracts in light of the current situation. Identified areas of PPL modifications:
(i) no penalties for contracting authorities on the basis of the Liability for Breach of Public Finance Discipline Act for introduction of changes to public contracts; refraining from the pursuit of claims against contractors, which arise from COVID-19 and its impact on the performance of a given agreement;
(ii) highlighting certain options that have existed thus far, e.g. with respect to amendments to PPL contracts;
(iii) ordering the parties to PPL contracts to exercise due diligence when it comes to notifying each other about the epidemic’s impact on the performance of a given contract.

Basically, the Draft Bill provides some “tips for the future” as regards the course of contractual relations in ongoing projects.

Below you will find a list of changes, along with out comments.

  1. PRECLUSION OF THE APPLICATION OF THE PPL ACT – article 6 section 1 of the Draft Bill
    1.1. The Draft Bill modifies article 6 of the existing act by clarifying that PPL will not apply to orders for services or deliveries which are necessary to prevent COVID-19 if the disease is highly likely to spread in a fast and uncontrollable manner, or if required for the purposes of public health protection. Compared to the current version of the act, the change concerns the scope of orders. The act now says “goods or services” – this phrase will be replaced with “services or deliveries.”
    We consider this change to be positive. First of all, in PPL, “goods” are not the same as “deliveries,” and the former term may limit the list of items that can be ordered outside of the PPL mode in case of an emergency. As a reminder, “deliveries” are defined in PPL as “acquisition of things and other commodities, especially on the basis of an agreement for sale, delivery, rental or leasing (with or without the purchase option), which can additionally include deployment or installation.”
    Example: following the modification, if an order covers the acquisition of reagents for laboratory tests, the contracting authority will be able to purchase them together with necessary installation services outside the PPL mode (as long as this is required for public health protection purposes or prevention of COVID-19).
    1.2. Please note that pursuant to article 46c of the Human Infections and Infectious Diseases Prevention Act (the “Epidemic Act”), “public procurement regulations do not apply to orders for services, deliveries or construction works, issued with the aim of preventing or combating the epidemic within the territory covered by the state of epidemic threat or the state of epidemic.”
    This provision specifies a clearly broader range of orders that are exempt from the application of PPL during the epidemic since it also includes construction works.
  2. BANK GOSPODARSTWA KRAJOWEGO (BGK) – article 6 section 2 of the Draft Bill
    2.1. On a side note, it is worth noting that most of the measures implemented by BGK (Polish national development bank) so far are based on the structure of the fund (managed by BGK) and financial intermediaries (e.g. loan funds) selected by BGK, usually in the public procurement procedure.
    2.2. PPL will not apply to the selection of new financial intermediaries whose task will be to support SMEs affected by the consequences of COVID-19. Nevertheless, the selection procedures have to be open, transparent and non-discriminatory; also, they cannot result in any conflict of interest.
  3. AWARDING CONTRACTS EXCLUDED FROM PPL – article 6 sections 1 and 2 of the Draft Bill
    3.1. When awarding contracts which are exempt on the basis of article 6 sections 1 and 2 of the Draft Bill, contracting authorities and BGK will be obliged:
    3.1.1. to ensure transparency of the procedure and equal treatment of potential contractors, taking into account any circumstances that might have an impact on the procedure;
    3.1.2. not to share any contract-related information that is regarded as a trade secret (as defined in unfair competition combating regulations) if the entity interested in performing the order specifies – before the agreement is executed – that such information cannot be disclosed;
    3.1.3. to publish information about the fact that the contract was awarded or not awarded at its sub-page in the Public Information Bulletin, indicating the name of the other party to the agreement (if the contract was awarded).
    3.2. In this case, the preclusion of PPL does not mean that contracting authorities can give the order to any contractor, e.g. on the basis of the single-source procurement procedure. In our opinion, it will still be required to conduct the procedure (without the application of PPL) in a manner that ensures participation of at least several potential contractors.
    3.3. In case of construction works, the application of similar rules might be disputable. Construction works are governed by the Epidemic Act.
  4. AMENDMENTS TO PUBLIC CONTRACTS
    4.1. The Draft Bill includes:
    4.1.1. the possibility to modify an agreement executed under PPL in terms of deadlines and remuneration;
    4.1.2. preclusion of liability of contracting authorities (incl. those that award utility contracts) for refraining from determination and pursuit of contractor’s financial obligations (e.g. contractual penalties), or for introduction of amendments to agreements – upon the conditions specified in the Draft Bill.

    RE: 4.2.1 – amendments to PPL contracts
    a. Each party to a PPL contract is obliged to notify the other party about the impact of circumstances related to COVID-19 on proper performance of the agreement, if such impact has occurred or might occur (a/the “Notification”). This obligation applies exclusively to circumstances which have or might (in the future) have an influence on the performance of a specific order.
    b. The Notification should be accompanied by a statement (issued by the party itself or third persons) or documents related to the following in particular (please note that the list below is non-exhaustive):
    (i) the number and job positions of employees or individuals performing work on any basis other than employment agreement, who participate or could participate in the order performance, and who:
    – are subject to mandatory hospitalization due to COVID-19 prevention, or to quarantine or epidemiological supervision as a result of contact with individuals whose health has been threatened by COVID-19;
    – are exempt from the obligation to perform work due to the need to personally take care of a child, a child with a significant or moderate degree of disability under the age of 18, or a disabled child – in case a nursery, children’s club, kindergarten, school or another similar facility attended by the child is closed, or due to the fact that care cannot be taken by a nanny or a daily caregiver because of the spread of COVID-19;
    (ii) a decision related to COVID-19 prevention, issued by the Chief Sanitary Inspector or a person acting on his behalf, obliging the contractor to apply specific prevention or control measures;
    (iii) instructions issued by heads of provinces, or decisions issued by the Prime Minister, related to COVID-19 prevention – waste management;
    (iv) suspension of deliveries of products, components or materials, or difficulties in access to equipment or performance of transport services.
    c. The contractor may invoke all the aforesaid circumstances to the extent in which they also apply to the subcontractor or further subcontractor.
    d. Each party to a PPL contract may request additional statements or documents confirming the impact of circumstances related to COVID-19 on proper performance of the agreement.
    e. Having received such information, a party to the agreement shall be obliged to make – on the basis of the statements and documents available to it – an assessment of the impact on agreement performance. It is not allowed to leave the received information without any analysis and response. The deadline to respond is 7 days of receipt of the Notification.
    f. The Draft Bill indicates that the scope of permitted changes includes the amendments specified in article 144 section 1 item 3) of the PPL Act; the Drat Bill allows amendments in three areas:
    (i) changes to the performance date of the agreement or its part, or temporary suspension of performance of the agreement or its part. In case of temporary problems with agreement performance, arising from circumstances related to COVID-19 (e.g. disrupted supply chains or an insufficient number of employees), the parties will be entitled to modify aspects related to completion of the PPL contract. For example, they can suspend it (in total or in party) (i.e. refrain from actions aimed at agreement performance until the reasons for suspension cease to exist), or continue its performance (in total or in part), taking into account the limitations resulting from COVID-19, and extending the deadline for its completion. In our view, this amendment could be accompanied by a request to make relevant modifications to the remuneration, and to stipulate that the contractor is not liable for untimely performance of the contract;
    (ii) changes to the method of delivery or performance of services / construction works. This can make it possible for parties to a PPL contract to adjust the original requirements related to the manner of order performance to limitations arising from COVID-19. Examples: in case there is no access to a specific technology, equipment or materials, it will be possible to perform the contract using another technology, equipment or materials (equivalent to the previous ones). A change to the performance method might be definite or indefinite in time. A change to the manner of performance might also be related to a change in the order of individual stages.
    (iii) changes to the scope of contract and remuneration. A modification of the scope of contract can be temporary in nature, i.e. it can apply to the period over which circumstances related to COVID-19 occur (e.g. in case of deliveries and ongoing or periodic services). It can also be definitive in nature, meaning that the new scope of the agreement (e.g. reduction of the scope of a one-time delivery or service) will be final. Changes to the scope of the contract require corresponding changes to remuneration.
    g. Limitations applicable to changes: a fee rise resulting from each change cannot exceed 50% of the value of the original agreement.
    h. If a PPL contract contains provisions related to contractual penalties or compensation for non-performance or improper performance due to specific circumstances, the Notification should include information about COVID-19’s impact on proper performance, and the impact of amendments to the agreement on the validity of determination and pursuit of such penalties/compensation or their value.
    i. In case of a confirmed impact of the state of epidemic on the performance of a PPL contract, the contracting authority may refrain from determining and pursuing the contractual penalties or compensation, or adjust them accordingly – in case the contractor has contributed to the delay / improper performance of the agreement.

    RE: 4.2.2 – preclusion of liability
    According to the Draft Bill, amendments to the agreement and refraining from determination and pursuit of claims arising from non-performance or improper performance as a result of specific circumstances will not constitute a breach of the public finance discipline. This means that if a contracting authority – acting on the basis of the Draft Bill – decides that non-performance or improper performance of a PPL contact results from COVID-19 and, consequently, refrains from the pursuit of contractual penalties or compensation, or amends the agreement, such contracting authority will not be liable for a violation of the public finance discipline.
    In our opinion, this solution should encourage contracting authorities to use the tools offered by the Draft Bill.

RECOMMENDED ACTIONS – CONTRACTORS:
1. Reviewing executed agreements in terms of deadlines, contractual obligations, schedules and liability (incl. contractual penalties).
2. Examining the current situation in terms of human/technical resources with respect to employees, associates, subcontractors, suppliers and supply chain.
3. Ongoing communication with the contracting authority to determine further steps, share information, and take actions aimed at amending the agreement (incl. with respect to the means/form of such communication).
4. Collecting documents that confirm the epidemic’s impact on agreement performance (such documents and statements can definitely be made in an electronic form).
5. If necessary: (i) preparing a detailed explanation of one’s position, covering all applicable circumstances that may affect proper performance of the agreement; (ii) suggesting the draft version of the amended agreement in order to facilitate communication with the contracting authority.

RECOMMENDED ACTIONS – CONTRACTING AUTHORITIES
1. Contracting authorities that are running a public procurement procedure should consider provisions permitting amendments to the agreement on the basis of the Draft Bill.
2. Contracting authorities that have entered into public contracts should: (i) conduct a detailed analysis of their provisions in terms of the possibility to introduce amendments on the basis of the Draft Bill; (ii) engage in discussions/negotiations with contractors; (iii) prepare its employees for an efficient assessment of Notifications; (iv) inform employees responsible for supervision and coordination of PPL agreements about changes covered by the Draft Bill, especially lack of liability for violation of the public finance discipline.

We are ready to assist you in evaluating your particular situation. Please feel free to contact us any time.

The planned innovations in company law resulting from the ‘Act to mitigate the consequences of the COVID 19 pandemic’.

Posted on by Lisa Fortmüller

The protective measures for the avoidance of the further spread of the COVID-19 pandemic do restrict the freedom to hold meetings; this also affects general / shareholder meetings of listed and private companies. This could have a significant negative effect as it will delay resolutions on important matters, such as approving annual accounts, capital measures, appointment of new boards.

The draft legislation for the law to mitigate the impact of the COVID 19 pandemic in civil-, insolvency and criminal procedural law provides for various simplifications for calling and holding such meetings and taking resolutions if such meetings are held still in 2020.

In case of stock corporations (Aktiengesellschaft – AG) and Societas Europaea (SE), for example,

  • the board of directors (Vorstand) can decide on the possibility to cast votes in the general meeting via electronic means even if this is not provided for in the articles of association;
  • the convening period can be reduced to below 21 days; and
  • the board of directors can decide to hold the general meeting within the business year (i.e. after the first 8 months)

The above changes are ‘safeguarded’ by a limitation of the possibilities of shareholders to challenge resolutions by the general meeting.

In  case of a company with limited liability (GmbH) there will the possibility to take resolutions in writing even if not all shareholders agree are extended (currently this is only possible if all shareholders agree to this). Also, the law will introduce some provisions regarding cooperative (Genossenschaft), associations (Vereine) and foundations (Stiftungen) which will make it easier to hold meetings and pass resolutions and to keep the board of directors in office even though ordinary period of their office might have been terminated automatically due to time limiations.

And last but not least, in case of a merger, the German transformation act requires to submit a balance sheet of the company which transfers its assets to another entity, and that the effective date of such balance sheet is not older than 8 months. This period will be extended to 12 months in order to account for the fact that due to the Coronacrisis, the taking of the shareholder resolutions required for the merger might take longer than 8 months.

Rights for debtors to refuse performance in the Corona crisis planned – creditors can take countermeasures

Posted on by Lisa Fortmüller

What is at issue here?

The German government plans to introduce a law temporarily suspending the obligation to file for insolvency and limiting the liability of organs in the event of insolvency caused by the COVID 19 pandemic. The law is to be passed in the short term and provides, among other things, for rights of refusal of performance for consumers and small enterprises (fewer than 10 employees and annual turnover totalling a maximum of EUR 2 million). These are to be given the right to refuse the fulfilment of the obligation to satisfy a claim in connection with a continuing obligation until 30 June 2020 if the obligation cannot be fulfilled as a result of the corona crisis or if the fulfilment leads to a threat to the existence of the debtor. The prerequisite is that the relevant contract was concluded before 8 March 2020. Generally, all agreements with continuing obligations are affected, except for rental, lease, loan and employment contracts.

What is to be done from the creditor’s perspective when the law comes into force?

In practice, especially medium and large enterprises that have entered into continuing obligations with consumers and micro-enterprises before 8 March 2020 must therefore be prepared for defaults. Since the draft law does not differentiate according to which side the debtor is on, both payment defaults and default on performance can threaten companies. From the creditor’s perspective, there are now two options. Either the creditor accepts this fact and trusts that the debtor will fulfil its obligations properly. Or the creditor prefers an active approach. For example, it may make sense to renegotiate contracts that were concluded before 8 March 2020. In this way, one can evade the scope of application of the draft law. Especially as long as the debtor is still well off, he might be accept such renegotiation. After all, the parties are only renegotiating what both parties currently want.

Tax aspects of the Anti-Crisis Shield

Posted on by Lisa Fortmüller


Potential tax loss carryback – PIT and CIT (applies to losses incurred in 2020)
Taxpayers that:
(i) suffered a loss in 2020; and
(ii) generated revenues which are at least 50% lower than in 2019 (with respect to the same operations)
due to COVID-19, can apply the loss recorded in 2020 to their CIT-8 return for 2019, yet no more than PLN 5m.

Tax on revenue from buildings deferred until July 20, 2020
The payment date for tax on revenue from buildings for the period of March-May 2020 has been extended until July 20, 2020 for taxpayers:
(i) that have suffered negative economic consequences due to COVID-19 in a given month; and
(ii) whose revenue in a given month is at least 50% lower than in the corresponding month of 2019.

Deferral of PIT advances until June 01, 2020
The deadline to pay PIT advances for March and April 2020 on revenue from employment agreements, civil-law agreements , proprietary rights (if the 50% rate of tax-deductible expenses applies) and social benefits from ZUS [Social Insurance Institution] is extended until June 01, 2020 if taxpayers have suffered negative economic consequences due to COVID-19.

Exemption from tax on civil-law transactions on loans
The tax on civil-law transactions will not apply to loan agreements executed until August 31, 2020, yet only with respect to business entities whose liquidity has deteriorated as a result of the negative economic consequences related to COVID-19.

Waiver of the debtors’ obligation to apply bad debt relief in case of non-payment
The debtor is not obliged to increase the income that serves as the basis for calculation of CIT advances in 2020 by the value of unpaid obligations; this applies to debtors that:
(i) that have suffered negative economic consequences due to COVID-19 in a given period; and
(ii) whose revenue in a given month is at least 50% lower than in the corresponding month of 2019.

Possibility to drop simplified income tax advances for March-December 2020
(i) The so-called “small taxpayers” that are using simplified income tax advances in 2020 can now decide to opt out of this solution in March-December 2020 if they are bearing negative economic implications related to COVID-19.
(ii) The taxpayer should notify the tax authority accordingly in the 2020 annual return.

Deduction of donations made for COVID-19 prevention purposes
This applies to donations (cash or in-kind) aimed at prevention and combating of COVID-19, made in 2020 to:
(i) entities performing medical operations, listed in the register indicated in the COVID-19 Act;
(ii) the Material Reserves Agency for purposes related to its statutory objectives;
(iii) the Central Base of Sanitary and Anti-Epidemic Reserves for purposes related to its statutory objectives.

Deferred effective dates
Retail sales tax: January 01, 2021;
New VAT rate matrix: July 01, 2020;
SAF-T VAT for large enterprises: July 01, 2020.

No extension fee in case of tax and ZUS reliefs
(i) Waiver of the extension fee in case of a decision granting a tax exemption (on the basis of an application filed during the state of epidemic threat or the state of epidemic, or within 30 days after its revocation).
(ii) Waiver of the extension fee in case of payment in instalments or deferral of social insurance contributions for the period starting from January 01, 2020 (on the basis of an application filed during the state of epidemic threat or the state of epidemic, or within 30 days after its revocation).

Tax audits and enforcement procedures
Possibility to suspend tax audits, tax procedures and customs/tax inspections ex officio or at the taxpayer’s request. The decision takes effect as of its issue date. The authority shall deliver the decision promptly, yet no later than on the delivery date of a decision resuming the suspended audit/procedure. The periods of suspension are not taken into account for purposes related to the terms/dates of audits/procedures.

Reporting obligations – postponed deadlines
(i) Extension of the deadline to submit a notice of payment to a bank account from outside the so-called white-list to 14 days of the transfer date during the state of epidemic threat / state of epidemic, announced as a result of COVID-19.
(ii) Suspension of deadlines for mandatory disclosure reports (other than related to cross-border arrangements) between March 31 and June 30, 2020.
(iii) Extension of the term for the issue of advance tax rulings to 6 months.

Authorities’ right to offer further reliefs and solutions
(i) City/town councils can decide to pass resolutions based on which lands, buildings and structures related to business operations will be exempt from the property tax; this applies to business entities whose liquidity has deteriorated as a result of the negative economic consequences related to COVID-19.
(ii) The mayor of a city/town or head of a municipality can adopt a regulation extending the payment dates for instalments of the property tax due for April-June 2020 until September 30, 2020 at the latest; this applies to a specific group of business entities whose liquidity has deteriorated as a result of the negative economic consequences related to COVID-19.
(iii) The Ministry of Finance can issue a regulation postponing the dates for preparation, approval, publication and delivery of financial statements.

Please feel free to contact us for any assistance.

Anti-Crisis Shield – key changes for the real estate sector

Posted on by Lisa Fortmüller

Statutory reduction of rent in retail complexes with sales area of over 2,000 sqm
– Statutory rent reduction of 90%, applicable to retail developments with a sales area exceeding 2,000 m2, covering the period over which the Tenant’s operations are prevented/hindered (unless the Lease Agreement offers a better solution for the Tenant, in which case such solution will apply).
– The Lessor and the Tenant may apply to a court for modification of the reduction rate, subject to the principles of fairness/equity.
– No contractual penalties, interest, compensation for Tenant’s non-performance of obligations (based on the statement of reasons to the draft bill, this shall apply if non-performance results from restrictions on business operations; however, the provision is too vague and might be misinterpreted).

Perpetual usufruct fee deferred for 3 months
Deferral of the payment date for perpetual usufruct fee from March 31, 2020 to June 30, 2020.

Exemption from tax on civil-law transactions on loans
The tax on civil-law transactions will not apply to loans, yet only in case the borrower is a business entity whose liquidity has deteriorated as a result of the negative economic consequences related to COVID-19.

Suspension of retail sales tax
Further suspension of the application of the Retail Sales Tax Act. Taxpayers will not have to pay this tax between July and December 2020.

Tax on revenue from buildings deferred until July 20, 2020
Applies to the period of March-May 2020. Available to taxpayers that have suffered negative economic consequences due to COVID-19, and whose revenue in a given month is at least 50% lower than in the corresponding month of the previous fiscal year, or – in case of taxpayers that embarked on business operations in 2019 – than the average monthly revenue in that year.

Please feel free to contact us for any questions.

Capital markets – easing regulatory burdens in face of coronavirus epidemic

Posted on by Lisa Fortmüller

Supervisory Impulses Package – Polish Financial Supervision Authority’s Office (PFSAO) proposes to ease regulatory burden and supervision amid coronavirus outbreak.

As the coronavirus epidemic spreads, the PFSAO works on a set of proposals to help entities supervised by the institution carry on under the present market conditions. The package has been named “Supervisory Impulses Package for the Security and Growth of the Capital Market” (SIP), with similar programs announced for the banking and insurance sectors.

The SIP for the capital market has the following goals:
– to keep market liquidity stable;
– to help entities fulfill regulatory obligations by rescheduling reporting deadlines;
– to help businesses raise capital;
– to allow businesses to focus on clients’ needs and key processes.

Actions that the PFSAO plans to take include:

1. Individual approach to investment funds which fail to comply with applicable investment limits, covering adjustment of supervisory measures to the present market conditions;

2. Creating or launching tools to boost liquidity in the treasury securities sector by implementing as well as supporting relevant measures;

3. Legislative changes, such as:
– extending deadlines for entities supervised by the PFSA to prepare, approve and publish annual financial statements and annual consolidated financial statements;
– extending deadlines for issuers to submit quarterly reports and consolidated quarterly reports covering the first quarter of the financial year which started on 1 January 2020;
– extending deadline for holding the Annual Shareholders Meeting;
– extending deadline salary policy approval;
– modification of rules for preparing information memoranda leading to easier and faster processing of bid documents, which businesses are required to submit in order to raise capital.

4. Pragmatic approach to selected supervisory actions, including:
– review of information submitted by the entities supervised by the PFSA in fulfillment of ongoing reporting obligations to lighten the burden on them; the need to postpone deadlines for fulfillment of these obligations is also expected;
– putting off non-reporting actions (e.g. audits, information obtaining);
– taking relevant supervisory actions in case of non-compliance with capital adequacy standards, with allowances being made for the epidemic’s impact;
– revision of the PFSA’s inspection schedule (verification of upcoming inspection actions), without modifying supervisory goals;
– pragmatic approach to delaying individual supervisory deadlines, e.g. deadlines for implementation of guidance issued after inspections, including deadlines established originally;
– simplified form of PFSAO’s supervisory assessments carried out in 2020, with allowances being made for the epidemic’s impact;
– six-month extension of the deadline for brokerage houses to adopt the EBA’s guidelines on outsourcing arrangements.

Moreover, the PFSUO will increase its reliance on electronic communication channels, esp. PORTAL and e-PUAP platforms, and e-mail, to keep in touch with entities it supervises.

The SIP is a work in progress, individual elements of which may or may not be implemented, depending on market developments. It remains to be seen how the initiatives will translate into law and supervisory practice. With the PFSU’s declarations of remaining open to suggestions and discussion with market participants about any initiatives to mitigate the epidemic’s impact on entities operating in the capital market, one may be optimistic.

Do not hesitate to contact us with any questions.

Commercial property rental – The 10 most important questions from landlords and tenants

Posted on by Lisa Fortmüller

It is becoming increasingly apparent that the effects of the corona crisis will continue to preoccupy us for a long time to come and that commercial leases will therefore come under increasing pressure. Landlords must prepare themselves for the fact that their tenants will find themselves in a severe liquidity crisis as a result of collapsing sales, closures or quarantine orders ordered by the state or authorities, as well as general assembly bans or curfews, and that they will no longer be able to pay their rents now or in the foreseeable future.

According to the information available to us, the German government is currently examining options for protecting tenants who are experiencing payment difficulties as a result of the coronavirus crisis. Apparently, this applies to both commercial and residential tenants. In this context, a ban on termination in the event of payment defaults caused by the coronavirus pandemic is being discussed. This would mean that although the obligation to pay rent would not cease to apply, rents would be temporarily deferred. As a result, the deferred rents would have to be paid later. In the case of housing, the alternative
However, a special housing benefit is also being discussed as a possible solution, which should take effect when tenants of residential accommodation suffer considerable losses of income as a result of the coronavirus crisis and have no possibility of compensation through transfer payments. In this case the tenants of commercial space would be excluded. Until it is clear whether and to what extent the Federal Government is helping tenants in the current situation and whether this legal “protective shield”, which is currently emerging, will also cover tenants of commercial space, landlords of commercial space should take a few things into account.

You will find answers to these and other urgent questions in our act news (in German): https://act-newsletter.com/Coronakrise_Gewerberaummiete_die_zehn_wichtigsten_Fragen_von_Vermietern_und_Mietern.pdf

COVID-19 – answers to burning labour law issues

Posted on by Lisa Fortmüller

Can employees stay at home for fear of infection?

The answer is NO!

Employees are not entitled to refuse their work only for fear of being infected with the corona virus.

Employees are also not entitled to work in home or mobile office from now on. However, this may soon be in the employer`s urgent interest, e.g. in the event of a closure of the company. Therefore, it is essential that a mutually agreed employment in a mobile office is contractually agreed. Please contact us for more information.   

Kindergarten and schools are closed. Are employees now allowed to stay at home if they have no other caregiver for their children requiring care?

The answer is still NO!

Employees are obliged to organize replacement care for their healthy child.

However, if the case is such that it can be proven that no other caregiver is available, employee may under certain circumstances have the right to refuse his or her performance, with the legal consequences that the obligation to pay remuneration also does not apply (principle: “no remuneration without work”) There is in exception to the principle “no remuneration without work” (Sec. 616 BGB), which obliges the employer to continue to pay for a relatively insignificant period of time. A guideline of 5 days applies here. However, this only applies if the employment agreement does not exclude the application of this provision, which must be examined in each individual case.

Employer and the work council can exclude Sec. 616 BGB in a works agreement in order to secure the existence of the employer.

Employer and employee should regulate in the employment agreement how the “release from work” should take place:

  • Reducing overtime,
  • Build minus hours to a certain limit if a working time account exists,
  • Holiday reduction,
  • Possible a few days Sec. 616 BGB,
  • Unpaid garden leave.

What is the legal situation if my employees do not show up for work due to a public transport stop?

In this case, the employer is not obliged to any renumeration because the travel risk is assigned to the employee’s sphere of risk.

Can the employer unilaterally close his or her business and in doing so unilaterally order holiday or instruct the employees to reduce time credits or company holidays?

Basically: A clear YES!

If the employer closes the business based on his own decision, for example in order to protect his employees, he bears the renumeration risk in accordance with the principle of the so-called business risk theory (Sec. 615 sent. 3 BGB). This also applies if the disturbance – as in the case of the coronavirus- does not originate from a sphere of danger that can be influenced by the employer.

In order to minimize the damage, it is recommended that employees first agree to work from home (please use our mobile-office-agreement – request them), apply for short-time work, unilaterally grant employees any remaining leave entitlements or reduce overtime accounts. A unilateral granting of holiday by the employer is exceptionally excluded only if the employee has already applied for and been granted his entire leave entitlement or if the granting of leave is contrary to other leave wishes of the employee.

What happens if there is a suspicious case in our company? 

If there is a suspected case of the coronavirus in the company, the employer must inform the rest of the employees about this case in order to identify and clarify possible contact persons as quickly as possible.

The employer, on the other hand, has no obligation to report to the health authorities, as the obligation to report is directed to the diagnosing doctor, but not to the employer, in accordance with Sec. 8 IfSG.

What happens if an employee has been tested positive for Covid19/coronavirus?

If the suspicion of an infection with Covid19 is confirmed, the first thing that applies to the affected employee is that he or she is incapable of work and therefore has a claim against the employer for continuation of regular pay for a period of up to 6 weeks in accordance with Sec. 3 para 1, 4 EFZG.

The legal situation is different if one or more employees are affected by the order of quarantine within the meaning of Sec. 30 IfSG by the health authority.

In this case, the provisions of Sec. 616 para 1 BGB in conjunction with Sec. 30 IfSG secures the renumeration of the affected employees. An employee does not lose his or her right of renumeration against his employer if he or she is prevented from performing his or her work for a relatively insignificant period of time through no fault of his or her own. Such prevention and thus a claim for continued payment of remuneration against the employer applies in the case of a prohibition of activity due to official measures according to the IfSG according to the highest judicial jurisdiction.

In addition, the IfSG stipulates that the employer is obliged under Sec. 56 para 1, 2, IfSG to pay compensation in the amount of the net loss of earnings to the employees concerned for a period of up to 6 weeks instead of the health authority, i.e. as paying agent.

At the beginning of the seventh week, the renumeration is granted directly by the state in the amount of the sickness benefit.

As in all cases, it is advisable to first discuss with the employee the reduction of vacation and overtime as well as comparable instruments or to order them unilaterally.

What can the employer do against an official closure order?

In principle, the authorities have very far-reaching rights of intervention within the legal framework of the Infection Protection Act (IfSG). This includes in particular the right of the health authorities to close down entire businesses. Individual cases of infection among employees are sufficient for this.

Initially, the employer has no possibility to take action against the closure order. The employer only has the right to subsequently assert any claims for damages against the authorities.

Under which conditions can the employer assert a claim for reimbursement? Which deadlines apply?

If the employer is called upon to pay compensation under the IfSG, he or she can apply to the competent authority within three months for reimbursement of the amounts paid. Pursuant to Sec. 56, para 12 IfSG, the employer may also apply to the competent authority for an advance payment of the anticipated amount to be reimbursed in accordance with sec. 56 para 12 IfSG. Further compensation benefits may, for example, be granted to self-employed persons under certain circumstances (see Sec. 56, para 4 IfSG).

How do I as a company introduce short-time work?

With the “Act on the temporary crisis-related improvement of the regulations for short-time work compensation”, the Bundestag has greatly simplified the access of companies to receive short-time work compensation. The requirements are now as follows:

  1. If orders are missing due to difficult economic developments, a company can apply for short-time work if at least 10 percent of the employees could be affected by the loss of work. This threshold was previously 30 percent of the workforce in accordance with Sec. 96 SGB III.
  2. It has also changed that, by way of derogation from Section 96 para 4 sent. 2, point 3, the structure of negative working time balances can be dispensed in whole or in part before payment of the short-time work allowance. The current law has so far required that companies where agreements on fluctuations in working hours are used, these should also be used to avoid short-time work and be reduced.
  3. Temporary workers will also be able to receive short-time work compensation in the future.
  4. The social security contributions that employers normally have to pay for their employees will in future be fully reimbursed by the Federal Labour Office. This is intented to create an incentive to make greater use of periods of short-time work for the further training of employees.

Notification to the Federal Labour Office must be in writing or electronically. Locally, the Federal Labour Office in whose district the business is located is responsible. The employer itself or the works council is entitled to file an application. Within the scope of the notification, the company must provide credible evidence of the requirements by submitting documents. These documents include: Documents showing the cause of the loss of working hours; comparative figures showing under-utilisation; information on the temporary nature of the loss of working hours; statement by the works council on short-time working; agreement on the introduction of short-time work and agreements on working time accounts, if available. 

Question relating to co-determination

In principle, the co-determination rights of the works council remain in full. In particular, the works council must be involved in a transfer in accordance with Section 99 of the BetrVG. A transfer is also generally available in the case of temporary employment in the mobile office. We recommend the following procedure:

  • Employers announce to the works council that the (local) transfer to the home or mobile office will initially only be for a maximum of 4 weeks. With it, it can be argued that still no participation-obligatory transfer in the sense § 95 para. 3 BetrVG would exist. It remains to be considered that the circumstances of the work change seriously and consequently already with the first day of the transfer also obligation of codetermination exists.
  • Just do it with references to the exceptional situation. If the works council should nevertheless take legal action after Sec. 101 BetrVG, employers could initially justify the local transfer by means of § 100 BetrVG and, if necessary, file a court application for a substitution of consent themselves. In this context, it is also questionable whether the functionality of the courts can be guaranteed if the quarantine orders, which can no longer be ruled out, are issued.

Co-determination rights also exist in connection with health protection, Sec. 87 para 1, No. 7, BetrVG, as well as in the case of a possible vacation order and/or unilateral ordering of company vacations.

The co-determination of the work council is however excluded if the employer only fulfills official instructions.

Data Protection: Legitimate measures

In the light of the events that have taken place, the constant re-infection and the lack of uniform lines of the European Data Protection Authorities, the following measures are not exhaustive and definitive. In our opinion, the following measures are currently compatible with data protection law:

  1. Employer’s right to interview: The employer is entitled at any time to require his employees to state whether he/she was in a risk area or had direct contact with infected persons. In principle, the employer is only entitled to negative information from the employee, but in our opinion the employee is also obliged to answer truthfully in order to avert damage to third parties.
  2. Voluntary self-disclosure – or questionnaires on whereabouts and symptoms: Information can also be obtained in the form of a questionnaire. Here however a right of codetermination of the work council exists. It would be preferable if the employee gave his or her consent before filling out the self-disclosure form. This consent has the following conditions:
  • Written consent before the measure,
  • Informative consent, i.e. the purpose of the information is clearly defined,
  • Voluntarily, i.e. without pressure,
  • Instruction about the right of revocation,
  • Instruction about no adverse consequences in case of refusal.

The consent of the employees is legally mandatory in case of:

  • Taking the temperature and
  • collecting the current private mobile phone numbers or other contact details of employees for information purposes in the event of closure of the business or similar cases.

Further restrictions for shopping centers

Posted on by Lisa Fortmüller


The most recent Regulation tightens the restrictions on retail and services in commercial developments of over 2,000 m2. Limitations applicable to office buildings (canteens, restaurants, cafés) have been extended without any major modifications.

Starting from March 21, 2020, what entities can operate in retail complexes of over 2,000 sqm?

Tenants whose main business consists in the sale of:

a. groceries;
b. cosmetics other than fragrances and beauty products;
c. toiletries;
d. cleaning agents;
e. medicinal products (incl. ones sold at pharmacies);
f. medical devices;
g. foodstuffs for particular nutritional uses, as defined in article 3 section 3 item 43 of the Food and Nutrition Safety Act of August 25, 2006;
h. newspapers;
i. construction / DIY products;
j. pet supplies; or
k. fuels.

Tenants offering the following types of services as their main business activity: medical, banking, insurance, postal or laundry services, or preparation of food for takeaway and/or delivery only.

Any Tenants other than listed in items 1 and 2 above cannot run their operations.

It is now completely forbidden to conduct any retail operations or offer any services (the Regulation implies that the ban covers all types of services) at retail stands/kiosks in malls.

Some Tenants that could conduct their business until today will now have to close their stores for customers – this applies to travel agencies, telecommunications services, jewelers, etc.

We are analyzing the newly-adopted Regulation and will be ready to assist you further in no time.

Please feel free to contact us for any assistance.

Calling all businesses! Want to help? We’re here to help you at no cost

Posted on by Lisa Fortmüller

Want to support Poland in fighting the pandemic?

Planning to donate goods or services to hospitals? Wish to provide machines, equipment or premises?

Worried that your good intentions will backfire, and you’ll end up in a maze of taxes and paperwork?

We want to help, as well.

Our tax and legal team will assist you for free. We are ready to recommend the best tax options and prepare relevant documents.

Please get in touch and share.

Michał Wielhorski
Managing Partner
+48 605 911 303
michal.wielhorski@actlegal-bsww.com

Małgorzata Wąsowska
Partner | Head of Tax
+48 691 477 047
malgorzata.wasowska@actlegal-bsww.com