Briefing
Coronavirus: implications of President Trump’s 11 March Proclamation (COVID-19 travel restriction)
In an effort to contain the spread of the novel coronavirus (COVID-19), US President Donald Trump on 11 March 2020 issued a proclamation (the Proclamation), which bars entry into the United States of “all aliens who were physically present within the Schengen Area during the 14-day period preceding their entry or attempted entry into the United States.” The Schengen Area comprises 26 European states: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and Switzerland. The UK is not covered by last night’s Proclamation.
Although the Proclamation does not specifically refer to trade, and a follow-up tweet clarified that the effect of the Proclamation was intended to apply to people and not goods, the Proclamation will likely have a significant impact on businesses in the US, the Schengen Area, and elsewhere. (The full transcript of the televised statement is available here.)
We are staying abreast of information about the effects of and updates to the Proclamation as it becomes available. In the meantime, and in the face of increasing uncertainty, we strongly advise you to consider the following steps to mitigate its effects over the next month and beyond:
Adopting an active and effective communications strategy
Companies will need to figure out how to address urgent inquiries and concerns from their internal and external stakeholders. Effective messaging, tailored to different constituencies, is key. Boards will need to quickly understand that management, customers, and suppliers will likely have concerns about the impact of the restrictions. Reassurance and direction to employees to maintain focus on the business is advisable. Companies will need to weigh the advisability of any announcement to shareholders.
In adopting a communications strategy, companies should be sure to keep statements compliant with Regulation FD, if applicable, and avoid committing to updates or additional disclosures, which could trigger public filing obligations under US securities or similar laws.
General contract considerations
- Commercial contractual terms may need to be renegotiated. Consider whether the underlying economics of the contract have changed or have the potential to change in the near term.
- Representations and warranties in contemplated contracts may need to be reworded.
Managing contractual counterparty risk
Closely examine your contracts with cross-border counterparties to determine whether the US restrictions excuse nonperformance. Among other things, consider:
- Force majeure. Determine whether contracts contain force majeure clauses relieving a party from the consequence of failure to comply with an obligation because of an event outside the party’s control, permitting termination without liability.
- MAC and MAE clauses. Determine whether the contracts contain “material adverse change” (“MAC”) or “material adverse effect” (“MAE”) clauses permitting unilateral termination. Because such clauses are often specific and individually negotiated, companies should consult with counsel to determine whether the implications of the Proclamation qualify as an MAE or MAC.
- Frustrated or impossible performance. Whether governing law of your contracts may excuse performance if, through no fault of the nonperforming party, performance becomes frustrated or impossible. As with MAC and MAE clauses, companies should consult with counsel to determine whether frustration and impossibility might excuse nonperformance under their contracts.
- Whether the contracts let the parties sever portions that the Proclamation makes illegal or unenforceable from the remainder of the contracts.
- Remedies. The remedies for contractual nonperformance.
Litigation risk
Given the uncertainty and the likely substantial business disruption the Proclamation causes, it is important to be mindful that all decisions you make may result in litigation in the United States, Europe, or elsewhere. To best protect yourself, you should properly document all decisions, consult with counsel early to ensure that you take appropriate steps to mitigate litigation risks, and consult with other advisors, as appropriate.
Managing employment risk
To adapt and survive, companies will need to rapidly assess headcount needs while preserving the confidence and goodwill of their employment bases. The ability to protect talent in the long term will determine companies’ ability to weather the travel restriction in the long term and to return ordinary business operations as quickly as possible. Consulting with counsel about creative solutions to manage headcount is critical and should be done sooner, rather than later, particularly given that the effect of last night’s action is likely to be substantial and felt across jurisdictions and supply chains.
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With over 200 lawyers in the US, Freshfields regularly advises clients on their most critical business and legal issues. You should reach out to your usual Freshfields contact to discuss COVID-19-related issues that are affecting – or will affect – your business. Additionally, using Freshfields’ contract-review AI tools, we can assist clients by quickly identifying and extracting key contractual provisions, including force majeure, material adverse change, and change in law. By leveraging this technology, we can deliver substantial time savings when compared to manual review of contracts – regardless of volume. If you would like to discuss any COVID-19 issues, including technology-assisted contract review, please speak to your usual Freshfields contact.
You can access here a series of briefings and blogs on the broader business impacts of COVID-19, including a detailed note on the implications of the outbreak for businesses with operations in Asia.