Client Alert 03 Apr. 2020

Mexico Insight: COVID-19 (Coronavirus) / Extraordinary Measures for Addressing the ‘Force Majeure’ Emergency Health Situation Caused by the SARS-CoV2 Virus

CLICK HERE to download a PDF copy of this alert.

Haz CLIC AQUÍ para descargar un PDF en español.

Introduction

The new coronavirus pandemic continues to affect the entire world. On 31 March 2020, 754,948 cases – including 36,571 deaths – have been reported at global level, across 203 countries and five continents of the world. At national level, according to the Comunicado Técnico Diario Nuevo Coronavirus en el Mundo (COVID-19), published on 31 March 2020 by Mexico’s Health Secretary, 1,215 cases and 29 deaths relating to COVID-19 have been reported in the country.

Less than 10 days ago, it was officially declared that the country had entered Phase 2 of the pandemic. More recently, on 30 March 2020, the General Health Council declared a ‘force majeure’ emergency health situation as a result of the pandemic caused by the SARS-CoV2 virus (i.e. Covid-19) in the Federal Official Gazette. The declaration stated as follows:

“First. A ‘force majeure’ emergency health situation is declared as a result of the pandemic caused by the SARS-CoV2 virus (Covid-19).

Secondly. The Health Secretary will establish all necessary actions for addressing this emergency.”

The Health Secretary subsequently issued a decree (published in the evening session of the Official Federal Gazette on 31 March 2020, hereinafter the “Health Secretary’s Decree”), which established extraordinary measures for addressing the ‘force majeure’ emergency health situation caused by the SAR-Cov2 virus, and by which the implementation of a series of eight measures was decreed (pursuant to Article 1). These measures will be discussed below.

Extraordinary Measures for Addressing the Emergency Health Situation Caused by the SARS-COV2 Virus

The measures for mitigating the transmission of coronavirus, as contained in the Health Secretary’s Decree, have been declared compulsory by today’s Official Gazette.

Measure 1 established by Article 1 suspends non-essential activity, and provides that:

“It is hereby ordered that non-essential activity shall be suspended with immediate effect from 30 March to 30 April 2020, in order to mitigate the spreading and transmission of the SARS-Cov2 virus in the community, and to reduce the burden of disease, together with its complications, and death on the population residing in the national territory.”

Measure 2 defines in detail which activities are considered essential, including: those related to the health sector, such as paramedics, and general administrative and support staff for the National Health System; those related to the public security and justice systems; those related to key sectors of the economy, such as finance, energy, food, agriculture, fishing and livestock; those directly related to the government’s social initiatives; and those involved with conserving, maintaining and repairing critical infrastructure.

Measure 3 establishes certain compulsory practices which must be followed in all places and vicinities where essential activities (as defined by Measure 2) are carried out. Such compulsory practices include: restricting meetings or gatherings of more than 50 people; hand and mouth sanitation, including the frequent washing of hands and complying with respiratory protocols when coughing or sneezing; and “[A]ll the other prevailing measures for social distancing decreed by the Federal Health Secretary”.

Measure 4 urges the entire Mexican population not participating in essential activities to remain at home for a period of one month, from 30 March to 30 April. This is defined as a “voluntary restriction on movement, to remain in a private home or a non-public space, for the longest time possible”. This measure – which is more like an order – is expressed as an encouragement, which naturally carries different legal consequences. The nature of an encouragement allows for a certain degree of discretion, while an order is binding and is enforced by the coercive power of the Estate.

In contrast, the encouragement to remain at home, as set out in Measure 4 of the Health Secretary’s Decree, Measure 5 makes it compulsory for persons of greater age or who are in a vulnerable situation to remain at home.

The other measures deal with the health authorities’ powers to issue guidelines to ensure the country’s “orderly, phased and regional” return to work, the suspension of censuses and registers, and the unconditional respect which must be conferred on human rights when applying the measures contained in the Health Secretary’s Decree.

Consequences of the Imposed Measures

One of the main consequences of implementing the measures provided for in the Health Secretary’s Decree of 31 March undoubtedly derives from Measure 1. Suspending, with immediate effect, all activities which do not fall within the “essential” category is no small thing, since a measure of such scale will create a series of economic, employment, contractual and commercial ramifications.

General provisions issued by the General Health Council are compulsory for the country, in accordance with Article 73, Part XVI, 1st Basis of the Mexican Constitution. Consequently, and as provided for in the Health Secretary’s Decree of 31 March, it is necessary that all non-essential employment, academic and social activities are suspended until 30 April 2020.

That said, suspending all non-essential activities will clearly cause contractual breaches that could be justified. Under certain circumstances, the provisions set out in the decrees of 30 and 31 March could constitute a force majeure scenario, thus rendering it impossible to comply – either in whole or in part – with contractual obligations on the part of an obligor.

Furthermore, while the imposed measures will continue to apply until 30 April, Measure 6 clearly provides that guidelines will be made available for phasing an orderly return; however, the full extent of the timescale may change in light of the pandemic’s development throughout the country.

With regards to labor, it is particularly relevant that neither of the two decrees published in the Official Federal Gazette refer to a ”health contingency declaration”, but to a “’force majeure’ health emergency” declaration. This is relevant for the purposes of Article 42 bis of Federal Labor Law, which provides the following:

“Article 42 bis – In cases where the competent authorities issue a health contingency declaration, in accordance with the applicable provisions, which involves suspending labor, Article 429, Part IV of this Law shall apply.”

The Government’s position was declared in the nightly press conference on 30 March, the morning press conference on 31 March, in a video featuring the Labor Secretary, Luisa María Alcalde, and in the “List of Frequent Questions on the Labor Situation: Labor Situation before COVID -19” posted on Ministry of Labor’s website. The authorities indicated that neither of the decrees involved a “contingency declaration” regarding health, for the purposes of Article 42 bis above.

On the other hand, the use of the term “force majeure” would appear to invoke Article 427, Part I of the Federal Labor Law; similarly, Part VII would also come into play. These provisions set out the following:

“Article 427 – The following are causes for temporary suspension of working relationships in a business or institution:

I – A force majeure or an Act of God, physical or mental incapacity, or death which, in the case of labor, causes (…)

VII – A suspension of labor or work, as declared by a competent health authority, in cases of a health contingency.”

Furthermore, Article 429 establishes the following:

“Article 429 – In the cases outlined in Article 427, the following rules are noted:

I – In the case of Part I, the employer or his or her representative shall advise the Court of the suspension, so that it [can be] approved or disapproved.

IV – In the case of Part VII, the employer shall not require the approval or authorisation of the Court and shall be required to pay his or her employees compensation equivalent to one day’s minimum wage, for each day of the suspension up to one month.”

Due to the ambiguity in Mexican labor law, there is some debate in the legal industry about the scope and effect of the use of the concept of “force majeure emergency health” situation rather than the term “health contingency declaration” situation. The debate revolves around whether the scenarios provided in the Federal Labor Law exempt an employer from the obligation to pay salaries, and instead oblige an employer to pay compensation of an amount equivalent to a day’s minimum wage for up to 30 days.

In this sense, and in accordance with the position adopted by the authorities, it is understood that the instances where employers can suspend labor because of a health contingency (as noted above) do not apply because no “contingency health declaration” has specifically been declared. Similarly, the instances where labor can be suspended because of force majeure, under Articles 427 and 429, are also understood not to apply; since, in this case, the law provides that the relevant labor court must approve the suspension, following a request by the employer in the first instance. This problem is exacerbated by the fact that all Conciliation and Arbitration Boards – both federal and local – are closed and have suspended their activities.

However, there is no doubt with regards to the application of Measure 1, insofar as all activity considered non-essential is to be suspended.

In the context of Measure 1, employees who can carry out their work remotely (i.e. home-office) should continue receiving their full salary. In the event no arrangement is agreed with employees for whom home-office is not possible, 100% of their salaries would also have to be covered because of the fact that, as previously mentioned, a formal health contingency for the purposes of Articles 42 bis. and 429, Part VII of the Law has not been formally declared. This will enable compensation equivalent to one day’s minimum wage to be paid for each day of the suspension up to one month.

Regardless of the declared emergency health situation, all businesses which are continuing to operate – by virtue of falling within the scope of essential activities – should comply with the provisions of labor law currently in force which relate to health and hygiene (especially the provisions relating to an employer’s obligation to control epidemics, as provided in Article 132, Part XIX bis. of the Federal Labor Law). Such businesses should also comply with the General Health Law, because failing to do so would could give rise to applicable penalties provided for by that law (Articles 411, 421, 422 and 425), and also by Title 16 of the Federal Labor Law.

Moreover, in accordance with the Health Secretary’s regulation, failure to suspend non-essential work activities can result in the imposition of penalties consisting of fines or, for those who continue carrying out non-essential activity, the closure of the business.

Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.