Coronavirus – key concerns for the manufacturing sector

Coronavirus is, rightly so, causing increasing concern within the manufacturing sector.  In recent days we have seen the government call on manufacturers to help with the manufacture of 20,000 ventilators, and HMRC has announced it will fast-track applications to use denatured alcohol so that manufacturers wanting to produce hand sanitising products can be quickly authorised.  However, this is unlikely to mitigate against the economic impacts that the sector is likely to face.  What then, are the key concerns, and what can manufacturers do to mitigate them?

1. Disruption to the supply-chain and the raw goods used in the manufacturing process

The extent of disruption faced will vary depending on what is being produced, and the nature of the supply chain used company to company.  With many countries around the world in ‘lockdown’, it is likely that the supply of raw materials and goods will be disrupted; even if there are UK suppliers, it is foreseeable that they might not be operating, or not at their full capacity.  This issue is most acutely felt where orders have been placed and need to be met and can put a manufacturer in the difficult position of not being able to meet them.

In this situation it is well worth picking up the phone and calling the purchaser, in this time of unprecedented uncertainty it may well be that an understanding can be reached; dialogue should not be underestimated.

As to the legal position, the contract between the parties is the starting point.  The general position in English contract law is that the obligation to perform it is absolute.  However, there are two points to consider: whether there is a force majeure clause, or whether the contract has been frustrated.

We have recently discussed force majeure clauses and COVID-19, to read click here. Frustration is where there is a change in circumstances that make the performance of a contract commercially or physical impossible.  The change must be due to an outside event or change of situation that occurs without the fault of the party invoking it.  However, case law highlights that the circumstances where it can be relied upon are very narrow, so it is unwise to assume that it will come to the rescue; it would be prudent to seek legal advice.

2. Changes to the workforce and how it operates

We must now stay at home and not travel to work unless it is absolutely necessary.  For the manufacturing sector, it relies on the physical presence of their employees to assemble goods and run production lines if output is to continue.  Some manufacturers already chose to send staff home last week; for example, Nissan, Vauxhall, BMW, Toyota and Honda suspended operations at their UK factories.

These are certainly unprecedented times which may force businesses to make difficult decisions in light of tough trading conditions, not least with regards to their staff.  To read our employment team’s article on potential options open to employers in these uncertain times, click here.

Whatever approach is taken, it is imperative to remember that as an employer there are certain legal obligations and  a duty of care owed to staff.  To read our employment team’s guidance for employers, click here.

We can assist you should you need to discuss these or any related issues in more detail.