Kazakhstan: Overview of certain legal aspects of the Coronavirus situation
31 March 2020 – On 15 March 2020 the President of Kazakhstan adopted Edict No. 285 on Introduction of the Emergency Situation in the Republic of Kazakhstan from 8:00 am on 16 March 2020 until 7:00 am on 15 April 2020 due to declaration of the new coronavirus COVID-19 as a pandemic by the World Health Organisation. The edict, among others, introduced the following measures and temporary restrictions:
- To restrict functioning of large sales (trade) outlets;
- To suspend activities of shopping centers, cinemas, theaters, exhibitions and other facilities with mass gathering of people;
- To ban sporting, entertainment and other public events;
- To limit the entry into and exit from the territory of Kazakhstan by all types of transport except for personnel of diplomatic service of Kazakhstan and foreign states as well as members of delegations of international organizations coming into Kazakhstan at the invitation of the Ministry of Foreign Affairs of Kazakhstan.
The Government and relevant state authorities are also adopting a number of special legislative acts and regulations to deal with the coronavirus.
In addition, as of 19 March 2020, a quarantine was introduced in the cities of Almaty and Nur-Sultan which includes a ban on the move of people in an out of these cities. Furthermore, as of 26 March all non-food facilities which sell goods and provide services (except for gas stations) in the city of Almaty are closed. Cafes and restaurants can only work for take away. Employees and visitors of food stores and pharmacies must wear face masks. Similar restrictions have been introduced in the city of Shymkent.
Starting from 28 March 2020, the following additional measures came into force in the cities of Almaty and Nur-Sultan:
- Citizens can leave their homes only for purposes of purchasing groceries, medicine or going to work;
- Closing of places of mass gathering of people (e.g. parks, pedestrian streets, playgrounds, etc.)
- Gradual restriction of public transportation;
- Ban on gathering of more than three people (except for family members) in the streets and other public places;
- Ban on movement of minors without accompanying adults.
Introduction of the above measures along with the situation happening in many other countries will certainly have or is already having a significant impact on the businesses operating in Kazakhstan. In particular, the pandemic may influence performance of contractual obligations. Companies are also likely to face questions related to employment matters such as the basis for the absence of quarantined employees from work, the possibility to work from home, etc. This note briefly examines in what circumstances companies may claim force-majeure under their agreements or expect such claims from their counter-parties, government measures on support of population and businesses as well as some employment aspects of the coronavirus.
Force Majeure
What is force majeure?
Under Kazakhstan legislation (article 359.2 of RK Civil Code), a person that failed to perform or improperly performed its obligation while conducting entrepreneurial activities has material liability unless it proves that proper performance became impossible due to a force majeure event (insuperable force), i.e. emergency and unavoidable circumstances such as natural disasters, military actions and so on. Generally, it is any event that represents an insuperable force that is beyond the control of a party and which precludes the party from performing or properly performing its contractual obligations.
However, before making a force majeure claim one should carefully review the provisions of the specific contract to consider what constitutes a force majeure event under the contract as well as examine applicable legislation (which may be different depending on the type of contract, type of company etc.).
Can the current situation due to the coronavirus be considered a force majeure event?
Given the introduction of an emergency situation in Kazakhstan and that the whole situation is beyond the control of a party to a contract, one may claim that the COVID-19 pandemic is an extraordinary event for the purposes of article 359.2 of RK Civil Code and use it as a basis to trigger the force majeure clause under a given contract if it can prove that the COVID-19 outbreak prevented that party to properly perform the contract (it is assumed here that the relevant contract was concluded prior to the coronavirus outbreak).
This view is supported by the statement made by the RK Agency on Regulation and Development of the Financial Market dated 17 March 2020 that ‘introduction of the state of emergency regime is considered as an event of insuperable force’. While the statement concerns payment of penalties on certain categories of loans by affected borrowers, the general approach to qualification of the COVID-19 situation supports the logic above.
Who can confirm a force majeure event?
Force majeure events can be confirmed by the Foreign Trade Chamber ("FTC") of Kazakhstan, a subsidiary of the National Chamber of Entrepreneurs ("NCE"). The NCE is the authorized entity under the NCE Law (Art. 14.13) to certify circumstances of insuperable force in accordance with the terms of foreign economic transactions and international treaties of the Republic of Kazakhstan.
FTC confirms the presence/absence of a force majeure event on the basis of a written application of an interested party with respect to foreign trade and intra-republican transactions.
Other issues to note
As mentioned above, one should carefully review the force majeure and other provisions of the relevant agreement. The agreement may contain specific provisions on what constitutes a force majeure event or what are the requirements on notification of the counter-party. If the agreement is governed by foreign law, one may also need to seek advice from legal counsel in the relevant jurisdiction.
Foreign exchange restrictions
On 19 March 2020 the National Bank of Kazakhstan ("NBK") adopted its Resolution No. 25 which amended the Currency Operations Rules (the “Currency Rules”).[1]
The amendments, which came into effect as of 23 March 2020, provide that a resident legal entity, except for an authorised bank, can only purchase non-cash foreign currency for national currency for purposes not related to fulfilment of obligations denominated in foreign currency in one authorised bank in one day in an amount not exceeding US $50,000. Under the Currency Rules, purposes not related to fulfilment of obligations in foreign currency are the following:
- transfers of foreign currency to its own accounts in foreign banks;
- free of charge transfers of foreign currency to a third party (i.e. without any obligation to make such transfer);
- maintaining foreign currency in its own accounts in the authorized banks.
The Currency Rules further provide that upon making an application to purchase non-cash foreign currency for national currency that exceeds US $50,000, a resident legal entity must indicate the purpose of the foreign currency purchase and attach to the application a copy of the agreement for which the foreign currency is needed as well as an invoice or other document requesting payment.
Measures on support of population and entrepreneurs
On 22 March 2020 RK Agency on Regulation and Development of the Financial Market adopted its Resolution No. 17. According to this Resolution, during the emergency situation, banks and organisations carrying out certain types of banking operations as well as organisations carrying out microfinance activities shall:
- not accrue interest on bank loan agreements and/or microcredits to physical persons for which delayed payment of the principal and/or interest exceeds 90 calendar days;
- not accrue fines and penalties on delayed payments of principal and/or interest on bank loan agreements and/or microcredits:
- To physical persons;
- Legal entities, the financial condition of which worsened as a result of introduction of the emergency situation;
- grant deferral on payments of bank loans and/or microcredits, including payments of principal and/or interest for a period of up to 90 calendar days to individual entrepreneurs and subjects of small and medium businesses the financial condition of which worsened as a result of introduction of the emergency situation;
- carry out analysis of the financial condition of borrowers-physical persons and adopt decisions on additional measures of support, including in the form of deferral of payments of bank loans and/or microcredits including payments of principal and/or interest, of physical persons who lost their jobs or other sources of income as well as are experiencing other financial difficulties.
The above requirements apply to bank loans and/or microcredits entered into prior to 18 March 2020.
Certain employment law aspects of the coronavirus situation
Is an employee entitled to refuse to work due to a fear of the coronavirus?
An employee cannot refuse to be present and work at the place of work by referring only to a fear of the coronavirus. In case an employee refuses to work and cannot properly justify his/her absence, he/she would be in breach of the duty to perform work. Such breach could even serve as a ground for termination if the unjustified absence lasts for more than three consecutive hours per day or shift. A legitimate absence from work may take the form of annual leave, unpaid leave or distant work discussed below. However, all of these require the consent of the employer.
What happens if an employee is quarantined?
If an employee is subject to official isolation or epidemiological lock-up for public health reasons, the employee will become incapacitated to work and will be entitled to sick pay in accordance with applicable laws. The employer will have to pay such employee an amount of average daily salary times the number of sick days but not exceeding 15 times monthly calculation indices (39,765 Tenge or approximately US $90) per month.
Possible preventive measures by employers
- It is highly recommended to inform employees about the measures to be taken at the place of work to prevent the coronavirus, which should be regularly reviewed and repeated;
- Appropriate hygiene equipment necessary for occupational safety (e.g. hand sanitizer) must be provided by the employer at its expense;
- Where the nature of the work allows, the employer may decide to provide the possibility of distant work (work from home) by way of amending the employment agreement;
- The employer may declare downtime; however, the procedure for documenting downtime and terms of salary payment during downtime for reasons outside the control of the employer and employees must be specified in the employment agreement and such amount cannot be less than the statutory minimum salary amount which is set in 2020 at 42,500 Tenge;
- Part-time work (less working days in a week and/or less working hours per day) can be established in an amendment to the employment agreement and employees will be paid according to the hours worked (i.e. less than the normal working hours of 8 hours per day). Part-time work does not impact some of the other rights of an employee, e.g., length of paid leave or length of service.
- The employer and the employee may agree on the employee's taking of unpaid vacation. Employees employed by a micro, small and medium size business entities may receive social payment from the State Social Security Fund in the amount of one minimum salary – 42,500 Tenge per month for the duration of emergency situation provided that certain conditions are met. This social payment is also paid to employees of large size business entities in the cities under lockdown.
- The employer and the employee may agree that the employee will take annual paid leave in full or in part.
Distant work
Under the Labour Code, an essential feature of distant work is that the employee's activities are performed on a regular basis at a place other than the employer’s facilities, using computing equipment, where the end product is delivered by way of electronic means. The parties must agree to distance work in the employment agreement. However, in the recent decisions to lock down both Almaty and Nur-Sultan, requiring all but certain essential businesses to close, it was specifically mentioned that employers could move employees to distance working. Thus, as long as the current measures remain in place, employees can be asked to work from home without the need to amend their employment agreements. The work schedule of the employee performing distant work is fixed, i.e. the employee must be at the home work place during the working hours agreed in the employment agreement. The general rule for payment of salary is that salary is paid for the actual time worked. In case of distant work, hours worked shall be recorded as provided in the employment agreement.
The employer must provide the employee with computing equipment. If the employee's equipment is used, the employer must pay compensation and reimburse the employee other agreed expenses (cost of electricity, water etc.).
For more information please contact please contact Joel Benjamin, Managing Partner Central Asia, at , Almas Zhaiylgan, Counsel at and Kuanysh Kanlybayev, Managing Associate at .
[1] Rules on Conduct of Currency Operations approved by the Resolution of the Board of the National Bank of the Republic of Kazakhstan dated 30 March 2019 No. 40, as amended.