15.04.2020
§ 32 Epidemic Act[1] states:
“Natural and legal persons as well as partnerships under commercial law shall be compensated for the financial losses caused by the obstruction of their acquisition if and to the extent that
- they have been separated in accordance with Sections 7 or 17, or
- they have been prohibited from selling foodstuffs in accordance with Section 11, or
- they have been prohibited from engaging in gainful employment pursuant to Section 17, or
- they are employed in a company that is restricted or closed in accordance with Section 20, or
- they operate a business which has been restricted or suspended in accordance with Section 20, or
- they live in apartments or buildings whose evacuation has been ordered under Section 22, or
- they live or work in a locality where traffic restrictions have been imposed in accordance with Section 24,
and this resulted in a loss of earnings.”
Many, if not all, entrepreneurs affected by the Covid-19 pandemic are wondering whether or not they can make claims for compensation against the state. This is, of course, a question that can only be answered on a case-by-case basis and on the basis of the relevant laws, regulations and decisions:
I. The actions of the Federal Government and the legislature
Already with the first measures taken nationwide in March 2020 to respond to the Covid 19 pandemic, many lawyers had the impression that, if possible, compensation for closed or restricted businesses, which is basically (still) provided for in the Epidemic Act, should be avoided.
Section 32 of the Epidemic Act provides for a “Compensation for loss of earnings“ of (natural and legal) persons who have suffered a financial disadvantage due to certain measures under the Epidemic Act. Such measures include, among other things, the restriction of businesses and traffic restrictions in relation to localities. At the end of February 2020, the Federal Minister of Health expressly decreed that business closures and restrictions under Section 20 of the Epidemic Act could also be imposed if infections with SARS-CoV-2 occurred.[2]
The district administrative authorities (especially in Tyrol) originally also made use of this option and, on the basis of the Epidemic Act (among other measures), largely ordered the closure of hospitality and accommodation establishments.[3]
Shortly thereafter, the possibility of closing businesses under the Epidemic Act was “undermined” by the first COVID-19 Measures Act[4], the possibility was created to prohibit by regulation the entry of business premises for the purpose of purchasing goods and services and Section 4 of the COVID-19 Measures Act stipulated that the provisions of the Epidemic Act regarding the closure of business premises do not apply if the Federal Minister of Health has issued a regulation on the basis of the first COVID-19 Measures Act.[5]
By means of a regulation of the Federal Minister of Health[6] was then "entering the customer area of commercial premises and service companies as well as leisure and sports establishments for the purpose of purchasing goods or using services or using leisure and sports establishments“ as well as entering the premises of all types of hospitality businesses and entering accommodation establishments for the purpose of recreation and leisure activities are prohibited nationwide.
Despite numerous exceptions (e.g. for pharmacies, petrol stations, tobacconists, the sale of pet food, etc.), it became virtually pointless for most businesses to continue their business operations, as customers were no longer allowed to enter the business, although there was no compensation for the resulting loss of sales.
Instead of a detailed, concrete claim to compensation under the Epidemic Act, or at most the COVID-19 Measures Act, a large number of measures have been put in place to cushion general economic losses in the wake of the Covid-19 pandemic (Corona Aid Fund, Hardship Fund, etc.), which, as a rule, are unlikely to represent an equivalent replacement.
II. The question of the constitutionality of this approach
Whether the legislator's approach described above is constitutional is doubted by some quarters - even if the legal situation is not as clear-cut as many claim.
An obvious argument for the unconstitutionality of this legislation is the principle of equality, which, put simply, states that the legislature must treat like things alike (and unequal things unequally), which is why there must be an objective justification for any unequal treatment of those subject to the norm (who are "equal before the law"). Based on this, it can be argued that there is no objective justification for the unequal treatment of companies with regard to the award of compensation that were closed on the basis of the Epidemic Act and companies that suffer actual losses in sales on the basis of the regulations under the COVID-19 Measures Act.
It could also be argued, invoking the principle of trust, that arrangements made by companies in reliance on the previous legal situation (e.g. the right to compensation under the Epidemic Act) (e.g. not taking out a certain insurance policy that relates to cases of illness within the meaning of the Epidemic Act) enjoy a certain degree of protection and cannot simply be “undermined” without transitional periods.
Of course, arguments can also be made for the constitutionality of the procedure: the legislature has discretion with regard to the objective justification of legal provisions. Furthermore, the fact that compensation payments for a large number of closed businesses would have placed a considerable burden on the state budget is also an objective justification for providing special regulations with regard to the Covid-19 pandemic. One could also argue (but in our opinion incorrectly) that the Epidemic Act was not created with a view to a situation such as the current one (but only in the case of the spatially limited spread of infectious diseases) and that a pandemic such as the corona crisis requires special legal regulations.[7]
Very few companies will have made concrete arrangements based on the Epidemic Act - until a few months ago, this law led a shadowy existence and was hardly noticed by companies (due to a lack of practical relevance). The mere expectation that the current legal situation will remain in place is not particularly protected under constitutional law, according to the case law of the Constitutional Court.[8]
III. Possible course of action for entrepreneurs
For entrepreneurs who want to retain the possibility of receiving compensation under the Epidemic Act (even if the actual chances of such applications being successful are currently difficult to estimate), the first choice is to submit an application under Section 32 of the Epidemic Act. Under the current legal situation, only (natural or legal) persons who actually submit an application under Section 32 of the Epidemic Act and take legal action have a theoretical chance of benefiting from the Constitutional Court's repeal of relevant provisions (the so-called "seizure bonus") in the event of the repeal of those provisions that serve to override claims under Section 32 of the Epidemic Act.
In some cases, companies could independently argue that particular Loss of sales not exclusively are not due to the regulations based on the Covid-19 Measures Act, but to other restrictions imposed on the basis of the Epidemic Act (e.g. “Secretions“ pursuant to Sections 7 or 17 of the Epidemic Act, “Traffic restrictions for residents of certain localitiesAccording to Section 24 of the Epidemic Act, compensation is therefore due under the Epidemic Act.
For practical reasons (if no measures based on the Epidemic Act are in place at the time), the application deadline will have to be calculated based on the repeal of the relevant parts of the regulations based on the Covid-19 Measures Act that have led to a loss of sales, i.e. from around 13 April 2020, when shopping in certain stores was permitted again[9] or from a later date, at which entry to accommodation establishments and hospitality establishments is permitted again.
The Epidemic Act provides for a comparatively short period of 6 weeks within which claims for compensation under the Epidemic Act must be made. This period begins on the day "the lifting of the administrative measure“. Such applications must be submitted to the district administrative authorities in accordance with Section 33 of the Epidemic Act. They must be received by the competent authority within the specified deadline.
However, it is questionable whether a repeal of the law by the Constitutional Court will ultimately lead to a successful assertion of claims: in principle, no claim for compensation is provided for mere "legislative injustice". In particular, the amount of compensation under the Epidemic Act can only be determined on a case-by-case basis.
The most important argument against the assumption that high compensation can be claimed on the basis of the Epidemic Act is that the damages suffered by Austrian entrepreneurs as a result of the Corona crisis would have occurred even if the business closures, in whatever legal form, had not been ordered. It is more than questionable whether these damages, which were caused by - to put it simply - the virus itself and not by official orders, will be awarded.
We are happy to support you in resolving legal issues related to the Corona crisis and to help you enforce claims. We do not pursue the interests of our clients in the context of mass proceedings or so-called class actions, but exclusively in the context of individual advice. The reason for this is that, in our experience, every case is different - in crucial details at most. Each claim requires a separate examination, an examination that we cannot carry out when enforcing many similar (but not identical!) claims.
[1] Epidemic Act 1950, Federal Law Gazette 186/1950 as amended I 23/2020.
[2] Ordinance of the Federal Minister for Social Affairs, Health, Care and Consumer Protection issuing the Ordinance on the Restriction of Operations or Closure of Commercial Enterprises in the Event of SARS-CoV-2 (“2019 Novel Coronavirus”) Infections and amending the Ordinance of the Federal Ministry of Social Affairs of 26 June 1957 on the Transport of Persons Suffering from or Suspected of Communicable Diseases, Federal Law Gazette II 74/2020.
[3] See, for example, the regulation KB-KAT-23/22-2020 of 13 March 2020 of the Kitzbühel District Authority.
[4] Federal law enacting a federal law on the establishment of the COVID-19 Crisis Management Fund (COVID-19 Fund Act) and a federal law on provisional measures to prevent the spread of COVID-19 (COVID-19 Measures Act) and amending the 2020 Provisional Budget, the Federal Financial Framework Act 2019 to 2022, the Federal Act on the Establishment of a Federal Reduction Participation Company, the Labor Market Policy Financing Act, the Labor Market Service Act and the Employment Contract Law Adjustment Act (COVID-19 Act), Federal Law Gazette I No. 12/2020.
[5] This wording could be interpreted to mean that individual business closures on the basis of the Epidemic Act are now no longer possible, but this could contradict the next paragraph, which states that “the provisions of the Epidemic Act 1950“ remain untouched.
[6] Ordinance of the Federal Minister for Social Affairs, Health, Care and Consumer Protection concerning provisional measures to prevent the spread of COVID-19, Federal Law Gazette 96/2020 as amended 151/2020.
[7] In fact, the Epidemic Act does not define the terms "epidemic" and "pandemic", but basically only refers to the occurrence of certain diseases - there is therefore no indication in the Epidemic Act itself that the Epidemic Act is "only" designed for local epidemics. In addition, the legislature itself has now included special provisions tailored to COVID-19 in the Epidemic Act (see Section 3a).
[8] VfSlg 16.687/2002, 19.637/2012.
[9] Ordinance of the Federal Minister for Social Affairs, Health, Care and Consumer Protection amending the Ordinance on Provisional Measures to Prevent the Spread of COVID-19, Federal Law Gazette II 151/2020.