Safeguarding Your Business Against the Coronavirus
Within a relatively short amount of time, the coronavirus disease has impacted the economic landscape around the globe. Coronavirus has spread to approximately 150 countries as of the time of this writing, including all 50 states. Minnesota is no exception. In response to the threat posed by the coronavirus, on March 16, 2020, Governor Walz signed Executive Order 20-04, which prevents certain businesses (i.e., “places of public accommodation”) from providing certain products and services to customers except for pick-up, delivery, or drive-through access. On March 18, 2020, Governor Walz issued Executive Order 20-08, to clarify the scope of Executive Order 20-04 and its application to various businesses in the cosmetology sector, e.g. spas, salons, and barber shops.
Analysts will be measuring the impact of the coronavirus for months and years to come, and the future is filled with uncertainty. One thing is certain, however: the coronavirus will have an adverse impact on many businesses. Almost every business will deal with the stress of the economic challenges caused by the coronavirus. And many employers will find the coronavirus poses unique challenges to the employer-employee relationship.
The coronavirus affects the entire economy and certain operations that previously required little oversight may suddenly pose an existential threat to the business community.
- Suppliers/Vendors/Third-party Contractors
No business operates in a vacuum and, to varying degrees, nearly all businesses rely on the products and services of third-parties. Those relationships can be disrupted by the coronavirus as manufacturing is disrupted and certain vendors and supplier contacts stay home to self-quarantine. In most cases, those relationships will be governed by a contract. Generally, contracts should contain provisions that detail the remedies and rights of each party if there is a breach. If this language is missing, or the parties never had a contract, courts will often look to the course of dealings to determine the obligations and rights of the parties.
Many contracts contain force majeure provisions that may excuse a breach in the face of unexpected situations, like the coronavirus. The common law doctrines of impracticability and impossibility may also come into play. Sometimes, a breach can be remedied by a demand letter, obviating the need for full blown litigation.
If a business believes it will breach a contract, it should seek legal guidance from an attorney experienced in handling distress situations. Businesses looking to enforce their contracts are similarly best served by involving counsel early to review the existing contracts and plan an effective strategy.
- Leases/Contracts for Deed
Many businesses will require rent abatement or forbearance to survive. Landlords and tenants will often negotiate a rent reduction, delay or forgiveness on their own. But a simple (but properly drafted) lease amendment or forbearance agreement can avoid surprises in the future. In some cases, a landlord may want to use the opportunity to evict a tenant to make way for a better tenant or a more profitable use of the property in question.
Contracts for deed pose a more difficult challenge. Though the terms differ, the seller usually has the right to take possession of the property after one missed payment. Real property entails upkeep costs and taxes, though. As such, a seller in some cases may be less inclined to declare default and may instead consider another arrangement that preserves the seller’s rights while allowing the buyer to remain.
Whether the business leases space or utilizes a contract for deed, early involvement by legal counsel is crucial to planning for a potential breach and a good strategy may even benefit both sides.
Lending relationships may be strained by the lack of cashflow. Like vendors and suppliers, lender relationships are likely to be governed by a contract. Businesses that anticipate difficulties making a payment under a lending agreement should plan in advance and develop a legal strategy before missing the first payment. To maximize this effort, and avoid costly mistakes, lender contact should be made after consulting with legal counsel.
Most businesses don’t have reserves to weather a long supply interruption, a sharp decline in demand, or a long shut down. Many businesses will be forced to consider using the powerful tools provided by the bankruptcy code in order to survive. Businesses should speak to bankruptcy counsel sooner rather than later to preserve their options.
One of the many impacts the coronavirus may have on a business is the employment-employer relationship.
- Mandatory sick time / FMLA
The Family Medical Leave Act (“FMLA”) requires businesses of a certain size to provide leave so that employees can care for themselves or family members. State and local laws may also mandate leave for sick time. These laws differ in the length of leave provided, whether the leave is paid or unpaid, and the amount of notice required, but all of these laws impose potentially severe consequences for violations. Every business should prepare for employee leave requests related to the coronavirus by speaking to legal counsel as soon as possible.
- Workers Compensation
If an employee becomes infected with the coronavirus while working, the employee may make a worker’s compensation claim and ask the employer’s workers compensation insurer to cover the costs of their treatment. Employers can reduce the risk of a work-related infection by providing ready access to sanitizing wipes or hand-washing stations. Employers can also impose policies that reduce the risk that a customer infects an employee, such as requiring customers to operate all credit card terminals or encouraging meetings via video conference.
- Remove Access
As federal, state, and local governments urge residents to avoid public travel, many employers will need to consider remote access as an option. For some employers, remote access is simply not compatible for all employees. Even if some or all employees can move to remote access, businesses will still need to assess the cost of deploying or expanding remote access technology. Remote access comes with security concerns, particularly if the employees are working with sensitive data. Businesses may also wish to monitor employees working remotely, but depending on the circumstances, this monitoring may trigger privacy protection laws if the employee is working from home or using a personal computer.
There are also prospective effects of instituting remote access during the coronavirus outbreak. Remote access is a frequent topic of discussion when employees request accommodations for a disability or for a work-related injury. An employer will be hard pressed to claim that remote access is unreasonable if the employer previously instituted this access for a large portion of its work force. In addition to technical experts, employers should involve legal counsel in the implementation of a remote access policy to ensure this policy accomplishes business objectives while complying with applicable laws.
Eventually, a business may be faced with the unpleasant task of eliminating positions in order to cut costs during this crisis. This may be an opportunity to rid the business of some less valuable or less crucial employees, but it also poses a liability risk for the employer. If the business is considering a sizeable reduction, the business can undergo a reduction in force (“RIF”), which decreases the potential exposure from wrongful termination claims. Certain laws such as the Worker Adjustment and Retraining Notification Act of 1988 (the “WARN Act”) may impose additional requirements for an employer undergoing a RIF. An employer who is considering a sizeable layoff should discuss with legal counsel as early as possible to plan for the reduction and to implement strategies that reduce the employer’s potential liability.
- Labor Law
Collective Bargaining Agreements (“CBAs”) define many of the rights and obligations of a union employer. These agreements generally contain provisions requiring certain types of leave or that limit the employer’s ability to terminate employees. A union may be willing to renegotiate the terms of a CBA on a temporary basis, but an employer should proactively address the situation through counsel. Before denying leave or terminating employees, and before contacting the union representative, businesses with union employees should discuss the issue with legal counsel. Otherwise, an uninformed employer may unwittingly increase the possibility of a labor law complaint, even if the employer is acting with the best of intentions.
As shown above, the coronavirus will have a significant impact on many aspects of business operations. Business owners who anticipate the above issues, and who involve legal counsel early, are more likely to see their business emerge from coronavirus, with less negative impact. On the other hand, waiting until a situation becomes a crisis before involving counsel will almost certainly lead to higher legal costs and less favorable odds in litigation.