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COVID-19: Legal Issues for Your Business to Consider
Business owners are quickly having to adapt and address the difficulties surrounding the impact created by the measures necessary to contain the spread of the COVID-19 virus. In addition to the operational changes businesses are implementing, there are legal issues that should be considered.
Employment Issues
Employers have a duty to keep their employees safe, and a proactive approach helps. Many employers have already implemented “work at home” policies for those employees whose duties allow it. For those employees whose physical presence is required to perform their duties, employers need to monitor their work conditions and send any employees with symptoms home immediately. This is a good time to inform employees about the company’s medical leave, sick leave, and paid time off policies. Many employers are modifying or relaxing their policies to give employees flexibility.
Insurance
There are several coverages that may be triggered by current or future events. Many commercial property policies have business interruption clauses that could potentially give coverage for a loss in revenue. Coverage for supply chain failures or slowdowns could apply. Coverage for civil or military acts is provided in many business policies, and restrictions on trade, imposed by governmental orders, may give rise to those provisions. Coverage is dependent on policy language, and businesses should be familiar with their policies and use their broker as a resource and advocate with the insurers.
Contractual Breaches
Unfortunately, this quite sudden disruption in business will result in contractual breaches. Events are being cancelled. Suppliers are unable to perform. Delays will be common. Several clauses may be implicated by the COVID-19 response.
A typical force majeure clause likely will not excuse performance in the present environment. That said, these clauses vary widely, and if the term is defined to include governmental actions or failures in supply, the clause may apply. Some contracts broadly define force majeure, and that could create ambiguity that could be used to extend the provision to the COVID-19 measures.
Another common clause that may relieve an obligation of performance is an “impossibility” event. These clauses typically excuse performance when it becomes impossible or impracticable due to an unforeseen event. Furthermore, delays or nonperformance may be excusable if there is “commercial frustration,” and although not impossible, it is economically prohibitive. For these clauses, the event triggering them must be one that both parties did not contemplate when they entered the contract. Clearly, COVID-19 satisfies that requirement.
Bankruptcy
We are already aware of new or imminent bankruptcies in the Texas oil patch, in the wake of the precipitous drop in prices. With the economic effects of COVID-19, it can be expected there will be bankruptcies in other industries as well. On the debtor’s side, bankruptcy can be a lifeline toward a restructured business. For businesses that find themselves as creditors in a bankruptcy, it is critical they engage creditors’ counsel to represent their interests in the bankruptcy estate. It is a complicated process to maneuver, but it can be an effective tool to collect at least a portion of what is owed.
Conclusion
Businesspeople are facing challenges in anticipating and mitigating the risks arising out of the response to this illness. Hopefully the efforts taken to control the virus result in a rapid containment, and businesses can turn their focus to more productive matters. Even when that happens, we all will have learned a great deal on how to prepare for the future.
Disclaimer: This article is not intended as legal advice and should not be construed as such.
Steve Skarnulis is the managing partner of Austin’s Cain & Skarnulis, PLLC, a business and litigation law firm.