COVID-19 is impacting almost all aspects of business and our community. The drastic changes are happening daily, in real time. Our Community Support & Business Response Legal Team is analyzing COVID-19 and its effect on Arizona’s businesses. We’re building on our 40+ years in Arizona to offer thoughtful guidance on how businesses can navigate this complex and fast-changing situation. We’re here to help. If the information below does not answer your pressing questions, please feel free to contact our team of professionals.
Gallagher & Kennedy’s Business Continuity Response to COVID-19, 3/18/2020
Considerations for Board and Shareholder Meetings
In-person meetings of shareholders, directors, partners, or other owners or managers may prove difficult to convene in light of governmental restrictions on the occurrence, size, time, or place of gatherings.
Obtaining signatures on legal documents may present logistical problems when people are away from business offices or in places where electronic communication is not available or reliable.
With the temporary closure of certain governmental offices and private businesses, the obtaining of official certifications or other third-party confirmations might not be practical.
Terry Thompson is available to answer questions about Considerations for Board and Shareholder Meetings.
Force Majeure Clauses
Due to the Coronavirus (COVID-19) pandemic, many businesses are confronting unique and unforeseen circumstances that could either excuse or delay the obligation to perform under existing contracts as a result of the occurrence of a force majeure event. Force majeure is a contractual defense generally allowing a party to postpone, defer, or discontinue performance of its contractual obligations in certain specified circumstances. What constitutes a force majeure event is determined on a case-by-case basis and depends upon the terms of the relevant contract, applicable law, and the relevant facts and circumstances. Concerned business should be analyzing the following:
For businesses that have received a force majeure notice, they should be:
Kelly Mooney is available to answer questions about Contracts and the possibilities of force majeure claims.
What are our basic legal obligations with regard to the prevention of infection in the workplace?
Employers do not have a legal duty to “guarantee” that no one in the workplace will ever be infected with COVID-19. But you definitely should take reasonable steps to reduce the risk of infection, as recommended by the CDC and OSHA: frequent hand‑washing, sanitizing, and disinfecting of surfaces, and other proper hygiene practices. And you should follow the CDC guidelines when employees show symptoms of COVID‑19 (see below).
What should we do when an employee actually has symptoms of COVID-19?
When an employee has symptoms (fever, cough, or shortness of breath), you should follow the CDC guidelines: Send the employee home, and don’t let him or her return to work until he or she meets the CDC’s announced criteria for discontinuation of home isolation.
If the employee reports that he or she actually has tested positive for COVID-19, it also is good practice to advise other personnel with whom that employee routinely had contact that “a company employee” has received a positive test result, and that other personnel should be even more conscientious about follow proper infection control practices (frequent hand‑washing, sanitizing, and disinfecting of surfaces), and that they also should closely monitor themselves for any their own wellbeing for any symptoms of COVID‑19.
If an employee has to be absent because of COVID-19, is that paid time off?
Absences that are due to the employee’s own illness, the need to care for a family member who is ill, or the need to stay home with a child whose school has been ordered closed qualify for Paid Sick Time under Arizona’s Proposition 206. Employees who have PST available, therefore, must be permitted to use it to cover an absence caused by COVID‑19.
After April 2, absences caused by COVID‑19 also may qualify for paid time off under the new Emergency Paid Sick Leave Act. That law applies to all employers with fewer than 500 employees, and basically mandates that employers provide 80 hours of paid sick time (subject to certain caps on the rate of pay) for various absences caused by COVID‑19.
Absences after April 2 due to an employee’s need to stay home to care for a child whose school has been ordered closed also will qualify for time off under the new Emergency FMLA Leave Expansion Act. That new law similarly applies to all employers with fewer than 500 employees, and mandates up to 12 weeks of paid leave (again, subject to certain caps on the rate of pay) for employees who need to stay home due to a school closure.
Keep in mind that an employee who needs to be at home for one reason or another might still be able to work remotely. If remote work is feasible and can be productive in any given case, the employee would not be “absent,” and therefore would not need or qualify for any of these types of paid time off.
We may need to implement some layoffs to deal with the economic crisis. What are the rules concerning reductions-in-force, furloughs, layoffs, etc.?
Non‑union employers with 100 or more workers may need to consider whether a particular reduction or layoff might be subject to the federal plant closing law (the “WARN Act”) or to any state‑law version of the WARN Act.
But in the absence of WARN Act or similar coverage, non‑union owners and managers have significant discretion to exercise their best business judgment to structure workplace adjustments, reductions, and layoffs in the manner they feel is best for the operation. Employers can use whatever business-related criteria they prefer to select personnel for a reduction or layoff: seniority, salary level, scores on most recent performance reviews, production levels, preservation of relationships, for example, and/or any combination thereof. Employers also can weight those criteria however they wish, in the exercise of their own business judgment. And employers are not legally required to provide workers with any specific “recall” or “rehire” rights.
Don Johnsen is available to answer questions about Employment & Labor issues.
G&K Employment Law Alerts
COVID-19 will affect both prosperous and already distressed businesses. Bankruptcy, moratoriums, and other tools implemented to ameliorate the disruption are initially likely to apply to all companies seeking relief. It will be necessary to understand modifications of creditor rights as companies receive an opportunity to see if they can successfully operate in a post-COVID-19 economy.
There will be indirect consequences experienced by individuals and companies as their employees, customers, borrowers, and others struggle to meet their commitments. It will be necessary to understand how defaults or delays in performance are best addressed and which transactions are no longer possible or prudent.
Below are some initial, practical steps businesses can take in evaluating their current situation and determining how to proceed in the future:
Dale Schian is available to answer questions about Financial Distress, Bankruptcy & Creditors’ Rights.
COVID-19 has created significant uncertainty for parties in contractual and other business relationships regarding their on-going obligations and remedies. While the specific impact of the pandemic on current and future litigation is unknown, below are some of the key issues businesses are facing:
Mike Ross is available to answer questions about the Impact on Litigation for businesses in litigation or contemplating litigation.
Many businesses are and will continue to be financially impacted by COVID-19. Depending on the circumstances and terms of the policy, insurance coverage may be available to defray some of the losses and additional expenses incurred as a result of the virus outbreak. Below are steps businesses can take to evaluate their potential insurance coverage.
Jennifer Cranston is available to answer questions about coverage and communicating with carriers regarding your business insurance policies.
For many aspects of a real estate transaction, a pandemic, a public emergency, and perhaps (if applicable) a “stay in shelter” order, may rise to the level of “force majeure” or act of God, which in turn allows for the excuse, delay, extension or waiver of performance. Where the performance by a party to a contract is rendered impossible, or materially and adversely affected, by unforeseeable factors, then under the principles of force majeure that party may be excused.
In assessing whether an event or condition would qualify for such treatment under the concept of force majeure, often the “foreseeability” of the event is a significant factor. At its essence, a force majeure clause is an attempt to recognize that some risks are not reasonably foreseeable, and therefore, no single party should suffer the resulting consequences and losses.
COVID-19 has created significant uncertainty in the real estate industry, and we are currently sorting through numerous issues including the following:
Jim Connor is available to answer questions about the impact of the current business climate on commercial and residential Real Estate.
Raising Capital with COVID‑19 As a Disclosure Requirement
Securities laws require disclosures of material factors that may impact among other things business operations and financial results. Disclosures are both of existing conditions and prospective impact of macroeconomic events or so called acts of God. Clients raising capital will need to consider how COVID‑19 could impact sales, result in layoffs, create supply issues if components need to be shipped from China or Italy and related logistics of reduced transport options with flight curtailments, consider whether key employees are not able to work due to illness from COVID‑19, and many other factors specific to their business.
For example, a medical facility meant to be a surgical center may need disclosure as it may be repurposed for COVID‑19 patients.
Disclosures need to be in private offering documents and public securities reports both in the form of risk factors and the narrative on the business itself. They may even be in the management discussion impacting liquidity particularly if the client has a blown covenant with a lender. There is no “one size fits all” and working with the management team and auditor will help securities counsel determine the needed disclosures.
Steve Boatwright is available to answer questions about Securities Law, Raising Capital, and Disclosure Requirements.
Legislative Tax Relief
Tim Brown is available to answer questions about the challenges in Tax Developments for businesses.
Employers and businesses may be concerned about civil liability arising from exposure to COVID‑19. Companies may wonder about their potential liability to persons who claim they were exposed to COVID‑19 and became ill on their property. Such claims will require a careful analysis of the facts and circumstances relating to the particular claim. Claims for sickness and injury to an employee would be subject to worker’s compensation laws and an employee’s exclusive remedy, with limited exceptions, would be through the worker’s compensation system. During that process, the employee would need to establish that the injury resulted from exposure at the workplace while performing a function in the course and scope of the employee’s work duties.
For non-employees, a company may have liability to a social guest or business invitee if the employee knew or had reason to know of a dangerous condition that caused the guest or invitee harm. The elements of any particular claim warrant specific analysis since the duties a person or entity owes to others depends on the nature of the relationship between the parties.
Of course, everyone is well-advised to continue to follow state and federal government recommendations and implement robust mitigation strategies, including social distancing in the workplace, frequent handwashing and regular cleaning and sterilization.
Shannon Clark and Lincoln Combs are available to answer questions about the interaction between tort liability and workers’ compensation laws and risk management best practices.