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.
If and to the extent that certain governmental offices and private businesses might be closed from time to time, 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:
Matt Engle is available to answer questions about Contracts and the possibilities of force majeure claims.
International Chamber of Commerce Comments on Force Majeure Clauses
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 employers nevertheless should take reasonable steps to reduce the risk of infection, as recommended by the CDC, OSHA, and the Arizona Department of Health Services: encouraging employees to follow common-sense hygiene practices. And employers should follow the CDC guidelines when employees show symptoms of or test positive for COVID-19 (see below).
Must we require the use of masks in the workplace? May we require the use of masks?
According to CDC data, Maricopa County presently is at a “Medium” level of community transmission. Under those circumstances, employers in Maricopa County are not required to mandate the use of masks in the workplace. Employers who wish to be more cautious generally may require the use of masks on their premises if they wish.
What is the status of legal regulations mandating COVID-19 vaccines?
Most of the federal vaccine mandates that were issued in 2021 have been withdrawn or suspended. (Some healthcare providers remain subject to vaccine mandates issued by the Centers for Medicare & Medicaid Services.) Under those circumstances, most employers in Maricopa County are not under any legal obligation to mandate vaccines.
May we impose our own requirement that employees be vaccinated for COVID-19?
Employers in Arizona who wish to be more cautious nevertheless generally may require vaccines as a condition of continued employment if they choose to do so.
Such employers must properly assess any objections from employees who claim that sincerely-held religious beliefs, practices, or observances prevent them from receiving a COVID-19 vaccine. Such employers also must consider objections from any employee with a legal “disability” whose condition prevents him or her from receiving a vaccine.
What should we do when an employee has symptoms or actually tests positive for COVID-19?
The employer must direct the particular employee to stay home and not return to work until he or she meets the CDC’s criteria to discontinue home isolation (“Quarantine and Isolation”).
Remember that “staying home” does not necessarily mean that one is unable to work. If the employee’s job is suitable for remote work, and the employee is medically able, then remote work is a viable option. If remote work is not feasible, the employee may be entitled to use any paid time off that he or she has accumulated (see below).
Then the employer should do some basic “contact tracing” to determine whether any other employees may be required to quarantine. According to guidelines issued by the Maricopa County Department of Public Health, persons who had “close contact” with the positive individual (contact within six feet for a total of 15 minutes or more in any given 24‑hour period) should stay home for five days after their most recent exposure to the positive individual. (As above, consider whether remote work may be a viable option. If remote work is not feasible, the employee may be entitled to use any paid time off that he or she has accumulated (see below).
Employers in Arizona are not under a formal legal obligation to notify customers, contractors, suppliers, or other third parties that an employee has tested positive.
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.
An employee who does not have any Paid Sick Time available under Proposition 206 still might have other paid time off available under some other employer policy or procedure (such as vacation, personal leave, and the like). Employers should at least consider permitting such employees to use such paid time off for a COVID-19 absence.
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.
Don Johnsen is available to answer questions about Employment & Labor issues.
Supreme Court Halts OSHA COVID-19 Vaccination Mandate
Court of Appeals Reinstates OSHA COVID-19 Vaccination/Testing Mandate For Businesses With 100+ Employees
OSHA’s COVID-19 Vaccination and Testing Emergency Temporary Standard: Mandatory Vaccine Policy For Businesses With 100+ Employees
How Does the Most Recent Coronavirus Relief Bill (December 2020) Affect Our Obligations when an Employee Must Miss Work Because of COVID-19?
Can We Mandate That Employees Get the COVID Vaccine?
Should Businesses Require People to Sign Waivers to Come Onto Premises?
Preparing to Re-Open the Workplace; Critical Issues for Arizona Employers
COVID-19 has affected both prosperous and previously distressed businesses. Bankruptcy, moratoriums, government aid, and other tools implemented to ameliorate the disruption initially applied to companies seeking relief, but many of those tools have since phased out or gone away. Understanding the modifications of creditor rights is necessary as companies see if they can successfully operate in a post-COVID-19 economy.
Individuals and companies have experienced indirect consequences as their employees, customers, borrowers, and others have struggled to meet their commitments and endure during the pandemic. Understanding how defaults or delays in performance are best addressed, and, which transactions are no longer possible or prudent, is an important analysis to undertake. Exiting the pandemic will have its own set of delays and complications.
Below are some initial, practical steps businesses can take in evaluating their current situation to determine how to proceed in the future, especially as we transition to a post-COVID world:
Dale Schian is available to answer questions about Financial Distress, Bankruptcy & Creditors’ Rights.
Expedited Bankruptcy Relief Extended for Small Businesses
Small Business Bankruptcy Relief
PPP Loan Eligibility for Bankruptcy Debtors
Arizona Bankruptcy Court Rulings Facilitate PPP Loans for Business in Chapter 11
CARES Act Expands Bankruptcy Relief for Small Businesses
COVID-19 Impact on Franchise Disclosure Documents
The North American Securities Administrators Association (“NASAA”), the national association of state franchise regulators, issued new guidance on Item 19 financial performance representations that several states are implementing immediately. The newly published guidelines (See Additional Resources) require certain franchisors who include historical financial results in an Item 19 financial performance representation to amend already filed Franchise Disclosure Documents that should consist of up-to-date 2020 results. These guidelines will ensure that prospective franchise buyers are aware of the impact that COVID-19 has had on those businesses and reasonably reflect current economic conditions.
In determining whether a franchisor is obligated to file an amended FDD, the franchisor should consider the following factors:
A franchisor that included actual historical sales and profits data in their 2020 FDD and whose business has been impacted by the pandemic should update their FDD to include disclosures concerning that impact. NASAA did not provide specific guidelines on the required amendments. Still, the State of Washington, which has implemented similar requirements already is requiring franchisors to acknowledge that the virus has negatively impacted their business and to include sales results for the first part of 2020 in their financial performance representation. We suspect that other states will accept similar disclosures. The sale of franchises without these disclosures might increase risk because franchisees may later claim that they would not have purchased a franchise if they knew about the impact that COVID-19 had on the franchised business.
Josh Becker is available to answer any questions about Franchising issues.
Stan Curry is available to answer questions regarding Arizona state and county inspections, permitting, and compliance enforcement issues for businesses.
COVID-19 continues to create significant uncertainty for companies and individuals with respect to business and contractual relationships. The impact of the pandemic on current and future litigation is dynamic, changing on a daily basis, but some of the key issues businesses are facing include:
The Federal and State courts throughout Arizona continue to balance the ongoing health risks with the necessity to remain operational. Courts have adjusted aspects of the process to minimize any potential delay while still ensuring litigants are not prejudiced in the enforcement and protection of their legal rights. Most elements of the civil litigation process are moving forward, albeit with greater reliance on virtual or telephonic proceedings and appropriate social distancing measures for in-person proceedings.
Here are some key ways in which COVID-19 has impacted Federal and Arizona State Court litigation and some of the ways in which these Courts are responding:
Mike Ross and Hannah Porter are available to answer questions about the Impact on Litigation for businesses in litigation or contemplating litigation.
Maricopa County Superior Court Establishes Late Case Fair Limits Proceeding
Maricopa County Superior Court Guidelines to Reopen
Arizona Supreme Court Authorizes Limited Court Operations
Many businesses have been and will continue to be financially impacted by COVID-19. A number of these businesses have already been denied insurance reimbursement for their businesses losses, forcing them to pursue litigation against their insurance companies. To date, most of these cases have not favored the insureds.
However, each claim is fact-specific and should be evaluated based on the circumstances and terms of the policy. Below are steps businesses can take to evaluate their potential insurance coverage.
Liability Defense Coverage
In addition to incurring their own pandemic-related losses, many businesses face the possibility of third-party claims alleging personal injury due to exposure to the virus. While most businesses will have strong arguments for why they should not be held liable, defending exposure claims can be costly, such that businesses may want to tender these kinds of claims to their insurance companies.
Claims alleging exposure liability are typically covered by commercial general liability policies, given that most exposure lawsuits allege “bodily injury” caused by an “occurrence” or “accident.” However, if the plaintiff did not actually contract the virus and limits his or her alleged harm to emotional distress, the insurance company may contest the availability of coverage (even coverage for defense costs) depending on the policy’s definition of “bodily injury.” Also, some liability insurers have added endorsements to their policies excluding or limiting coverage for injuries arising out of communicable diseases or transmissible pathogens.
Like all other policies, commercial general liability policies should be carefully reviewed, in their entirety to determine available coverages in the face of liability claims. Should your business receive a claim or lawsuit alleging exposure liability, tendering the claim to your carrier – in accordance with any timing or other procedural requirements identified in the policy – can be key to obtaining coverage for the attorneys’ fees and costs associated with defending such claims.
Jennifer Cranston is available to answer questions about coverage and communicating with carriers regarding your business insurance policies.
Matt Engle is available to answer questions about the Paycheck Protection Program.
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.
City of Phoenix Extends Several Permit Deadlines Due to COVID-19
Issues When Considering Lease Modifications in a COVID-19 Business Environment
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 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.
Tim Brown is available to answer questions about the challenges in Tax Developments for businesses.
Tim Brown is available to answers questions about State and Local Tax Developments for businesses.
Potential Liability for Exposure to COVID-19
As we approach the third year of the coronavirus pandemic—with new variants continuing to require businesses to adjust to ever-evolving conditions—many employers and businesses have remain concerned about civil liability arising from exposure to COVID‑19. Companies are wondering about their potential liability to persons who claim they were exposed to COVID‑19 while on their property and became ill following that exposure. Such allegations will require a careful analysis of the facts and circumstances relating to the particular claim.
Indeed, in December 2020, one company and its owners were sued for wrongful death with allegations that the company failed to take reasonable COVID-19 mitigation precautions and failed to maintain a safe workplace. Claims for sickness and injury to an employee may be subject to worker’s compensation laws, such that an employee’s exclusive remedy, with limited exceptions, would be through the worker’s compensation system (assuming the employer had worker’s compensation insurance). During that process, the employee would need to establish that the injury resulted from exposure in the workplace while performing a function in the course and scope of the employee’s work duties.
For non-employees, a company may face claims from a social guest or business invitee if the business knew or had reason to know of a dangerous condition that caused the guest or invitee harm. The elements of such a claim would include establishing (1) the existence of a legal duty owed by the company to the claimant, (2) the company’s fault, (3) injury sustained by the claimant, and (4) a causal connection between the company’s conduct and the claimant’s injury. Of these elements, fault and causation will likely be the key focus of most disputes. Specifically, claimants will bear the burden of proving that the business failed to act as a reasonably careful person would act under the circumstances, including following any industry-specific standards, and that the business’s conduct helped produce the injury and that the injury would not have happened without the business’s conduct.
In Arizona, facilities like Skilled Nursing Homes or others with captive residents must be particularly careful caring for vulnerable residents. There has been an increase in lawsuits and claims against healthcare facilities for failing to protect patients and residents from getting (and in many cases dying from) COVID-19. Nationwide, a number of “take-home” COVID-19 lawsuits have been filed. A “take-home” case seeks damages from a business based on allegations of violating safety protocols and setting off a chain of infections emanating from the company’s business location. Such lawsuits have been filed against a number of companies, including airlines, cruise lines, restaurant chains and retailers such as Amazon.com and Walmart.
The best way to protect a business from liability remains following all requirements established by federal, state, and local authorities in connection with re-opening. In addition, businesses should research any guidelines or recommendations applicable to their industry and develop reasonable policies and practices based thereon. Likewise, businesses should carefully document all efforts to implement their adopted standards, as that documentation be used as evidence in defending future exposure claims.
Many businesses routinely require customers, guests, or other persons coming onto the premises to sign “waivers of liability” or other “assumption of risk” documents.
Businesses and property owners should be extremely wary about relying on such waivers to avoid potential liability for exposure to COVID‑19. As one might expect, judges tend to scrutinize prospective waivers very carefully, and in any given case, can be tempted to search for some way to void the waiver (and permit the injured person to proceed with his or her suit).
Under those circumstances, businesses and property owners who are considering using such waivers should not use any “pre‑coronavirus” forms but should consult with legal counsel to develop documents tailored to the particular nuances and risks of the COVID‑19 pandemic.
In 2021, Arizona’s legislature passed SB 1377 and Governor Doug Ducey signed it into law on April 5, 2021. The law provides liability protection for a person or entity acting in good faith to protect members of the public from injury from a public health pandemic unless it is shown by clear and convincing evidence (a higher burden of proof than the “preponderance of the evidence” standard required in most civil lawsuits) that the person, business, school or healthcare company acted willfully or was grossly negligent. This legislation is consistent with legislation in other states that provides additional COVID-19 liability protection to schools, business and healthcare organizations. This legislation applies to all causes of action that are based upon an act or omission that occurred after March 11, 2020, and applies retroactively to matters from March 10, 2020, forward. It is anticipated that numerous court cases will challenge this legislation under various theories, including as violative of the Arizona Constitution.
Shannon Clark is available to answer questions about the interaction between tort liability and workers’ compensation laws and risk management best practices.