The COVID-19 pandemic has had, and will continue to have, a wide impact on businesses in every sector of the worldwide economy. Changes in response to the virus are occurring by the minute, creating a number of legal and other issues (and in some cases opportunities) to which businesses will have to react and respond.
In order to assist businesses in identifying these issues, and then addressing and responding to them, we have provided the following summary of issues that businesses may face as a result of COVID-19.
Overall Coronavirus Response
We suggest that businesses appoint or select one or more persons to identify, coordinate, and develop responses to any issues arising out of COVID-19 that may affect the business in any way. With the rapid changes occurring daily in response to the virus, it is important that businesses organize appropriately and establish leaders to guide the business forward. The role of such persons could include:
- Developing appropriate policies in response to COVID-19 issues;
- Making information available to and communicating with employees;
- Communicating with lenders, vendors, suppliers, landlords and other stakeholders;
- Serving as a point of contact for employees and others regarding any questions or concerns they have regarding COVID-19; and
- Ensuring that all messaging is timely, effective, and consistent.
COVID-19 is forcing many businesses to make difficult and complicated decisions regarding their workforces. Businesses should assess their employment policies and employee handbooks and should consider employment law issues such as:
- Paid and unpaid leave policies (including documentation of leave hours taken) (for details on payment policies see Coronavirus and the Law: Paying Employees Properly Under the FLSA);
- OSHA laws and regulations (For a more detailed discussion of OSHA guidance on COVID-19 see Coronavirus and the Law: OSHA Issues Guidance on Preparing Workplaces For Covid-19;
- Wage and hour laws;
- Employee benefit issues (see below);
- Travel policies and restrictions, including quarantines for at-risk employees;
- Policies for flexible work schedules, at-home work and telecommuting;
- Identify essential jobs and functions and the performance of them;
- Union or collective-bargaining issues;
- WARN (federal) and mini-WARN (state) notices/compliance for layoffs/reductions in force; and
- Consequences from terminating or furloughing employees for payroll reduction or other purposes.
For additional information on potential employment issues arising from COVID-19 see Coronavirus and the Law: Workplace Response.
With such a wide range of business impacts caused by COVID-19, there are bound to be a number of issues with both existing and future contracts. For a more thorough discussion of potential contract issues see Coronavirus and the Law: Potential Effects on Virginia Contracts. Briefly, businesses should consider at least the following potential issues:
- Review and analyze contracts for any time limits or deadlines that could be impacted;
- Note force majeure (acts of God) and material adverse effect clauses in current contracts and prospective contracts. Determine whether the COVID-19 pandemic is covered in existing contracts and whether specific language should be included going forward;
- Analyze all contracts for potential breaches or inability to perform, on the part of your business or by the relevant other party(ies). (communicate with other parties to contract to resolve potential issues and negotiate any possible amendments or changes; look for opportunities to mitigate and lessen potential damages from possible breaches, explore alternative sources for performance of contracts that may be breached or not (timely) performed)
- Carefully and fully document in writing, all communications with other contracting parties, as well as facts and circumstances associated with potential or current contract issues. Use e-mail when possible.
Financing and Credit Issues
Market volatility threatens availability of financing and credit sources. Businesses may require additional credit as compared with their typical use, and may be required to pursue alternative avenues to source such financing. Among the steps that businesses should take with regards to financing and credit issues are the following:
- Analyze and assess need for increased credit and financing as a result of COVID-19 issues (business downturn, increased supply and manufacturing demands, additional employment expenditures; working capital, etc.);
- Review current loan and credit documents (including leases) for potential problems or issues (loan covenants and financial ratios, material adverse effect default clauses, possible impacts on collateral and security (write-downs and write-offs, valuation impacts, bad debts and slow payment of receivables), guaranties);
- Look for re-financing opportunities to the extent more favorable terms can be obtained;
- Communicate with current lenders and other sources of credit regarding their and your concerns or issues;
- Analyze terms on which your business provides credit to customers and others, and amend applicable documents as necessary.
Employee Benefits Issues
COVID-19 has potential to dramatically impact employee benefit issues. Businesses need to remain aware of relevant regulatory and legislative requirements, as well as any of their own policies and contracts that may be triggered by COVID-19 impacts. We recommend that businesses take the following steps:
- Review and implement mandated leave policies required by COVID-19 relief legislation (for more details see Coronavirus and the Law: Families First Coronavirus Response Act / Legislative Alert #1);
- Review group health and medical insurance and related benefits (health savings accounts (HSA), health reimbursement arrangements (HRA), flexible spending accounts (FSA)) for compliance, potential savings, and benefits provided (for a discussion on coverage of COVID-19 see Coronavirus and the Law: Essential Health Benefit Coverage; Coronavirus and the Law: IRS Announces High-Deductible Health Plans Can Cover COVID-19 Costs; and Coronavirus and the Law: CMS Releases FAQs on COVID-19 Coverage under Catastrophic Health Insurance Plans);
- Review and analyze retirement plan documents for the ability to modify benefits, including changing the amount of any discretionary employer contributions to profit-sharing or other plans; see Coronavirus and the Law: Review Plan Documents and More if Changing Employer Contributions to a 401(k) Plan;
- Before deciding to terminate or furlough employees:
- Consider application of ACA group health plan coverage penalties for failure to cover 95% of full-time employees;
- Consider the application and consequences of any severance benefits;
- Determine those cases in which COBRA requirements are triggered (e.g., termination, reduction in hours, etc.), thus requiring the provision of coverage and notices;
- Review hardship distribution provisions of retirement and deferred compensation plans, triggering events for partial terminations of plans, and issues or obligations arising from terminations of employment or separations from service under plans.
- Review performance metrics or goals in incentive/deferred compensation packages and examine deferred compensation plans for ability to further defer benefits.
As a result of COVID-19, the IRS has already issued significant guidance regarding tax practices. We expect that further changes may occur, and believe that businesses should take the following steps to navigate these deviations from common practice:
- Take advantage of federal and state tax benefits offered and provided in response to COVID-19, and develop policies to ensure required documentation for such benefits is properly maintained (for a discussion of potential tax benefits see Coronavirus and the Law: IRS Announces a Stop on Most Tax Collection Actions);
- Note legislative and regulatory extensions of tax filing and payment deadlines on both federal and state levels, and file all documents necessary to obtain any extensions (for more details see Coronavirus and the Law: IRS Delays Income Tax Payments);
- Consider whether it is advisable or necessary to adjust estimated tax payments (or withholdings, if applicable);
- Examine possibility of tax-favored employee disaster relief payments under IRC Sec. 139.
Regulatory and Other Filings Issues
Regulatory bodies have already issued a number of orders that may impact your business. Furthermore, we expect Virginia and other states to continue issuing further orders ranging from shelter-in-place to guidance regarding taxes and financial issues. While some of these issues are discussed further in Coronavirus and the Law: Enforcement of State Health Commissioner’s Declaration of Public Health Emergency, we recommend businesses at least consider the following actions:
- Remain abreast of regulatory and legal requirements that may affect the industry(ies) in which your business engages, and seek professional advice in implementing changes resulting from such requirements;
- Take advantage of any regulatory filing deadline extensions or delays (e.g., SEC extension for securities filings due);
- Communicate with accounting professionals regarding any impacts on financial reporting and accounting principles, methods, procedures from COVID-19.
Privacy and Cybersecurity Issues
Unfortunately, the combination of widespread panic and massive shift of employees to working-from-home is a perfect environment for cyber crime. We recommend the following steps to make sure your data stays safe:
- Address concerns due to employee telecommuting and increased cyberattacks (for a more thorough discussion, see Coronavirus and the Law: Test Your Reflexes and Prepare for an Increase in Cyber Incidents);
- Consider whether business premises and information access should be restricted or changed;
- Review cybersecurity insurance policies to determine coverage limits and be prepared for any cyber events (for more cybersecurity best practices, see Coronavirus and the Law: Cybersecurity Insurance Review Happens Now!).
The significant economic impacts of COVID-19 will leave many businesses searching for answers and life boats as they face losses and business interruptions. Existing insurance policies may provide such relief and therefore we recommend businesses do the following:
- Analyze existing insurance policies to determine whether or not such policies may apply to losses associated with COVID-19. In particular, determine coverage for any claims made against you for exposure (for instance by an employee that has contracted the virus);
- While it is unlikely that your policy’s business interruption coverage will apply to losses associated with COVID-19, if there is ambiguity in the policy language contact your insurance broker and attorney to resolve any confusion. While still unlikely to apply, business interruption coverage more likely applies where there is some associated property damage, such as contamination;
- In the event your insurance policies appear to offer coverage, determine applicable coverage limits and the process required for filing a claim.
Corporate Governance Issues
Just as COVID-10 raises a number of employment issues, it also has the potential to impact your company’s board of directors and influence corporate governance of your business. We recommend the following actions regarding corporate governance:
- Review bylaws and other governance documents to determine required procedures as to shareholder and/or board of directors meetings. With increasing restrictions on the ability for groups of people to meet, it is important that remote attendance at these meetings is permissible. In the event physical presence is required, make necessary changes to governance documents to permit remote attendance;
- Determine the appropriate steps to be taken in the event that a director becomes ill or is no longer able to fulfill his/her duties as a director as a result of COVID-19.
This list is by no means exhaustive but does represent some of the primary issues we expect businesses may face as a result of the COVID-19 pandemic. However, in this rapidly changing environment, new challenges and opportunities can develop quickly. We encourage you to stay current with the news and our legal updates on COVID-19 to best position your business for success via this global crisis.
Woods Rogers has a Pandemic Response Group of attorneys who are monitoring the COVID-19 situation as it unfolds. This group will report quickly on obligations, potential liabilities, and legislative actions in a range of different practice areas—from commercial litigation to contract law, real estate and construction law, cybersecurity, tax and employment benefits, and labor and employment matters. We stand ready to assist our clients in these difficult times.