With the rapid spread of the COVID-19 coronavirus around the globe, even companies outside of the impacted areas have been forced to prepare for the worst. The U.S. Center for Disease Control and Prevention has confirmed hundreds of cases across the United States, including here in California. Public health officials have suggested that the public prepare for “significant disruption” and take extensive precaution. While the full impacts of the outbreak continue to unfold, our clients already report substantial business and operational disruptions, interruptions to supply and distribution channels, potential employment issues, forecasts for weakened demand, and significant contractual concerns.
EMPLOYMENT POLICIES AND PROCEDURES
Companies should focus first and foremost on employee safety. In doing so, it is critical for companies to review their policies and procedures to ensure they have adequate communicable-illness policies and response plans. Unprepared employers may be exposed to a secondary effect of the virus — lawsuits related to workers’ compensation, invasion of privacy, discrimination, unfair labor practice and negligence. In particular, employers need to decide what policies they will establish to handle requests for time off and absences caused not only by actual illness but those arising from the measures taken by public health officials, such as the shutting down of transportation and schools (as has already happened in San Francisco and Seattle). Although an employer can terminate an employee for an unapproved absence, some states such as California actually mandate leave for school activities, which may include closures.
It is important for companies to remain informed about official public health guidance and recommendations in all of the jurisdictions where they may operate. For legal (and practical) reasons, companies must be able to show they have provided employees with accurate information about ways to prevent the spread of infection, and that they have also given their employees adequate time and resources to do so.
Employers may have the right to question an employee if that employee has traveled to an outbreak area, has been exposed to anyone infectious or exhibits symptoms (though employers must still abide by ADA and discrimination laws). Asking such questions may be necessary as employers have an affirmative obligation to implement procedures that can reduce the risk of workplace transmission. In the event that an employee displays symptoms of infection, such employee should be sent home or instructed to stay at home. However, employers should always be mindful of privacy laws and remain cautious with respect to the information about absences that is shared with co-workers.
Employers should also look beyond the immediate legal requirements under the Family Medical Leave Act (FMLA) and the California Family Rights Act (CFRA). For example, a business may not legally be required to pay an employee during a period where the employer has barred such individual from the workplace, if that individual was also on personal travel to an area of outbreak. Keep in mind, however, that choosing not to pay employees may make it more likely that individuals decide to return to work prematurely, potentially exposing others to disease, jeopardizing business continuity, and risking legal liability from third parties and consumers. As a result, the costs and benefits of allowing employees to work remotely or from home, or even to receive paid time off that is not contractually or legally required, should be carefully considered.
As governments institute travel bans and quarantine individuals, global travel is becoming substantially impacted. Large sporting events have been cancelled or considerably curtailed. Trade shows across the globe, including those in the United States, have been cancelled as employers seek to minimize exposure and the threat of transmission. As a result, travel and tourism industries are being hit at historical levels and suffering multi-year lows. Businesses in these industries should review whether their contracts or insurance policies provide reimbursement or other benefits in the event of cancellation under the relevant circumstances.
Likewise, any contract with a specific force majeure clause may be the subject of claims regarding whether one of the contracting parties is excused from performance. Force majeure claims are particularly relevant to long-term contracts or those regarding ongoing supply. Emergency measures have the potential to impact goods, personnel and logistics, as many suppliers cannot fulfill their contracts within the prescribed period, if at all. However, force majeure clauses are also relevant to buyers as they become forced to wrestle with declines in demand. It is recommended that companies review their existing contracts in advance of potential disputes. In addition, force majeure clauses should be considered as an addition to future contracts to potentially induce parties uncertain about moving forward in the current economic environment or to limit the ability to cancel contracts because of the ongoing epidemic.
Businesses should continue to stay on top of daily developments. On an economic level, businesses should understand that there may be significant stoppages and should prepare financially by maintaining an adequate line of credit to help with disruptions in cash flow, stockpile resources as supply chains may dry up, review contingency plans and be ready to implement them as events unfold. On a personal level, bear in mind that estate and management planning are crucial, particularly for health care directives and delegations of business authority. How will your business or family fare during these times? The most significant COVID-19 cases are occurring amongst those over 50 years of age, the same age cohort as many heads of household and businesses. While most who catch the virus will not die, the sickness will still have long-lasting effects. This is a time for leadership and action; make important decisions timely. We stand ready to assist you legally for the benefit of your family and your business.
Michael S. Fauver
DISCLAIMER: This Advisor is one of a series of business, real estate, employment, estate planning and tax bulletins prepared by the attorneys at Fauver, Large, Archbald & Spray, LLP. This Advisor is not exhaustive, nor is it legal advice. You should discuss your particular situation with us or with your own attorney. Our legal representation is only undertaken through a written engagement letter and not by the distribution or use of this Advisor.