The courthouses are empty. No criminal or civil trials will take place until at least late May. But that will change soon enough. Although the global pandemic is unprecedented in modern times, we know from experience that major disruptions in the economy are followed by a wave of disputes and, too often, litigation. This is, of course, the mother of all disruptions. So, what kind of disputes, claims and litigation can businesses expect as the world “returns to normal?” How should the prudent business prepare for the onslaught?
Employment Related Litigation
Every adverse employment action is pregnant with the risk of a lawsuit. In this season that saw the widespread use of layoffs, furloughs, salary cuts and terminations, the risks for many businesses have grown exponentially. While “economic necessity” will be the default defense of many employers, things could get complicated. What are the impacts of government loan programs like payroll protection on those defenses? If an employer obtains such a government backed loan, does the economic justification for the termination remain? Does the previously terminated employee have to be offered her or his job back? What if one basis for the termination was poor performance? Do employees who suffered wage cuts get back pay? Does it matter if the loan was forgiven or not?
What about employees who believe they got exposed at work? Expect to see claims that such exposure resulted from employer negligence – failures to adopt appropriate protocols such as earlier implementation of mandatory work at home, use of masks, gloves and other safeguards. While some claims will land in the workers compensation system, expect to see claims that may not be covered by your workers comp insurance or any insurance.
Wrongful Death and Personal Injury Claims
With death totals that will certainly eclipse the annual flu morbidity numbers, any business that deals with the public is certainly at risk that an enterprising attorney will be looking to establish that the business was negligent and was the source of the exposure that killed or injured their client. Obvious candidates to be targeted could be senior care facilities where there have been mass casualties or other situations where causation evidence is strong.
Complicating the risk for businesses is whether they are even insured for the risks and claims arising out of a pandemic. Many insurance policies contain exclusions that may provide a defense to coverage.
Real Estate Disputes
With large national multi-location tenants (e.g. Cheesecake Factory) announcing that they were not going to pay rent at the outset of the pandemic and industry gurus projecting catastrophic forecasts for commercial property owners, commercial lease disputes will be plentiful. The availability of government loan programs may end up being a factor on how those disputes are resolved. Although there are current restrictions on residential foreclosures and tenant evictions, those restrictions will ultimately be lifted and the fallout from those disputes will trickle up affecting many business, investors and lender/borrower relationships.
Other Business and Contract Disputes
Hard economic times are a recipe for business and contract disputes. A business deal which might have worked in the context of a booming economy may make no economic sense for one of the parties in the throes of a recession. What should you do if you have contracted for construction of a building that was supposed to be built to accommodate an area of expected growth for the business? Can you put it on hold or abandon it entirely? What about the contractor who has already purchased materials, rented nearby office space or incurred other costs in reliance on that project starting as called for in the contract?
Insurance Coverage Disputes
As mentioned above, this area will undoubtedly be a major focus of litigation as businesses attempt to argue that they have incurred a covered loss -usually property damage of some sort which falls within the scope of their insurance coverage. Such coverage disputes usually take a considerable amount of time to work their way through the legal process and that will leave businesses wondering during a critical period if their insurer will ultimately provide attorneys to defend them and monies to indemnify them for claims.
What Should You Do Right Now?
Although there are more questions than answers right now, every business should be looking at these questions and developing a game plan. This is not a time for the amateur hour. You need to involve your trusted professionals - business consultants, CPAs and attorneys to work with you to evaluate the risks, inform you about what the known options are and position yourself as best you can for what may be coming.
In the area of employment, you should sit down with your attorney who has a specialized knowledge of California and federal labor and employment law and review all the actions you have taken to this point. You should be exploring what steps might still be available to you to address and correct any missteps you may have made in dealing with terminations, furloughs, wage reductions, etc. You should discuss how the various government programs that are being offered might make some of the steps that you should have and may still take are feasible for you.
Regarding potential personal injury and wrongful death claims, this is still a time where a review of your health and safety practices should be undertaken with special attention to whether you are currently operating under best practices and government mandated guidelines.
You should go over with your attorney all your commercial real estate leases to determine what steps you can and cannot take. This may be a great opportunity to negotiate with your tenants or landlord to address any hardship issues and, where applicable, explore the availability of government monies to mitigate the hardship.
Likewise, you should review any business contracts or dealings you have which you believe may be affected by the current situation and explore the options that you may have under the terms of the contract (or other currently in place government mandates) to address your concerns.
Finally, you should review your total insurance portfolio with your insurance broker and or attorneys to ascertain whether that will be a resource to address the current situation.