Coronavirus, Business Continuity, And Legal Rights – FAQs

Coronavirus, Business Continuity, And Legal RightsBefore I get started answering frequently asked questions (FAQs) about coronavirus business owner rights and responsibilities, I want to make it clear that this information is not legal advice. There is no attorney-client relationship created by reading these questions and answers. If you need legal advice, please consult with an experienced business lawyer.

Okay, now that’s out of the way, here are the answers to some common questions I’ve been fielding the past couple of weeks.

Q: What should I tell my customers/clients about COVID-19?

A: Don’t assume you need to say anything. Email inboxes are being flooded with company COVID-19 policies that no one cares about (or reads).

If your business doesn’t have face-to-face contact with your customers, there’s not much to say. Of course, you can inquire about their health and well-being. But that’s a relationship issue, not a legal one.

To the extent your business does have in-person contact with customers, you should make it clear the steps you’re taking to limit the risk they’ll get the virus while dealing with you. This may include letting them know the cleaning steps taken for your premises and by your employees. If you’ve changed the way you do business (e.g. offering curbside pickup), tell them. And if you’re providing protection for in-store visits, you may want to offer items to limit exposure, i.e. hand sanitizer, sanitizing wipes, complimentary N95 air masks, disposable gloves, etc.

Q: Does the pandemic affect my rights and duties under an existing business contract?

A: Many contracts (including business leases) include what is known as a “force majeure clause.” This provision permits one or both parties to suspend their performance for a period of time if an “act of God” occurs (e.g. fires, hurricanes, tornadoes, etc.). The clause will list acts that are covered. Look for words like “epidemic” or “government-forced closure” that would apply to the COVID-19 pandemic.

If there’s a force majeure clause that covers the pandemic, read it carefully to understand your legal rights. For example, in addition to suspending performance, some of these clauses permit one or both parties to exercise a right to opt out of the agreement entirely after a certain number of days have passed if the contract still can’t be performed because of the catastrophe that happened.

Q: What if I can’t make lease payments for the space I rented for my business?

A: If you recently signed your lease, find out if there’s a right to rescind. Some states permit rescission within the first 30 days. If that applies to you, you promptly rescind if you want to walk away...or you have a powerful bargaining chip for quickly renegotiating the lease. Don't let the rescission period expire during negotiations.

Of course, check your rights under the lease. For instance, in addition to force majeure provisions, check to see what the lease says about your right to assign the agreement or sublease to a third party.

Then review the lease and any related agreements to see what rights the landlord has if you don’t pay. Even if the government temporarily prevents eviction for nonpayment, you’ll still want to know what tools the landlord has available. For example, did you sign a personal guarantee so that you’re personally liable for the rent if the business goes bankrupt?

After you know your respective rights under the lease, contact the landlord and negotiate. Because the economy is tanking, you may have negotiating power than you would have had six months ago. Plus there’s the sympathy factor, particularly if the government shut your doors as a “non-essential business.”

In addition to any rights you find you have within the lease itself, some things you may want to consider as part of renegotiation are rent reduction, rent deferral/forbearance, rent abatement, or conversion of past due rent into a loan (you sign a promissory note for the loan). If you’re paying fixed rent, you may want to ask to convert lease payments to XX percent of the business’ gross income (percentage lease).

However, when negotiating, understand that many landlords have mortgage payments and other expenses they have to cover. In other words, any deal you reach has to make financial sense to the landlord too.

In some cases, if it’s clear that you have no assets and there won’t be any hope of paying rent (even on a deferred basis), it may make sense for you to get the landlord to agree to terminate the lease early and vacate the property promptly.

Tip - Be candid with the landlord. You’re asking for a favor. Most landlords will request financials to verify the business’ condition. This may include your personal financial information too, particularly if you signed a personal guarantee.

Q: Can I do anything about the government closing my business because of the pandemic?

A: You should first see if they properly shut you down. Enforcement by police and code enforcement officers has sometimes been inconsistent with the actual order they’re relying upon to shut you down. Read the order and see if it applies to your business (or all of your business).

For example, I have a client who essentially has two businesses in one location. Part of the business is a service and the other is the sale of related merchandise. It turns out that the order actually covered the service but not the merchandise. He can keep the one part open but close the other.

If you believe that the order relied upon to shut you down doesn’t apply, or only partially applies, contact the government body that issued the order and see if you can get something in writing to that effect you can rely upon if you re-open.

Tip - Contacting the government to reopen makes sense only if you can make the argument that remaining open (or partially open) will not risk anyone’s safety because of the pandemic. If it’s just an oversight in the order, the response will be to amend the order to close the loophole instead of giving you permission.

Q: Can I sue the government for shutting my business down?

A: In the United States, most state, county/parish, and municipal governments have the legal authority to order closures because of a pandemic. You’re unlikely to win a lawsuit against the government for shutting you down unless you can prove it was a civil rights violation. For example, if the enforcement officer discriminated based on race, gender, etc. when deciding which businesses to shut down while leaving others open.

Q: What if there’s no money to pay business bills?

A: Identify the essentials to stay running. If it’s a non-essential bill (e.g. cable TV for your customer lobby), get rid of it if there’s no contractual obligation to keep it. And even if there’s a contract, see if you can end it early at no cost or a small termination fee.

For non-negotiable essential expenses (e.g. utilities), see if you can switch to a cheaper provider or plan.

As for your suppliers and other bills, approach each one and try to renegotiate something you can afford.

If it looks like there’s no way to pay everything, you may want to consult with a bankruptcy lawyer. Millions of business owners will do so because of the pandemic. Note that bankruptcy doesn’t necessarily mean the end of your company. There are different types of bankruptcy -- one to reorganize for continuing operations and another to liquidate.

Q: Can my business be sued because someone claims we exposed them to the coronavirus?

A: In the United States, you can sue anyone for anything. Winning is another matter. That being said, it’s unlikely you’ll be sued for exposing someone to coronavirus because, in most cases, it’s hard to identify exactly who infected who.

To successfully sue a business, the person would likely have to prove intentional exposure that was the proximate cause of the infection. Let’s say you have a customer who self-quarantines at home but for some reason visits only your business. You’ve been diagnosed with the coronavirus but take no precautions while dealing with the public. You even cough a few times in the customer’s face (and there are witnesses). In that scenario, the customer might win a lawsuit if infected.

Q: What do I owe my employees? Can I lay them off? Fire them?

A: Generally, one can lay off or terminate employees if the business can’t economically afford them.

From a legal standpoint, what you owe employees is determined by state and federal labor law (including wage and hour laws).

Large employers typically have to give advance notice before mass layoffs.

If there is a written employment agreement, it will govern many rights. For example, is there any severance pay due? Will the employee be paid for accrued vacation that wasn’t taken yet?

If employees earned wages/salary, that typically must be paid too. In other words, if a paycheck is due for the past two weeks of work, you can’t fire the employee and refuse to pay what was earned.

It’s important to distinguish between getting rid of an employee because of economic circumstances and layoffs/termination because the employee has contracted the COVID-19 coronavirus.

Some states prohibit or severely restrict an employer’s ability to fire an employee because of a medical condition. They may even be entitled to paid medical leave while the virus runs its course. If an employee has the coronavirus, talk with a local employment attorney before firing or laying off the employee.

Q: Can my business refuse to provide essential services?

A: The term “essential services” can mean different things. In fact, the state, county, and city where my law firm is located each has similar but different definitions. However, the important thing to know is the term “essential services” is used for purposes of pandemic orders as an exception under which you can (but are not forced to) stay open for business. Those that are classified as non-essential don’t have the option to stay open.

That being said, if you have contractual obligations with customers, breaching those agreements by voluntarily shutting down probably isn’t a wise decision to make. Again, check your contracts (e.g. force majeure clauses) to know your rights and then talk with the other parties to discuss temporary suspension of performance if you want to shut down but aren’t required to by the government.

Q: Can I recoup my losses caused by the pandemic?

A: If you have business insurance, check your policy/policies to see if there is business interruption coverage. If there is, see if that includes an epidemic/pandemic or forced closure by the government. Unfortunately, after the SARS outbreak of 2002-2004, some insurers have specifically excluded pandemics from coverage by business interruption insurance.

If there is coverage, promptly file a claim with your insurer.

Q: How can my business survive the COVID-19 catastrophe?

A: Your circumstances are unique. It appears that the government is providing some financial assistance to businesses to help (e.g. business loans). Be careful going into debt to save your business if it’s unclear whether the economy will recover enough to support continuing operations and servicing the debt load. If possible, avoid making personal guarantees of any business loans.

 

April 3, 2020 Update – The U.S. Small Business Administration (SBA) has a new coronavirus small business relief page that contains information about the types of financial help available from the federal government.

April 6, 2020 Update – If you’re a tenant trying to get out of a business lease, you’ll also want to know about eminent domain clauses.

I also wrote about creating a business backup plan. You’ll find practical business tips in it that may be helpful now and when disaster strikes again.

Best of luck!

Author Mike Young, Esq.

To get legal help from Attorney Mike Young, call 214-546-4247 or click here now to schedule a phone consultation.

More posts by Mike Young, Esq.