With heightened concern about the possible spread of COVID-19, a number of issues arise that concern businesses of all kinds. In this article, we discuss some questions companies frequently ask.

Because physicians and epidemiologists are still investigating many clinical issues surrounding COVID-19, this is a rapidly evolving situation, and employers in the United States should regularly consult the latest guidance from the Centers for Disease Control and Prevention (CDC) and other reliable sources to ensure that they understand the current situation and to determine whether the measures they are taking to control the spread of COVID-19 in their facilities are up-to-date.

In the meantime, however, employers find themselves faced with the need to develop policies surrounding the illness. Responding to the current circumstances calls for a multi-disciplinary approach, with legal advice being only a part of the decision-making process. We encourage readers to incorporate medical and public health expertise in their processes while operating within legal constraints as well. For that reason, some of the information below incorporates guidance from the CDC and other reliable medical and public health sources to help employers balance legal considerations with their concern for their employee’s overall well-being and contributing to general public health.

General Information

Where can I find reliable information about COVID-19 to guide my company’s decision-making process about employment policies related to the outbreak?

There is a substantial amount of inaccurate information circulating about COVID-19, some of which is sensational and some of which is affirmatively wrong. Two good sources of accurate information about COVID-19 are the CDC website and local county department of health websites. You can also sign up to receive email updates from the CDC about COVID-19.

Local health departments have the most up-to-date information about the status of the local community, which is the most relevant situational information for most employers and employees. In most areas, county health departments decide whether or not schools or workplaces should be closed. The Society for Human Resource Management website is also a helpful resource for employers, providing both general resources and answers to frequently asked questions as well as detailed member only guides on how to handle communicable diseases in the workplace.

We have provided a collection of sources we consider reliable on our Coronavirus Insights & Resources microsite.

Healthcare

What regulations govern the steps my business should take to prevent the spread of COVID-19 in our workplace?

There is currently no specific OSHA standard that covers preventing COVID-19 exposure. Existing OSHA standards may apply, including those regarding personal protective equipment. While not mandatory, OSHA has provided control and prevention guidance and the CDC has issued interim guidance for businesses and employers. Employers should also consult their local health authorities for any mandatory health measures that have been implemented.

Current medical and public health guidance suggests hygiene and social distancing are key to preventing the spread of COVID-19 in the workplace. These sources suggest the same good hygiene measures that protect your employees against the flu and common colds will also help protect against COVID-19. Creating a culture of hygiene in the workplace is an important step employers can take to provide a sense of control to their employees, reduce the transmission not only of COVID-19 but also similar respiratory illnesses also in circulation, and decrease the likelihood of success of claims that might be asserted in the case of workplace transmission of COVID-19.

Many healthcare businesses already provide training about the importance of handwashing and other protocols that reduce the transmission of respiratory illnesses. These approaches can be adopted by businesses of all kinds. A remarkably simple and easy to execute training technique is to provide instructional signage – signs that remind people to wash their hands after they have used a communal space and reminders about the proper way to cough and sneeze. The CDC has a collection of printable resources that cover topics related to stopping the spread of germs. Another effective and inexpensive technique for disease prevention is to provide supplies that encourage desired behavior such as establishing hand sanitizing stations, placing boxes of tissues in communal spaces, and providing a box of tissues at every employee’s desk.

Another way to encourage hygiene is to place sanitation wipes in all communal areas and encourage people to wipe equipment down after using it. Areas where such an approach can be helpful include coffee machines, conference tables, copying and fax machines and other communal equipment that is used more frequently than regular housekeeping staff can make the rounds. While it is also a good idea to require janitorial staff to increase time spent on routine sanitation – paying particular attention to doorknobs and handles, light switches, and elevator buttons in community spaces – continual sanitation by all employees will multiply the attention that is devoted to sanitation.

While these sorts of efforts might seem small, they are actually an important defense against the spread of any sort of illness in the workplace.

It should also be noted that as the spread of COVID-19 has increased, employers are considering more extensive measures that involve allowing workers to work remotely, staggering work hours or providing other means of social distancing, or closing facilities entirely. While in most instances these sorts of measures are not mandatory unless dictated by the local public health authority or other governmental authority, there may be business or public health reasons for adopting such approaches rather than an approach based solely on hygiene.

What role can telemedicine play in keeping my employees healthy?

Many employers offer a telemedicine program as part of their employee benefit plan. Others may want to consider subsidizing telemedicine during the COVID-19 outbreak. Employees may wish to take advantage of telemedicine so that they do not have to share a waiting room with others who might potentially transmit COVID-19. Telemedicine allows healthcare providers access to a patient while reducing physical contact with the patient. It is being used all over the world to treat COVID-19. Healthcare providers wearing protective equipment must still draw blood, give IVs, and administer medication, but other telemedicine providers are able to assess and treat patients remotely. Telemedicine also facilitates remote consultations allowing doctors who are first experiencing a patient presenting with COVID-19 to benefit from the experience of doctors who have treated many cases.

I am a healthcare provider. Can I begin offering telemedicine consultations to lower the risk of potential exposure to COVID-19 for my patients and staff?

Telemedicine is regulated at the state level, and the general rules for telemedicine apply even in cases when a potential public health emergency exists. Healthcare providers who wish to start offering telemedicine should consult an attorney to make sure that they have complied with all applicable laws and regulations. Recently, the federal government announced it would be relaxing some of the requirements related to telemedicine recognizing its importance in treating this virus.

Labor & Employment

Can you provide any tips on how to communicate new policies adopted in response to COVID-19?

Many factors go into planning the communications elements of a crisis response communications plan. Legal concerns are only one element that should be considered in planning a communications strategy. Employers may wish to create a small task force that includes employees from diverse functions, including the legal function, to plan an internal communications strategy. This task force should issue regular, prompt, and clear communications about company policies, such as remote work policies, travel policies, leave policies, and infectious disease policies, and the context and reasons behind those policies. It may be important to communicate whether a policy is driven by legal requirements, concern about transmission of illness, and/or business-related concerns.

Many businesses appoint a spokesperson for their regular communications and define the cadence of regular communications. Businesses should also consider communicating to their employees how they will provide urgent updates, whether that is through push alert systems, emails, phone trees or a combination of those sorts of systems. Businesses should also consider creating an information hub to archive communications and post urgent alerts, which can also include reliable external resources that employees may find helpful.

What information can I disclose about employees who are ill with COVID-19?

All Health Insurance Portability and Accountability Act (HIPAA) rules and regulations apply, even in a public health emergency. Benefit plan administrators should be particularly careful. For those subject to HIPAA, an important provision to consider is 45 CFR 164.512(b) which deals with public health activities. In essence, it provides if a public health authority requests information and the public health authority has the statutory authority to request that information, it is permissible to disclose the legally required information to the public health authority, but the information must otherwise remain confidential and should not be disclosed to reporters, members of the county medical society, or others who might seek information from benefit plan administrators. It is always advisable to require those requesting the information to explain why such request is covered by a HIPAA exception to ensure the disclosure is appropriate.

HR administrators may have more leeway than those governed by HIPAA, but to avoid potential liability for invasion of privacy torts or violations of the Americans with Disabilities Act, the Family and Medical Leave Act, and state and local paid sick leave laws, they should consult counsel before disclosing any health information, particularly if the information can be tied to individual employees. The employer must balance the ability of other employees to protect their health with the privacy rights of infected individuals. In general, employers can disclose that an employee has been diagnosed but should avoid identifying the ill employee and should be careful before providing more specific information, particularly in small offices.

Where applicable, employers should also consider the applicability of data privacy laws, such as state laws like the California Consumer Privacy Act (CCPA), and international ones like the General Data Protection Regulation (GDPR). Any decisions about applicability of privacy laws or their exceptions should be made in consultation with counsel.

May I legally require employees who believe they are ill with COVID-19 or who may have come into contact with COVID-19 to remain away from the workplace for a period of time?

Employers may legally require an employee who is sick at work to leave the worksite and may also implement other attendance policies intended to protect the health of their workforce.

It is important for companies to have an infectious disease control policy and to consider how the policy applies to COVID-19. Companies should appoint a human resources administrator or another appropriate person to take calls from employees who believe they should self-quarantine and determine whether the self-quarantine policy applies in that employee’s situation. Consistency in applying the policy is critical.

In making determinations about the application of self-quarantine policies, it is important to note that COVID-19 can be hard to distinguish from other respiratory illnesses, particularly in mild cases. The CDC reports patients with COVID-19 have had mild to severe respiratory illness. Symptoms can include fever, cough, and shortness of breath. Symptoms may appear 2-14 days after exposure to the virus that causes the illness.

Keep in mind this is an evolving situation, and as the CDC comes up with new information, policies and their application may need to change. If a policy is changed, the change and the reason for the change should be clearly and widely communicated.

Employees who are ill with COVID-19 should follow the advice of their physicians. The CDC has provided guidance for assessing and managing risk of potential exposures to COVID-19. Employers should follow that guidance.

The CDC has also issued guidance that employers can use to determine whether employees who have traveled for business or personal purposes should be quarantined.

Requiring testing or health certificates for return to work for asymptomatic individuals is not a legal requirement and is generally not currently recommended so as to prevent further burdening the healthcare system.

Must I close my office, store, or plant if an employee is diagnosed with COVID-19 after coming to work sick?

Current CDC and Occupational Safety and Health Administration (OSHA) guidelines do not require closing facilities an ill person may have frequented, including places of employment. Employers should also follow their guidance of local public health officials. Other non-legal factors including the overall well-being of employees, customers, and the public at large may additionally guide the employer’s response and may be more important considerations. Some employers have voluntarily chosen to close their offices for a period of time, and perhaps to engage in additional cleaning, after an employee is diagnosed. Other options including allowing employees who are able to work remotely to do so, cancelling or conducting by teleconference in-person meetings, and staggering work hours to allow for social distancing.

What limitations does the Americans with Disabilities Act place on my company’s ability to attempt to contain the spread of COVID-19 in our workplace?

Generally, the Americans with Disabilities Act (ADA), protects applicants and employees from disability discrimination. The ADA also regulates disability related inquiries and medical examinations for applicants and employees. In 2009, the U.S. Equal Employment Opportunity Commission (EEOC) issued a guidance document that addresses steps an employer should take to avoid violating disability laws in the face of a pandemic.

Additionally, airlines must comply with the Air Carrier Access Act (ACAA), which prohibits discrimination on the basis of disability in air travel.

Disability-related inquiries or medical examinations are allowed under the ADA if they are job-related and consistent with business necessity. It is important to note that medical examinations are not limited only to visits with a healthcare professional, but also include any procedure or test that seeks information about an employee’s physical or mental impairment or health – so, a medical examination could be something as simple as a measurement of an employee’s body temperature.

To meet the job-related and business necessity standard, an employer must have a reasonable belief based on objective facts that the employee’s ability to perform the essential functions of the employee’s job will be impaired, or that the employee poses a direct threat due to a medical condition. A direct threat is defined as “a significant risk of substantial harm to the health or safety of that employee or others, which cannot be eliminated or reduced by a reasonable accommodation.” With all of the news surrounding the increasing number of COVID-19 cases and even related fatalities in the United States, it might be natural to assume that the threat that an employee might be infected with or have been exposed to the Coronavirus would present a direct threat to the health or safety of other employees as defined under the ADA. That is not necessarily the case.

There are several factors that must be considered such as the duration of the risk, the nature and severity of the potential harm, the likelihood that the potential harm will occur, and the imminence of the potential harm. There is no uniform answer when making a direct threat determination. For that reason, employers may wish to consult with legal counsel when conducting a direct threat analysis.

Must I provide sick leave to an employee who contracts COVID-19 or who is caring for an ill family member?

This is an evolving issue currently under consideration in Congress. New requirements are expected to be promulgated as early as March 17, 2020.

Leave issues implicate a number of employment laws including the ADA, the Family and Medical Leave Act (FMLA), and paid sick leave laws. An employee may be entitled to protected leave under the FMLA if he or she has a serious health condition and otherwise satisfies the FMLA eligibility requirements. While the symptoms of COVID-19 have been reported to be flulike, reported illnesses have ranged from mild to severe, including illness resulting in death. Given the fatality rate of the illness, COVID-19 may be considered a serious health condition permitting leave under the FMLA, depending on the circumstances. Additionally, if an employer operates in a jurisdiction with paid sick leave laws, employees who have COVID-19 or who are caring for family members who have COVID-19 may also be eligible for paid leave in accordance with state or local paid sick leave laws.

Employers may also be required to provide leave under the ADA to employees with disabilities unrelated to COVID-19 that put those employees at a high risk for complications due to COVID-19. In such a case, the employee may request leave or make a request to work from home as a reasonable accommodation. In any situation involving a request for a reasonable accommodation under the ADA, the employer should already have a policy in place for evaluating those sorts of requests.

Employers should consider looking beyond the strict legal requirements in their jurisdiction and take a business-centered approach to issues related to leave. In some cases, strict application of restrictive leave policies may make it likely that an employee may prematurely return to work and risk infecting others in the workplace. Employers should consider whether they consider time taken to self-quarantine, recover from, or care for an ill family member as sick leave, paid leave, or unpaid leave, and whether the COVID-19 outbreak warrants a change in policy, even if the change is only temporary.

May an employee file for workers’ compensation benefits if he or she has been exposed to COVID-19 at work?

Generally, for there to be a compensable workers’ compensation claim, there must be an injury or occupational disease that occurs in the course of an employee’s employment, and that also arises out of that employment. In terms of the current COVID-19 outbreak, an employee may be entitled to workers’ compensation benefits if the employee was exposed to the virus while traveling on business or the employee was exposed to the virus by someone in the workplace. If an employee reports a belief that he or she contracted COVID-19 at work, employers should follow their standard accident and injury reporting procedures and, if they are subscribers, contact their workers’ compensation insurance carrier. Employers should avoid making their own determination as to where or how an employee contracted the virus, but allow their insurance carrier to conduct an investigation and make that determination.

May employees refuse to come to work for fear of exposure to COVID-19 in the workplace?

Employers should be mindful that OSHA protects an employee’s right to refuse to work if the employee reasonably believes that he or she is exposed to an imminent danger, which is defined as a reasonable expectation of death or serious physical harm immediately or before the incident can be investigated through OSHA’s enforcement procedures. OSHA has prepared guidance on how to prevent or limit workplace exposure to COVID-19. Employers should promptly address employee concerns regarding exposure to the COVID-19 and consult with legal counsel before taking any disciplinary action against employees who refuse to work.

The general risk of contracting COVID-19 likely will not constitute imminent danger. However, in cases where one or more employees at a work site have contracted the virus, there may be a chance that the imminent danger test has been met. Additionally, if two or more employees refuse to work due to fears about exposure to COVID-19 or one employee advocates for a group of employees who refused to work due to exposure to COVID-19, these actions may be protected under the National Labor Relations Act as protected concerted activity, even if the workforce is not unionized.

May an employer create a quarantine zone within its workplace and require that employees who have had a potential exposure to COVID-19 work in the quarantine zone?

Creating a quarantine zone within the workplace could be problematic. It is unlikely that an employer could eliminate all contact between potentially exposed individuals and healthy workers. Spaces where exposed and non-exposed employees might interact include restrooms and communal areas, parking garages, and elevators. It is unlikely that all such facilities can be adequately segregated.

As an alternative, employers should consider the ability of the worker to perform his or her work remotely from home, including temporarily modifying the employee’s responsibilities to allow the employee to perform at least a portion of the employee’s responsibilities remotely from home. If it is not possible for employees who should be quarantined to work remotely, it is preferable that they be placed on leave rather than risking the infection of other workers. If employees are permitted to work remotely from home, employers should consult with legal counsel to determine whether any local paid sick leave laws or ordinances are triggered by the remote work.

Can my business prohibit visitors from outside the company at our facility or require visitors to complete a brief health questionnaire?

In general, businesses that are not considered places of public accommodation can restrict access to their facilities by those who are not affiliated with the business. Healthcare providers should be mindful of any obligations under the Emergency Medical Treatment and Active Labor Act. Businesses, including particularly healthcare providers, who have a legitimate reason to know about exposure history should generally be able to ask visitors about their health and travel history. However, such businesses should develop their policy in consultation with counsel and should ensure the policy is applied equitably. In many instances, these policies are intended not to restrict access to the facility, but rather to determine the level of precaution that should be taken in interacting with the visitor. Businesses that institute such policies should also develop procedures that ensure the confidentiality of any information collected regarding health and travel history. Such procedures should include clear guidelines for how the information will be used, secured, retained, and shared.

If we are forced to close our business due to quarantines and my employees cannot work, must we pay them?

This is an evolving issue currently under consideration in Congress. New requirements are expected to be promulgated as early as March 17, 2020.

Generally, if you close a business and employees are not performing any work, you do not have to pay employees. That being said, if exempt employees perform any work during a workweek, they must be paid their full salary for that workweek. Depending on the nature of the business closure, employees’ paid time off or vacation pay may be applicable. Employers should also ensure that any agreements with employees that might provide for some contractual payment in the event of a termination/layoff are followed. Employees may be able to seek unemployment compensation during this time.

Must we provide WARN Act notices if we are forced to close our business due to a quarantine?

Possibly. If a company is covered by the WARN Act, it may have notice obligations if the company implements a “plant closing” or “mass layoff” in certain situations, even when the company is forced to do so for economic or other business reasons. Whether an event constitutes a plant closing or mass layoff under the WARN Act is dependent on whether the event meets the definition of a plant closing or mass layoff under the Act. Not every plant closing or mass layoff is covered.

Generally speaking, if a WARN notice is required, employers must provide at least 60 calendar days of notice prior to any covered plant closing or mass layoff. Note, however, that if employees are laid off for less than six months, then they do not suffer an employment loss and, depending on the particular circumstances, notice may not be required. Unfortunately, in situations like the one created by the Coronavirus, it is hard to know how long the layoff will occur, so providing notice is usually the best practice.

Fortunately, even in cases where the notice requirements would otherwise apply, the WARN Act provides a specific exception when layoffs occur due to unforeseeable business circumstances. This provision may apply to the Coronavirus. Employers should keep in mind that this exception is limited in that an employer relying upon it must still provide “as much notice as is practicable, and at that time shall give a brief statement of the basis for reducing the notification period.” In other words, once you are in a position to evaluate the immediate impact of the outbreak upon your workforce, you must then provide specific notice to “affected employees.” You must also provide a statement explaining the failure to provide more extensive notice, which in this case would obviously be tied to the unforeseeable nature of the outbreak and its aftermath. Employers should also keep in mind that some states have “mini-WARN” laws that may apply.

Travel

May my business require employees to travel?

As a practical matter, it is becoming increasingly difficult to travel to countries or regions of countries with widespread COVID-19 infections. Travelers should consult airline websites and should also check the website for the local health authority for up-to-the-minute guidance on travel restrictions. Some countries are reportedly considering closing their borders entirely, which might present the risk that an employee who travels to such a country remains unable to return home indefinitely.

For U.S. travelers, the CDC website provides guidance about the advisability of travel to countries that have been affected by COVID-19 which employers may consult in determining whether it is advisable to require or permit travel. Travelers should assess the risk profile of their destination country before they travel. Generally, the CDC has classified countries as levels one through three based on risk stratification criteria.

Areas subject to a Level 2 Travel Health Notice pose a sustained or ongoing risk of community transmission. Older adults or those who have chronic medical conditions should consider postponing travel to those destinations. As of March 11, 2020 all global travel became subject to a Level 2 Travel Health notice.

Areas subject to a Level 3 Travel Health Notice pose a widespread, sustained or ongoing risk of community transmission. Travelers should avoid all nonessential travel to those destinations. The CDC has issued a Level 3 Travel Notice for South Korea. The CDC recommends travelers returning from an area subject to a Level 3 Travel Health Notice stay home for 14 days from the time they left the area subject to the Level 3 Notice and practice social distancing.

The CDC has also issued a Level 3 Travel Notice for most of Europe, China, and Iran and has additionally suspended the entry of foreign nationals from those destinations into the United States. American citizens, lawful permanent residents, and member of their families may enter the United States but will be redirected to one of the following 13 airports for health screening:

• Boston Logan International Airport (BOS), Massachusetts
• Chicago O’Hare International Airport (ORD), Illinois;
• Dallas/Fort Worth International Airport (DFW), Texas;
• Daniel K. Inouye International Airport (HNL), Hawaii;
• Detroit Metropolitan Airport (DTW), Michigan:
• Hartsfield-Jackson Atlanta International Airport (ATL), Georgia;
• John F. Kennedy International Airport (JFK), New York;
• Los Angeles International Airport, (LAX), California;
• Miami International Airport (MIA)
• Newark Liberty International Airport (EWR), New Jersey;
• San Francisco International Airport (SFO), California;
• Seattle-Tacoma International Airport (SEA), Washington; and
• Washington-Dulles International Airport (IAD), Virginia.

Travelers should pay attention to communications from their airline, from local authorities, and from the U.S. government. U.S. citizens may enroll in the Smart Traveler Enrollment Program (STEP), which is a service of the Bureau of Consular Affairs of the U.S. Department of State that provides information from the local U.S. embassy about safety conditions in the country a traveler is visiting. The STEP program also helps the embassy contact U.S. citizens in an emergency.

Employees who are traveling should also know their foreign medical provider options and determine how to access those options. For companies whose workforces travel extensively, communication around this topic could be helpful.

May airlines screen passengers for signs of COVID-19?

The U.S. Department of Transportation (DOT) has issued an “Enforcement Notice Regarding Denying Boarding by Airlines of Individuals Suspected of Having Coronavirus” (or COVID-19). This enforcement notice advises the public that airlines may screen passengers during the check-in and boarding process for flights to the United States from countries with travel health notices issued by the CDC stemming from an outbreak of the COVID-19. If passengers seeking to travel from these countries to the United States display symptoms of COVID-19, airlines may deny boarding to them under certain circumstances.

Are travel restrictions that have been imposed on commercial flights also applicable to general aviation?

Enhanced arrival procedures are in place for general aviation as they are for commercial travel. Passengers and crew may wish to consult the National Business Aviation Association’s (NBAA) COVID-19 operational considerations for the general aviation community which include more information about these policies as well as guidance related to the development of deviation and extraction plans for situations that might require an immediate adjustment of itineraries.

Can I obtain a refund for travel that I cancel or change as a result of concern for COVID-19?

Many airlines are changing their refund policies and change fee policies related to travel cancellations causes by COVID-19. It is important before making any changes to scheduled travel to call the airline directly. Every airline has different policies, and they are currently quite fluid. While travel agents can sometimes be helpful in making changes, many travel agents, particularly at large online travel agencies, are not informed on the most recent policy changes that airlines have implemented, which may leave passengers subject to large charges that could have been avoided by dealing directly with the airline.

Travel insurance may also provide some recovery for losses incurred as a result of travel changes. Some travel insurance policies have an epidemic exclusion. COVID-19 was classified as an epidemic by the CDC on February 3, 2020, so policies purchased after that date may exclude coverage for changes prompted by COVID-19. Similarly, some travel insurance policies include a known-event exclusion. The known event date for COVID-19 is January 22, 2020.

If a traveler enters an aircraft and there are a lot of passengers who seem to be coughing or sneezing, concern is normal, but there are a number of other respiratory illnesses in circulation that cause sneezing and coughing. Travelers can take precautionary measures such as wiping their seat, seatbelt, tray, armrests, air vents, and light switches with disinfecting wipes. Travelers who visit the lavatory may wish to disinfect the handles and everything they touch within the lavatory. And travelers who are seated next to a visibly ill seatmate should request reassignment of their seat, if available. If you still have concerns, those should be addressed to the flight crew.

May an employer impose a quarantine on an employee who has traveled internationally during the COVID-19 outbreak?

It is advisable for employers to develop a written policy on international travel and to treat all employees equally. Travel quarantines should not be determined on an ad hoc basis. While the CDC has not suggested international travel alone to a country not covered by a Travel Health Notice poses an appreciable risk that the employee has come into contact with someone who was infected with COVID-19, as travel restrictions increase, more areas are subject to self-quarantine upon return to the United States.

Employers should monitor the CDC’s Travel Health Notices and the State Department’s Travel Advisories for the latest guidance on the safety of travel to international destinations.

Business Continuity, Contracts, & Insurance

What business continuity concerns should I consider with regard to an outbreak of COVID-19 in my community?

In areas where COVID-19 becomes prevalent, it is likely either that employees will request the opportunity to work from home, that businesses themselves will make the decision to close temporarily, or that local authorities could require businesses to close for a period of time. As a result, business continuity plans are critical. Many businesses are in the process of reviewing their plans to assess whether it adequately addresses the legal, business, and practical issues in the event of a voluntary or mandatory closure of business facilities.

For businesses that can be operated with employees working remotely, it is important to consider the adequacy of not only technical capabilities (e.g., adequate computer, monitor, internet for home set-ups), but also continued information security (e.g., adequate security tokens if most workers suddenly operated remotely). Businesses should work closely with their IT professionals to consider both practical preparations and risk assessment for potential data breaches.

Businesses should also reach out to their vendors and suppliers to assess their preparedness and planning. If a critical vendor or supplier is not adequately prepared, steps should be taken to mitigate risk of loss. Before suspending or terminating a relationship based on force majeure or other concerns, please consult legal counsel.

The COVID-19 outbreak has made it difficult or impossible to perform some of my contractual obligations. Can I be excused from performance?

Unfortunately, there is not a simple yes or no answer to this question. However, we can provide you several factors to consider as you work with legal counsel to devise a strategy.

First, does the contract have a force majeure clause? Many contracts include force majeure clauses that may excuse a party’s non-performance. In the United States, the ability to declare force majeure is generally governed by the specific terms of the individual contract at issue.

• Governing law. An important initial issue to consider is what law governs the contract, because the scope and effect of a force majeure clause varies by jurisdiction.
• Fact-driven analysis. Whatever law governs, whether a force majeure clause will actually excuse a party’s non-performance is a fact-specific determination. In the case of the COVID-19 outbreak, some relevant facts include whether it is impossible to perform a contract because of a government regulation (e.g., a quarantine or mandatory travel restriction), or whether performance has become more difficult or expensive, but not impossible (e.g., a price hike caused by supply chain interruptions).
• Text of the FM clause. The particular language of the force majeure clause is also important. Depending upon the law that governs the contract, specific mention of “disease,” “epidemic,” “pandemic,” or “acts of government” may be more helpful than general terms such as “acts of God” and “matters outside of the reasonable control of the parties.”
• The long road. It is important to note that when a force majeure event is disputed, parties may not know the result until litigation has been concluded months to years later. As a practical matter, many businesses may focus on non-legal solutions that might mitigate the impact.

Second, do you have other grounds that could excuse non-performance? Even if there is no force majeure clause, there may be other avenues to potentially excuse non-performance. Some jurisdictions recognize impracticability and frustration of purpose as excuses for contractual-nonperformance. In addition, the UCC (as adopted in Texas) creates a limited statutory defense of impracticability for sellers in certain contracts for the sale of goods.

Will my business interruption insurance policy provide coverage if I suffer losses related to an outbreak of COVID-19?

The specific policy language will determine the ability to recover. Coverage exists only when a loss occurs that is covered under and not excluded by the policy language. Some facts to be aware of:

• Impact of past outbreaks. Following the Severe Acute Respiratory Syndrome (SARS) outbreak, many insurers began excluding coverage for viral and bacterial outbreaks.
• Coverage analysis. Policies also often require direct physical loss or damage to covered property to trigger coverage for resulting business interruption losses, and whether contamination by an infectious disease meets this standard is likely to be the subject of coverage disputes in the days to come.
• Tender. Insureds who believe that they have a loss covered under a policy with business interruption coverage should consider tendering their loss to their insurer. We also recommend you consult with counsel in making the decision.

Corporate Finance

COVID-19 is impacting financial institutions and other lenders and their customers. In particular, it is affecting the origination of new financings and compliance with existing loan terms and contractual obligations.

New Financing Arrangements

What factors should borrowers consider in light of COVID-19 when negotiating new financing commitments and loan documents?

Borrowers seeking new financing should pay careful attention to the following terms and conditions in the financing commitment and loan documents:

• Representations and warranties should be carefully reviewed to determine the effect COVID-19 may have on the borrower and its business and, in certain cases, representations and warranties should be modified to include materiality and knowledge qualifiers. In particular, borrowers should scrutinize any representations and warranties that are forward-looking.
• Financial covenants should be reviewed to determine whether the thresholds and testing periods for such covenants allow enough cushion for the borrower to forecast compliance with the covenants. Testing periods may need to be extended so that compliance is not monitored until a future date when the borrower may have more certainty as to whether their business will be able to absorb any adverse financial impact COVID-19 may have on the borrower’s operations and industry as a whole. Pre-approved cure rights (e.g., equity injections or other shock adjustments) should be negotiated into such covenants.
• Material adverse effect or change clauses should be carefully defined and limited so that the borrower understands whether the impact of COVID-19 can trigger such material adverse effect or change and thereby allow lenders the ability to terminate advances on a line of credit (and thereby constrain working capital) or call a default under the loan documents.
• Cross-defaults with other financing arrangements, contracts, or other agreements that may also be potentially affected or interrupted should be limited or eliminated.
• Defaults related to death or disability of individual borrowers and guarantors should be modified to allow the borrower to substitute loan parties that satisfy the lender’s underwriting standards.
• Notice and opportunity to cure periods should be examined to determine whether additional time may be necessary to cure a default caused by the COVID-19’s negative impact on the business’s financials or operations.
• Construction timelines and force majeure clauses should be reviewed and modified to extend or excuse delayed performance to accommodate for any future impact COVID-19 might have on labor, supplies, or materials in connection with a construction project.

What is a market flex provision, and what impact might a market flex provision have on a new financing commitment in light of COVID-19?

Market flex provisions provide arrangers and underwriters with flexibility as to the terms of a financing following the execution of a financing commitment or facility agreement. Such provisions are typically included by arrangers to permit the lender to make changes to key terms of a financing (e.g., pricing, yield, terms, structure, conditions) to make such financing more attractive to potential syndicate lenders and loan participants. Given the current and future volatility in the markets resulting from COVID-19, lenders may include market flex provisions in new financing commitments to allow them the ability to terminate financing commitments or alter the terms of new financing transactions. Any such market flex provisions should be carefully reviewed and limited as to scope and applicability.

What other factors might exist that could delay closing on a new financing commitment?

Lenders will likely change their focus to the amount and types of due diligence requested from a borrower in connection with a new financing commitment. To avoid delay in closing a new financing arrangement, borrowers should proactively assemble and provide lenders with information and supporting documentation in response to anticipated concerns surrounding the adverse effects of COVID-19 on their business. The following are examples of some of the additional questions and due diligence to consider:

• Whether the borrower operates or conducts business with counterparties in communities affected by COVID-19.
• Assessment of the borrower’s losses attributed to COVID-19 to date and projected losses that may arise.
• The ability of the borrower and the borrower’s counterparties to perform under existing contracts and the ability for one or both parties to suspend or terminate such obligations and any such negotiations that might be underway with respect to suspension or termination by either party.
• The ability of the borrower to collect accounts receivable and pay accounts payable.
• The adequacy of the borrower’s supply chain and inventory (and whether there are any alternative supply chains available).
• Whether the borrower is part of a regulated industry that is or might be subject to new regulations and restrictions, and if so, whether the business is in compliance with such new regulations and restrictions and has adopted a policy or procedure for monitoring and implementing the ongoing modifications and updates to such regulations and restrictions.
• The existence and modification of any business continuity, disaster recovery and response policies, cybersecurity policies and procedures, and other crisis management procedures.
• The existence and viability of a succession plan with respect to key principals and managerial officials.
• The existence and scope of any business interruption or other applicable insurance.
• The applicability of any required third-party or governmental approvals that may be necessary to close the transaction and the potential delay in obtaining such approvals.

Existing Financing Arrangements

Will financial institutions be willing to work with borrowers on existing loan facilities impacted by COVID-19?

With encouragement and support from the government and financial regulators, lenders will likely take a pragmatic approach and work with borrowers to meet their needs and mitigate the effect of COVID-19 on their business, while maintaining safe and sound lending practices. Early and thoughtful dialogue and open lines of communication between borrowers and lenders is critical, and will allow all affected parties to prepare for the next steps in an ever-changing environment.

What provisions should be reviewed and monitored in existing credit agreements in light of COVID-19?

Borrowers should review the following terms and conditions in the credit agreement and other loan documents:

• Principal and interest amortization/repayment schedules.
• Ongoing representations and warranties to determine the accuracy or potential breach thereof.
• Affirmative covenants related to information undertakings to proactively prepare for a lender’s request for further information regarding the financials, assets and operations of the borrower. Also, obligations to provide notice to lender of any default by borrower or a third party under any material contract (e.g., material supply contract, lease agreement, construction contract).
• Material adverse effect or change definitions and applicability to representations and warranties, cessation of advances under a line of credit, and events of default.
• Financial covenants and the thresholds and testing periods related thereto. Testing periods may need to be extended so that compliance is not monitored until a future date when the borrower may have more certainty as to whether their business will be able to absorb any adverse financial impact COVID-19 may have on the borrower’s operations and industry. Pre-approved cure rights (e.g., equity injections or other shock adjustments) may need to be added to such covenants.
• Events of default triggered by a material adverse effect or change, insolvency, suspension or cessation of business, cross-default with other financing arrangements, contracts, or other agreements, death or disability of an individual borrower or guarantor, or lender’s insecurity.
• Obligations of the borrower to the lender to indemnify and reimburse the lender for fees, costs, and expenses (and, if applicable, losses and liabilities) associated with the lender’s investigation and addressing of any defaults, as such obligations and liabilities may present a financial burden on businesses experiencing cash constraints.
• Set-off clauses affording the lender the right to seize funds from the borrower and the guarantor in the event a default occurs under the loan documents.
• Financial reporting, including audit, requirements. Delays in delivering required financial statements and qualifications to an audit may trigger an event of default. Also, auditors may require credit waivers or forbearance agreements to issue the audit.

What can be done if a borrower breaches or violates, or if borrower forecasts a future breach or violation, of a representation, warranty, or covenant in an existing credit agreement?

Borrowers should be proactive in light of the COVID-19 crisis. Depending on the circumstances, borrowers may need to request that their lenders enter into amendments to accommodate significant changes in the borrower’s business and the borrower’s ability to meet its obligations under the loan documents. These amendments may be short-term or medium-term, or in some instances permanent, modifications depending upon the nature of the covenants and the potential impact of COVID-19 on the borrower’s business.

Borrowers may also request that the lender issue a waiver letter concerning the specific default or breach, or any forecasted default or breach. If necessary, a forbearance agreement may be needed to give the borrower’s business sufficient time to recover from the COVID-19 crisis. Borrowers should consult with legal counsel when negotiating and documenting any amendments, waivers, forbearance agreements, and other loan modifications.

Information last updated March 16, 2020