The most recent news stories suggest that the country may be working its way back to normal in the next 30-45 days. Regardless of whether the economy opens in the short term or long term, business owners are well served to analyze their current legal position, as it relates to their operations. The following represents a high-level summary of topics that may have been implicated by the virus and the resultant economic slowdown.

Covid-19 Relief Programs

The Small Business Association (SBA) website is a good starting point to investigate the government programs designed to help businesses weather the storm. These programs include the Economic Injury Disaster Loan (EIDL) which offers a forgivable loan, up to $10,000.00, to provide relief for a temporary loss of revenue related to Covid-19. The program is currently closed but is expected to re-open when funding becomes available. The Payroll Protection Program (PPP) offers forgivable loans based upon the payroll of the business. The loan is forgiven if the business keeps its employees at work. After funding ran out on April 16, 2020, congress appropriated another $310 billion. The SBA website crashed on April 27, 2020 but the SBA reports it will be up and running shortly.  In most cases, the PPP can be accessed with the assistance of your bank.

The above programs will likely involve the presentation of proof that the business is in compliance with the terms of the loan programs. Data should be collected and organized in anticipation of the government’s request.

Contracts

Contract problems have likely already become clear. Regardless of whether you are having difficulty performing or your contractual partner is having difficulty performing, it is important to review all contracts to determine the respective rights and obligations under the contractual terms. These contracts may include supply contracts, maintenance agreements, or any other agreement that documents the sale of goods and services. Particular attention should be directed to the existence of a force majeure clause in the contract. These are somewhat unusual in a typical contract. The unique nature of this pandemic has likely provided other defenses to those parties breaching contracts. More specifically, a party may be excused from performing portions of their contract due to the legal principles of impossibility or impracticability. Rather than planning for a lawsuit due to a breach of contract, it is preferable to communicate with your partners and discuss all options to avoid legal complications.

Leases

Leases should be evaluated like all other contracts, however, there are several specific issues unique to leases which should be addressed. Most importantly, the lease should be reviewed to determine whether you may be excused from paying your lease or your tenant may be excused from paying the lease. At present, it appears that any forbearance relative to real estate leases is up to the landlord. It is unlikely that leases were drafted to recognize the existence of a pandemic. Thus, the parties to a lease are well served in discussing the lease and the ability to perform, pursuant to the terms of the lease. If you are having difficulty making a monthly payment, consider offering to extend the lease or increasing payments in six months' time. If your tenant is not making payments, it may be more financially beneficial to make an alternative arrangement than to initiate a landlord-tenant action in court. In the parties agree to a modification of payments, the agreement should be reduced to writing and attached to the lease.

Employment

Much has been written relative to unemployment claims for COVID-19. At present, benefits have been increased to reflect the difficulties associated with a broad societal shutdown.

The Families First Coronavirus Response Act (FFCRA or Act) expanded the provisions of the FMLA and provided generous benefits for those employees affected by the Covid-19 virus. If employees went out on FFCRA, it is important to monitor them to confirm their eligibility and make preparations to bring them back to work.

This is also an opportune time to review personnel policies. If issues arose that were not addressed in the employee handbook, the employee handbook should be updated. It may also be helpful to communicate with employees relative to the expectations should this virus, or any other, strike in the future. An employer may face exposure for Covid-19 based worker’s compensation claims, following a return to work, and now is the time to discuss best practices with employees to keep them safe and avoid legal exposure.

The reopening of a business and the return of employees is a complex issue. By necessity, the business owner must consider the safety or employees and the public while attempting to engage in commerce.  Perhaps in recognition of this difficult task, the Equal Employment Opportunity Commission(EEOC) confirmed employers have the right to request health information from workers during the COVID-19 outbreak. However, if this issue arises, the business owner is encouraged to consult with counsel. Employment law in a post-Covid-19 world is changing quickly.

Insurance

To the extent the business maintains business interruption insurance coverage, the policy should be reviewed. There is a flurry of legal activity relative to claims made against business interruption policies. Thus far, it appears that most insurance carriers are denying these claims, arguing that they were not anticipated under the policy. At present, the restaurant industry is leading the way with class action lawsuits to clarify the issue. Most policies will not make a specific reference to a pandemic as a triggering event for business interruption coverage, but a review of the policy is nonetheless advisable. There is a possibility that the government will step in as it did after the 9/11 attack and offer support to the insurance industry. Thus, it is essential to;

1. review the policy;
2. file a claim with the carrier;
3. document the losses; and
4. make every effort to mitigate damages.

Loans and Banking Relationships

The COVID-19 pandemic may have resulted in a default on loan or mortgage payments. Banks have taken a varying approach, with some offering a “holiday” on loan payments. Banks are likely doing this in anticipation of an increase in foreclosures. Put simply, banks will not benefit if they suddenly foreclose on all their customers. As with lease agreements, it is prudent to negotiate with the bank rather than simply defaulting.  Should a foreclosure occur, counsel should be consulted. It is essential that proper steps are taken to protect the business and avoid any allegation of improper behavior by the bank.

Some business owners may be subject to a Note that documents a private loan and a payment schedule. Both parties will benefit from a negotiated resolution. Like most banks, the Note holder is better served by a temporary adjustment in the repayment schedule, rather than a legal action based on the breach of the Note.