From quarantine and sick leave issues to its effect on M&A, the coronavirus is significantly impacting global businesses. As a result, companies are increasingly turning to their legal counsel for guidance.
Covid-19 falls under the coronavirus family of respiratory viruses. It originated in Wuhan, Hubei Province, China, and is believed to have spread from animals to humans via a seafood and live animal market in Wuhan. The World Health Organization declared the virus a “public health emergency of international concern” on Jan. 30, 2020.
More than 185,000 Covid-19 cases, resulting in more than 7,400 deaths, have been confirmed as of March 17, 2020. Countries on every continent except Antarctica – more than 160 countries total – have seen cases of the virus. As Covid-19 has spread across the globe, international markets and businesses have experienced significant disruptions.
Here’s what is top of mind for legal practitioners.
March 17, 2020
Mergers could face delays in deal completion
Companies seeking U.S. approval for mergers could face delays as federal antitrust officials warned that they are considering extending merger reviews past legally mandated deadlines while companies across the economy grapple with the fallout from the virus.
The move threatens to delay some high-profile mergers now under investigation, including AbbVie Inc.’s $63 billion deal for Allergan Plc, Google’s pending $2.1 billion takeover of FitBit Inc., and United Technologies Corp.’s planned acquisition of Raytheon Co.
Companies seek alternatives to in-person shareholder meetings
In order to comply with social distancing recommendations by the CDC and public health experts, companies such as Amazon, Starbucks, and Berkshire Hathaway are forgoing planned shareholder meetings in favor of virtual meeting platforms.
In order to facilitate these adjustments, the SEC is allowing companies to change meeting plans without sending out a full filing to investors. Among logistical concerns companies may need to consider – not all states permit online annual shareholder meetings.
Telework largely unaddressed in union contracts, could set legal precedent regarding disability
As Covid-19 forces businesses across the country to direct employees to work remotely, unions and management may be navigating new territory. Only about 3.9% of union contracts in the past five years mention “telecommuting,” “telework,” or “work from home,” according to an analysis of more than 4,300 documents in Bloomberg Law’s library of collective bargaining agreements.
Mass telework may also cause legal complications for companies down the road by bolstering arguments from employees regarding telework as a disability accommodation. Thus far, courts have largely sided with employers in determining that telework isn’t a “reasonable accommodation.”
OSHA issues new safety guidance
After announcing that employers must track coronavirus infections incurred in the workplace – unlike cold and flu cases – OSHA clarified reporting requirements. A business is required to report confirmed cases of Covid-19 that are work-related and meet recording criteria set in OSHA regulations, such as days away from work or requiring medical treatment beyond first aid.
OSHA requires hundreds of thousands of employers with 10 or more workers to keep a log of every workplace injury or illness that requires medical treatment beyond first aid or keeps a worker away from work for at least one day.
The new guidance still leaves confusion, however, about how to prove whether a worker actually contracted the virus on the job, according to workplace safety attorneys.
Ensure contingency plans factor in federal wage laws
New Labor Department online guidance may help employers execute contingency plans during health emergencies, such as Covid-19, while remaining compliant with federal wage laws.
Relevant elements of wage and hour rules were considered in 15 questions and answers that address a range of scenarios and concerns, including those related to teleworking, wage payment requirements, and joint employment, as well as volunteering leave and payment on termination.
Coronavirus has firms weighing risk, opportunity
As initial risk-reducing responses get underway for many firms, some are turning to the other side of the equation: revenue-creating responses. Several large firms, including Alston & Bird LLP, Baker Botts LLP, Baker & Hostetler LLP, Blank Rome LLP, Morrison & Foerster LLP, and Orrick Herrington & Sutcliffe LLP have announced the launch of Covid-19 resources and crisis management tools. Included in the advertised offerings is information related to quarantine regulations and requirements, contract issues such as force majeure clauses, employment issues, and regulatory filing deadlines and requirements. There is even a Covid-19 survey being circulated by Seyfarth Shaw LLP.
March 9, 2020
Plans for employee safety and labor law compliance
As the number of U.S. cases grows, companies should take stock of existing policies and consider developing plans for handling relevant employee issues.
Travel – What business travel should be restricted? All travel or only to certain locations? What about clients and vendors who travel to your office? How should employees’ personal travel be addressed?
Sick leave and quarantine – How do companies ensure compliance with differing state and federal laws related to leave and quarantine? For example, if an employee is required to stay home because of quarantine but does not have an official diagnosis, how might laws such as FMLA or the ADA apply? Additionally, some states, but not all, mandate paid sick leave. Even for companies that don’t typically offer paid sick leave, the CDC suggests enacting “non-punitive” and flexible sick leave policies.
Remote work – Does the company have an existing policy for remote work? If not, you may want to consider developing one in the interest of reducing the risk of spreading disease.
Business continuity plans – Is there a plan in place for handling issues such as emergency declarations and communication procedures, disaster management teams, and how to cover excessive absenteeism?
Also in response to the Covid-19 outbreak, OSHA released guidance for workers and employers that outlines best practices for control and prevention and notes the industries and employees that are at higher risk for exposure. These include health and death care, laboratory workers, airline operations, border protection, waste management, and frequent travelers.
Other government agencies that have released Covid-19-specific guidance pertaining to employers include the EEOC and the CDC.
[As coronavirus spreads, employers are figuring out how to balance risk and compliance.]
How force majeure could impact contracts
Companies that are unable to fulfill contractual obligations because of consequences from Covid-19, including supply chain disruptions, quarantines, inability to travel, missed deadlines, etc., may attempt to be excused from the contract by invoking force majeure clauses.
While disease is not a typical justification for invoking force majeure, coronavirus is not a typical illness and has resulted in unprecedented consequences for global business.
Issues related to force majeure have already emerged. At the end of January, the China Council for the Promotion of International Trade announced that it would issue force majeure certificates to local impacted companies to support any claims for force majeure relief. In February, a Chinese liquefied natural gas buyer attempted to invoke force majeure, though the attempt was rejected by oil companies Total SA and Royal Dutch Shell Plc.
[Learn more about how the coronavirus could affect contracts.]
M&A activity slows as Covid-19 appears in transactions
Some M&A transaction documents are now including language related to Covid-19. For example, Morgan Stanley’s $14.5 billion acquisition of E*Trade Financial Corp. specifically carves out the virus from the scope of the definition of “material adverse effect.”
The Feb. 20 agreement between the two companies excludes “any … epidemic, pandemic, or disease outbreak (including the Covid-19 virus)” from being considered an “event, circumstance, development, change, occurrence or effect that, individually or in the aggregate, is or is reasonably likely to result in, a material adverse effect on the condition (financial or otherwise), assets, liabilities, business or results of operations.”
More broadly, the virus is affecting M&A by hindering travel. Bankers and dealmakers are canceling trips, putting potential transactions on hold. Data compiled by Bloomberg shows that 2020 M&A action is the slowest start to a year since 2013.
Does Covid-19 need to be addressed in SEC filings?
On Jan. 30, SEC Chairman Jay Clayton said in a public statement that he asked staff to “monitor and, to the extent necessary or appropriate, provide guidance and other assistance to issuers and other market participants regarding disclosures related to the current and potential effects of the coronavirus.”
Additionally, beginning with a Jan. 30 filing from Levi Strauss & Co, more than 250 companies have included language around the coronavirus in Form 10-K risk factors.
Levi Strauss and Co.’s filing states, “in December 2019, a strain of coronavirus was reported to have surfaced in Wuhan, China, resulting in store closures and a decrease in consumer traffic in China. At this point, the extent to which the coronavirus may impact our results is uncertain.”
Companies may be targets for lawsuits
Given the effect Covid-19 is having on international markets and supply chains, and the disruption to global business, legal experts are warning of the potential for lawsuits. This could include anything from manufacturers suing over missed deadlines and insurance-related litigation to workers suing employers over exposure or even the government facing suits related to mandatory quarantines. Some lawsuits have already been filed, including one by the American Airlines pilots union, which sued to stop service to China.