DeAngelis Legal’s pandemic planning for businesses is a list of topics you should address in light of the COVID-19 outbreak. For individual topics see Pandemic Planning for Individuals.
CARES Act for Businesses.
The CARES Act has significant financial benefits for businesses, including employee retention credits, payroll tax deferral, pension funding deferral and income tax relief. A little gem for employees is also included for those employers with an educational assistance program. The CARES Act expands the definition to include employer payments of student loan debt for 2020. Therefore, employers may make payments to an employee’s student loan debt of up to $5,250 that an employee may exclude from income. For more information on how the CARES Act impacts businesses see CARES Act for Businesses.
Businesses should review force majeure clauses in contracts with customers, vendors and master contractors. These provisions relieve the parties from performing their contractual obligations because of unforeseeable events out of their control such as acts of nature, war, terrorism and condemnation. Generally, the provisions are construed narrowly to include only the items listed and economic hardship is not enough to qualify. In the current pandemic, whether a party is released will depend on whether disease, epidemic or pandemic is listed in the clause, whether the company is an essential business and whether the company could have done something to mitigate the impact of the pandemic. Please call us if you want more information on whether your particular force majeure provision will be interpreted for, or against, your business interests.
LLC Operating Agreements.
Arizona’s new LLC Act became effective September 1, 2019 and certain provisions of the Act require a review and potentially requires amendments to current operating agreements on or before September 1, 2020. Limited liability companies should review their current operating agreements and discuss whether to modify certain provisions of the new law, such as the information rights and process for obtaining information, transferee rights, causes of dissolution, derivative action rights and the fiduciary duties of loyalty and care. For more on Arizona’s new LLC Act see Arizona’s New LLC Act.
Business Continuity Plans.
A business continuity plan can be a valuable resource to maintain the continued viability of your business. Unfortunately, the plans of some closely held business are largely a set of informal arrangements or word of mouth policies. Take the time to identify the key pieces of your business – key people, equipment, locations, identify the foreseeable risks and outline potential solutions for addressing the loss of the key component.
Employee Manuals and Handbooks.
Employee manuals and handbooks are the first resource for decision makers as it will generally govern how paid time off is applied and what steps need to occur before a person is let go. An employee will be entitled to unemployment benefits regardless of whether the employee is fired, furloughed or laid off. The semantics of the separation are dictated by the benefits offered by the business and whether the employee is eligible for re-hire. Most benefits will terminate upon separation, therefore Companies desiring to offer benefits beyond the separation date should determine whether that benefit is available before offering it to the employee. Regardless of the circumstances, we recommend that the reason for the separation of service be acknowledged by the employee.
Business Interruption Coverage.
Business interruption coverage allows a business to recover losses if the business suffers physical damage or loss that prevents it from operating its business. Because there has not been a physical event causing the loss and the interruption is caused by a communicable disease, the current COVID-19 pandemic will not qualify unless the policy also covers a loss caused by a civil authority closing down or preventing business operations. Restaurants and hospitality businesses will want to review their coverage closely and make timely claims where appropriate.
Review temporary funding alternatives such as credit lines, leases and capital infusions. In some circumstances, lenders and landlords may grant deferrals or waivers. Cash during economic downturns is sometimes the difference maker between businesses that survive and those that don’t. Therefore, every alternative should be explored. Sources of these facilities can include owners, employees, investors and banks. A good business practice is to test credit lines granted by banks and third parties by occasionally requesting a payment before you need it. For owners, we recommend any money going in be evidenced by a promissory note and security interest in property, if possible.
Adapt or Fall Behind.
The business reality is going to eat away at any business that fails to adapt to our new environment. Business locations may need to be remodeled to provide greater safety to employees. Expect new workplace rules and regulations and prepare to incorporate such rules into operations. Review cleaning and disinfecting procedures. New business opportunities may arise and old revenue sources may dry up. Each industry is different, but the key is modify your procedures so you continue to attract good people and grow. For resources, owners and those in charge of operations should be regularly reviewing the Center for Disease Control’s website for businesses and Employers at CDC Resources for Businesses and Employers.