We hope you have found our law firm’s COVID-19 business operation information useful during these unprecedented times. We are deeply committed to assisting you and our country emerge strong and vibrant.
As business resumes in the workplace and circumstances change, American companies must be ready. In this updated alert, we highlight some key issues for consideration. We’ve also added hyperlinks to other work from our firm that you might find helpful.
Please contact us if you need assistance. We stand ready to serve.
The future is bright.
General overarching business issues for all industries
If you accessed CARES Act funding, are you in compliance?
- Potential issue(s): Violations of the CARES Act may result in substantial exposure. Numerous cases have already been filed against major banks and other financial institutions.
- General thoughts: Conduct an immediate risk assessment to determine compliance with the CARES Act. Document receipt of funds and expenditures of funds. Involve legal counsel, as appropriate, and be careful to protect privileges, work product and other applicable doctrines in anticipation of potential litigation. It is entirely likely that the government will investigate potentially improper use of funds in a manner similar to the investigations following the Great Recession.
If your company is still experiencing economic hardship, are there other government-sponsored funding mechanisms that may help your company?
- Potential issue(s): Some businesses have reported that funds were exhausted before their applications could be submitted or acted upon, creating economic hardship.
- General thoughts: Consider other federal programs such as Opportunity Zone funding, SBA loans and economic development grants, as well as state and local government funding mechanisms.
Have you determined whether the company has business interruption insurance?
- Potential issue(s): Your company may have insurance that would provide business interruption protection, even under the current pandemic. Has your company examined its insurance policies? Has a claim been made? Has your company complied with notice requirements? Has your company complied with other requirements? If your company has filed a claim, what is the status? Do you have continuing contractual obligations with the insurer? What is your insurer's position? Have you investigated it, including using publicly-available information? What are the developments in cases where insureds have sought coverage? Are there any recent court rulings involving business interruption in the COVID-19 setting that are relevant to your company's position? How do they affect your position?
- General thoughts: Review your insurance contracts to ascertain your company's coverage for loss of business income and increased expenses. If you are considering filing a claim, make sure you fully understand the scope of coverage so that you may make an informed decision whether to file. Be mindful of your obligations to collect and preserve information, to timely advise the carrier of your claim, and to mitigate your company's damages. Take steps to document your company's bases for its decision, its efforts relating to its contractual obligations and its steps to preserve requisite items of proof, including damages information. Stay up to date on claims made and pending litigation against others, as it will inform your company of potential issues, claims, risks and responses. Involve legal counsel and risk management as appropriate. The National Association of Insurance Commissioners has published a helpful thought piece.
Does the company have impossibility or force majeure clauses in its contracts?
- Potential issue(s): Contracts, applicable law, and the circumstances of the state(s) in which the company operates must be considered to ascertain contract obligations and rights. Impossibility and force majeure clauses may be implicated.
- General thoughts: Review the company's significant contracts, paying particular attention to the impossibility and/or force majeure clause(s) and determine what explicitly and/or arguably is covered and what exclusions from coverage could apply. Study applicable law, and analyze the situation based on the applicable facts and circumstances and the jurisdictions in which the company operates. Determine if the company still wishes to enact the impossibility and/or force majeure clause(s). Prioritize contracts that may require application of the impossibility and/or force majeure clause(s). With changes in the pandemic, one might wish to reconsider a previous decision. Consider applicable federal, state and local government requirements and/or guidance that may apply. Make sure the company is giving the required timely notice of intent to proceed under the impossibility and/or force majeure clause(s). Ascertain what the company's obligations are, including any requirement to collect information and mitigate the company's damages. Document mitigation efforts and preserve requisite items of proof including but not limited to damages information.
Has the company been capturing necessary business information? What should the company do now as it resumes work on premises and when business operations resume on the company premises to ensure the company has its necessary business records?
- Potential issue(s): Employees working at home may have the company's important business information in hard copy and/or on their personal devices.
- General thoughts: Assemble a team of information technology, human resources, business unit, and legal professionals to ascertain how to capture important business information. Examine how the business has been operating remotely during these times. Consider legal obligations and business needs for capturing information that may exist on employees' personal devices and/or in hard copy outside the company's premises (e.g. employees' homes). Ascertain how best to capture and retain the necessary and/or desired information and implement procedures for obtaining it. Communicate clearly with employees to capture the necessary information, and enlist the help of the employees' supervisors to ensure the requisite information is obtained. When seeking to capture requisite business information, remember to consider obtaining such information not only from current but also from departed employees. Employees working remotely should be reminded to use only company email and other permitted avenues for work.
Is the company's confidential business information, including its intellectual property, protected?
- Potential issue(s): Remote work, especially on such an expansive level, may have exposed the company's confidential information, including trade secrets and other intellectual property. Remote work raises important issues relating to retention and protection of the company's confidential business information.
- General thoughts: Conduct a risk assessment of potential exposure. For example, examine whether copying and/or downloading of the company's confidential information may have transpired and/or whether company mechanisms designed to prevent such an occurrence worked. Take appropriate steps to protect the company's confidential information, including reminding employees and independent contractors of the law and their obligations regarding confidential information and the misuse of such. Ascertain how to rectify potential risks and/or exposure of the company's confidential information, and take steps to not only retrieve the company's confidential information but to prevent its unauthorized downloading, use and/or disclosure going forward. The company may wish to have its employees identify all the devices that were used during remote operations, all the company materials that were downloaded, printed and/or otherwise created in hard copy or used on personal devices electronically, and have the employees certify in writing that they have returned all hard copy materials and destroyed electronic materials on personal devices.
Considerations for resuming business operations, even on a rolling basis
Before the company resumes work on the company premises, does the company have plans, procedures and protocols in place?
- Potential issue(s): In some jurisdictions, before work can resume on the company premises, the company must have an adequate COVID-19 response plan. Additionally, laws, such as OSHA's safe workplace laws, may implicate the necessity for adequate planning. Absence of consideration of the relevant legal obligations and absence of a plan compliant with appropriate procedures and protocols increase the risk of physical/mental harm, liability exposure, confusion, compliance problems and potential harm to the company's brand.
- General thoughts: Study the applicable legal obligations in the relevant jurisdiction(s). Consider important, available medical information. Establish a well-conceived working plan. Have plans and procedures in place before reopening, including a COVID-19 Infectious Diseases Preparedness Procedures and Response Plan (which may be an addendum to your OSHA-required Safety Plan or Injury & Illness Prevention Program). Do not limit the review to COVID-19. Rather, make sure that steps have been taken to minimize the risk of exposure to other infectious diseases and to any possible interruption to the company's business operations. Now is the time to review the possibilities of what could disrupt the company's business and identify plans and procedures to eradicate or minimize the effects of such possibilities.
Before the company resumes work on the company premises, what should it do with respect to communicating with employees on the protocols that should be followed in the workplace?
- Potential issue(s): Employees expect communication. An employee who allegedly contracts COVID-19 after returning to the workplace may claim he/she did not understand the procedures and was not properly trained.
- General thoughts: Before returning employees to workplace premises, implement effective training. Consider using a training video, a power point deck, email and/or mail communications in which procedures and protocols are adequately explained and require employees to acknowledge review and understanding of them. Make sure the training is in the language necessary to communicate effectively with the particular employee. Consider including a confidential reporting mechanism for alleged violations of company procedures and protocol. Designate individuals to respond to workplace inquiries. Consider whether periodic training should transpire. Education and dialogue should reduce concerns and increase compliance. Make sure that your company's processes and procedures are industry compliant, since failure to adhere to industry standard procedures could be the basis of a negligence claim.
When on-premises operations resume, it may be on a rolling basis in any given location or it may be limited to resuming in certain locations earlier than others. If such is the case, which employees return? What factors should the company consider?
- Potential issue(s): Contract obligations, including but not limited to collective bargaining agreements, may be at issue. In addition, applicable laws and government mandates may exist that contain obligations and/or strong considerations for the company. Decisions may implicate a myriad of labor and employment laws, including but not limited to equal opportunity laws and human rights guidance at the federal, state, and local level, DOL-related laws and guidance, OSHA laws and guidance, ERISA and other tax laws, privacy laws (including HIPAA), and applicable state and local equivalents of all federal authority.
- General thoughts: If the company has not yet done so, it should start planning now for a rolling return to work. No matter how much time the company expects the planning process to take, the planning process will likely take far longer and be far more complicated than the company expects. Study applicable contracts for obligations, including any collective bargaining agreements and engage in communication with any unions as necessary. The company should consult legal, human resources, information technology, risk management and business personnel to ascertain what criteria should be used for a rolling return, including doing a risk assessment of any criteria that may create issues with applicable laws, such as the federal, state, and local equal employment/anti-discrimination laws, leave act laws (e.g. the federal Family and Medical Leave Act, sick leave laws, child care laws, school leave laws, etc.), occupational safety and health law and other applicable laws. It must be recognized that returning workers based on a health-risk assessment has anti-discrimination law implications and is likely not advisable. Therefore, not only should legal advice be obtained, but applicable laws and EEOC guidance on the subject should be considered. The company may wish to consider whether to allow a voluntary return to work or to identify the employees who will be returned to work. A voluntary-return-to-work decision may be less problematic from certain standpoints, but may not be possible and/or practicable. Focusing on functions of the work may be preferable and will likely be less risky than focusing on individuals. The company may wish to consider shifts or rotating schedules (such as one week on, two weeks off) and/or the company may wish to have rolling start and stop times. The company should also have rules regarding who may access the work premises at times when they are not scheduled to work. The prudent employer will be mindful of legal obligations, such as reasonable accommodation obligations under applicable disability and leave laws (e.g. it may still be necessary to reasonably accommodate a worker by allowing that worker to stay at home or to make changes as to how that worker does work based on the health risks that are still present). Even if the company is not ready to return employees to work on the company premises, it may be wise to obtain information from the employees regarding whether and when the employees would be likely to return to work.
Before on-premises operations resume, are there workplace changes that will be required or should be considered?
- Potential issue(s): Resuming work on the company premises raises issues with respect to whether to implement changes, such as: taking employees' temperatures; asking employees a series of questions; conducting testing; requiring physical distancing of six feet; limiting group interactions to a small number; limiting or forbidding access to the lunchroom; limiting restroom access at a given time to one or a few people; forbidding or limiting business travel based on critical business needs; and other considerations including but not limited to those involving third parties. There will also be issues involving wage and hour considerations, whether to provide and/or pay for any kind of personal protective equipment and/or supplies and how to change/increase other health and safety measures, such as cleaning and maintaining a more pristine work environment.
- General thoughts: Start planning now for any return to work. It will be important to involve appropriate professionals, including legal, human resources, medical, risk management, occupational safety and health and other professionals in determining how best to return employees to the work premises and what changes to implement in the workplace, based on applicable considerations, including business needs and relevant laws such as the federal, state, and local equal employment/anti-discrimination laws, labor laws, wage and hour laws and occupational safety and health laws. The company should determine what procedures it will implement before the employee is permitted to return to work (e.g. will the company obtain information about whether the employee has experienced symptoms, been exposed to people with COVID-19 or symptoms, traveled, etc.; will the company take temperatures; will the company administer testing and if so, is the company complying the applicable laws such as the laws on licensing to do testing; what will the company do with the information obtained; etc.). The company should determine whether it will provide or require personal protective equipment (PPE) and reimbursement requirements under the law and/or any applicable collective bargaining agreement, if the employee provides his/her own PPE. The procedures and protocol should include consideration of physical distancing. Appropriate advice should be obtained to ensure compliance with OSHA and other laws governing the maintenance of a safe workplace. The company should recognize legal, medical and practical limitations involved in the procedures it desires to implement, especially as it relates to employee testing and medical information. Documentation and communication are likewise important. Ventilation, humidity and other considerations relating to the premises should be considered. If the company does not own the building, the company may wish to obtain certifications from the management of leased premises that all reasonable steps have been taken to reduce exposure to infectious diseases (including diseases like Legionnaires Disease that can be found in underperforming HVAC systems).
When on-premises work resumes, will there be overtime needs? Staffing problems?
- Potential issue(s): Overtime and staffing considerations implicate issues of compliance with federal, state and local wage and hour laws and related employment laws. Employee work overload may also be a potential issue.
- General thoughts: Study how the company will staff matters and work to ensure compliance with applicable laws. The company should consider potential employee work overload and how to mitigate the burdens of ramping up. The company should recognize that some employees may not return to work (e.g. having quit for other employment; unable or unwilling to return for health, family or other reasons; etc.), and the company should have a game plan for staffing needs in light of the potential that employees may not return to the workplace. Remind employees of the availability of "help mechanisms" within the business, including access to human resources, an ombudsperson, or employee assistance programs.
Excluding legal considerations, are there morale and other considerations that it may be advisable to address?
- Potential issue(s): Employee morale, fears and psychological issues may be of concern.
- General thoughts: Although some of these issues involve legal obligations and others may not, employers know that employee expectations have become a huge issue, particularly with social media, worker groups and the like. The prudent employer will examine whether the employee issue involves a legal consideration, such as a reasonable accommodation for a psychological issue, and will take appropriate steps. The company should also consider what should be done to address low employee morale and potential employee fears. It may be advisable to assign responsibility for addressing these types of issues to one person or a group of appropriate managerial employees, including human resources personnel. Some commentators have suggested that employees may have PTSD or related mental health issues, particularly in the medical and first responder fields, and it is appropriate to recognize and address these issues.
What should be done if someone who returns to work subsequently develops COVID-19 symptoms or has COVID-19?
- Potential issue(s): If a worker has COVID-19 or is symptomatic , creating a risk of exposing others to COVID-19, there is the potential for discrimination and/or retaliation and obligations possibly owed to other employees and third parties.
- General thoughts: Recognize these issues will likely be present, and plan in advance how to handle them. When developing a plan, involve legal, human resources, business, risk management, medical and other personnel and/or consultants, including external legal and medical resources. Make sure that legal obligations have been adequately reviewed and addressed. Develop procedures, including what the company will do with the employee that has symptoms or COVID-19 (e.g. sending the employee home, requiring absence from the workplace for an appropriate period of time based on the circumstances, requiring medical consultation, engaging contact tracing and determining what to do with other employees and third-parties who may have been exposed to the employee; etc.). Consider whether recording (e.g. on an OSHA 300 log) and reporting (e.g. in the case of hospitalization or death) obligations may exist and take appropriate steps to comply. Consider whether there is a legal obligation and/or business reason to advise third parties of the situation.
Will there be concerns of claims if employees, vendors and/or customers/clients become exposed to COVID-19 from the company's business operations?
- Potential issue(s): Employees, vendors and/or customers/clients may be carriers, even if asymptomatic, and it is wise to consider potential implications including possible liability exposure.
- General thoughts: Study this issue and involve legal, human resources, medical, risk assessment, and insurance professionals, as necessary, to determine how best to respond and reduce the risks (e.g. through procedures implemented, insurance coverage, and other mechanisms).
Are there special anti-discrimination and/or anti-retaliation considerations that should be made?
- Potential issue(s): As the company makes decisions, there is a risk of discrimination and retaliation based on factors like age, actual and perceived disabilities, nation origin and other protected characteristics.
- General thoughts: Study applicable federal, state and local laws for the relevant jurisdiction(s). Anticipate more issues (there will be potential strong and opposing feelings within the workforce), and make sure the human resources and legal departments are prepared for and attuned to emerging issues and engaged in connection with decisions made. Use legitimate, non-discriminatory and non-retaliatory business factors in making any decisions involving personnel. Consider "reminder" trainings and communications for supervisors and the general workforce. Pay attention to the impact not just on employees, but also on others such as independent contractors, customers/clients, vendors, etc.
Is there a potential for increased violence in the workplace?
- Potential issue(s): The COVID-19 situation has created an increased risk of adverse reactions from employees, customers/clients and others.
- General thoughts: Anticipate more issues. Make sure legal, human resources, security and other applicable departments are prepared for and attuned to emerging issues and the potential for increased violence. Review the company's procedures and response plans for handling potential issues, and consider whether such procedures and response plans need to be fortified and/or revised.
What should the company do from a workers compensation risk assessment standpoint?
- Potential issue(s): If an employee allegedly contracts COVID-19 in the workplace, the question arises whether the situation is covered by workers' compensation insurance or whether other insurance cover the situation. Some jurisdictions have laws that presume an employee was infected with COVID-19 in the workplace.
- General thoughts: Before returning employees to workplace premises, have risk management assess the workers compensation coverage. Review all of the company's applicable insurance contracts with the company's insurance broker/representative. Consider obtaining additional coverage and/or riders to existing policies. Make certain potentially-covered situations are appropriately documented and claims timely made. Stay up to date on best practices.
How should the company deal with employees who are reluctant or refuse to return to the workplace?
- Potential issue(s): Some individuals may be reluctant to return to the workplace. Others may have risk factors that they want the company to accommodate. Others may simply prefer to work from home and believe that the past several months have demonstrated that their productivity is undiminished and a return to the office is unnecessary.
- General thoughts: Ascertain the legal obligations for the relevant jurisdiction(s), and take steps to ensure compliance. Develop an understanding of your employees' positions. Determine if the employee is reluctant or unwilling to return to work and why. Provide an appropriate person(s) with whom the employee may discuss the individual situation. Involve human resources personnel, business-line managers, and an ombudsperson as appropriate under the circumstances. Work to establish trust and be as compassionate as possible in responding. If the employee is reluctant, provide appropriate education and information about the company's measures, as that may satisfy the reluctant employee. Also, when deciding what to do, consider collateral factors, such as staffing, morale, and the potential loss of valuable employees. Determine what steps the company may take (e.g. allowing the person to work from home for a period of time, giving the employee the opportunity to remain at home and determining whether that should be with or without pay, determining whether to require compliance with the return-to-work direction and what consequences will transpire if the employee does not return to work, etc.). If the employee is unwilling to return to work or the reluctance is related to a potential legal consideration, recognize the company's applicable legal obligations and if the specific circumstance implicates a potential legal issue (e.g. the employee is on a legally-required leave; the employee has a relevant underlying medical condition that may legally require a reasonable accommodation), determine what is necessary to comply with the law and proceed accordingly.
Is there a checklist for resuming work in an office setting that contains other important considerations? Are there additional or different considerations for different work settings, such as a manufacturing facility?
- Potential issue(s): There are a myriad of potential issues as a company considers resuming work on the company premises, and it is easy for something to fall through the cracks without a checklist.
- General thoughts: Study the applicable legal obligations in the relevant jurisdiction(s). Consider important available medical information and stay abreast of medical developments. Consider a risk assessment, identifying the potential risks, deciding how likely an unfavourable occurrence is, determining the action that should be taken to eliminate or lessen the hazard or control the risk and tasking a group or person to oversee action plans. For a detailed checklist of considerations for resuming work in an office environment, see "COVID-19: Best practice considerations for resuming work in an office setting". For other environments, consider the applicable federal, state and local law, orders and guidance, including but not limited to the joint guidance prepared by the CDC and OSHA for particular work environments, such as the guidance for manufacturing workers and employers.
Considerations if there is a second COVID-19 community outbreak or a significant COVID-19 situation in the company’s workplace
In the event there is a second outbreak of COVID-19 in the applicable community and/or the company experiences a significant outbreak among its employees, is the company ready? What is the response plan? What are the business interruption plans?
- Potential issue(s): Does your company have procedures and protocol if there is a second COVID-19 outbreak in the applicable community or your company experiences a significant outbreak among its employees? What are the contingency plans? Does the company have sufficient liquidity? Could business failures increase?
- General thoughts: Make sure your company has adequate procedures and protocol in place for a COVID-19 resurgence in the community and/or the workplace. Identify "worst case" scenarios and develop appropriate response plans. Be sure to consult legal counsel and study the applicable laws and government orders that exist in the relevant jurisdiction(s) at the time. Involve appropriate professionals in all areas. Work with the company's bankers to try to extend loans, obtain additional liquidity and otherwise protect the company's assets and business interests. Communicate with employees in a legally-compliant and appropriate fashion. Don't be overbearing. Be kind.
In the event a second outbreak of COVID-19 interrupts your business, does your business have business interruption insurance to cover the new outbreak?
- Potential issue(s): Is there coverage for a future outbreak of COVID-19 or another pandemic or catastrophic event? If the Fall of 2020 brings a resurgence of COVID-19, is the company's current insurance adequate?
- General thoughts: Conduct an immediate review and risk assessment of existing company insurance policies. Work with the company's insurance broker/representative, risk management and legal department to understand the coverage and to ascertain if additional coverage should be purchased.
In the event there is COVID-19 resurgence, what is the status of the company's force majeure clauses in contracts?
- Potential issue(s): Contract obligations, applicable law and circumstances of the state(s) in which the company operates should be examined to identify issues. Also, consider whether the company elected to and/or had to defer or delay certain transactions or business events.
- General thoughts: Study the company's significant contracts. Review, list and prioritize all transactions, contracts and other business events that have been and/or will be delayed. Consider whether the company can actually and/or still desires to proceed. Consider whether contracts should be terminated and on what bases they can be legally terminated. Evaluate the steps to take. Involve appropriate legal, risk management and business personnel in the decision making. Take appropriate steps to protect privileges, work product and other applicable doctrines in anticipation of potential litigation.
Applying lessons learned to future business considerations
Is it advisable to revise plans for future business interruptions, whether caused by medical/pandemic or other situation? Is it wise to capture the lessons learned, ascertaining what was good and less than optimal, in order to adjust things on a going forward basis?
- Potential issue(s): There may be increased liability and other exposure for COVID-19-related matters in the future, as they may arguably now be "foreseeable."
- General thoughts: Assemble key players and gather information. Study the lessons that can be learned from the company's experiences and the experiences of other companies in the relevant industry. Ascertain what plans need to be developed and/or revised. Remember that many jurisdictions are requiring or encouraging a COVID-19 plan to be in place before certain work can resume on the company's premises. Even if not required, having appropriate plans, procedures and protocols is necessary from a risk-management standpoint.
How should business operations change, and what improvements are warranted from the lessons learned in this shutdown period?
- Potential issue(s): Optimizing what the company has learned (pros and cons) from this time period and making appropriate changes may help the company, not just for legal and human resources reasons, but also to become more competitive. Employees may argue that working in the workplace is no longer an essential job function depending on what transpired during the period of remote work.
- General thoughts: Form a task force to study what can be learned from the company's experiences. Ask business units to identify what went well and what did not go as well as it could have. Study efficiencies that occurred (e.g. analyze whether there was greater productivity from remote work). Invite suggestions as to how to improve not just business operations but also the business products and/or services. Determine what warrants further consideration and/or implementation. Define areas for cost containment. Be prepared for employees who enjoyed working from home or believe they need to work from home for legitimate reasons to seek to work remotely, and involve appropriate legal and human resources personnel in making any decisions.
Litigation considerations; prioritization
Is the company complying with litigation holds, court document preservation orders and pretrial orders?
- Potential issue(s): Litigation holds, court document preservation orders and pretrial orders that may contain obligations, including deadlines for when additional claims and/or defenses must be asserted, contain important obligations. Compliance may be at risk.
- General thoughts: Make sure the company's inside and outside legal counsel, applicable business unit(s), and information technology personnel are examining litigation holds, court document preservation orders and pretrial orders. Take necessary steps to ensure compliance, including but not limited to capturing all documents that may have been generated/stored on personal devices while employees and former employees were working at home. The company should also track all dates and deadlines to make sure they are being met.
Although much litigation and regulatory investigations have been placed on hold by court order, decree and/or agreement, will the company's business priorities concerning litigation be different when business operations resume on a more fulsome basis and/or on the company's premises?
- Potential issue(s): Disputes consume significant human, economic and other resources, and the company's top priorities may have shifted on a short-term basis or even a longer-term basis. Should cases be continued or settled?
- General thoughts: Examine the company's existing litigation, threatened litigation, potential planned litigation and regulatory investigations now. Make a list of business priorities, and, as appropriate, include the CEO, CFO, GC, HR head, business unit heads, and risk management advisors in developing the list. Ask outside counsel to provide a list of options for proceeding, including settlement considerations, extending the pretrial and trial schedule, and other appropriate concepts. Consider both the economic and human capital costs of disputes. Issue appropriate guidelines as to how to proceed once business resumes. Ask the question: Is continuing the dispute helpful to our business?
What is the status of the company's planned or potential litigation?
- Potential issue(s): For potential litigation that the company may desire to bring, compliance with the applicable statutes of limitations may be at issue. Further, there may be issues with tolling agreements.
- General thoughts: Study the applicable statutes of limitations and any tolling agreements to make sure that deadlines are not missed for commencing suit, filing responses and the like. Examine whether there are any applicable laws that extended deadlines because of COVID-19, and take steps to comply. Identify and prioritize litigation needs.
Do you anticipate your business will be sued or investigated as a result of actions taken during the shutdown?
- Potential issue(s): As a result of COVID-19, there may be new or additional litigation or regulatory concerns from alleged violations of law, rule or regulation; breach of contract; negligence shareholder concerns and other situations.
- General thoughts: Examine the potential of future disputes under the direction of the GC, other internal legal counsel, and/or outside legal counsel to maintain privileges, work product and other doctrines. Assemble a team including representatives from the risk management department, business units, the Office of the General Counsel and the human resources department to assist in the evaluation. Identify potential serious disputes, and, under the direction of legal counsel, begin a game plan for handling such. Remind employees of the obligation to preserve materials in accordance with the company's business retention policy and litigation hold procedures.
Special considerations for the financial industry
Have the company's employees/representatives been communicating with clients using their own personal devices?
- Potential issue(s): If employees have been using personal devices, there may be issues relating to: Rule 17 CFR §240.17a-3, 17a-4 record-keeping requirements; compliance with privacy rules regarding customer information and records; and cybersecurity, including Reg S-P, 17 CFR §248.30, NAIC Model Insurance Data Security Law, NYDFS Cybersecurity Regulation and similar state and federal regulations.
- General thoughts: In addition to the ideas above, work with your legal and information technology departments to capture all communications and review any cybersecurity concerns. Engage outside counsel and/or vendors if necessary. Don't forget obligations and/or important business considerations as they exist with respect to departed and departing employees.
Did the company remain compliant with SEC requirements during the shutdown?
- Potential issue(s): SEC compliance is at issue, and may have been impacted to the extent certain SEC requirements have been modified or excused during the outbreak. Compliance requirements may depend on when the SEC compliance obligations go back into effect.
- General thoughts: Monitor the SEC website for updates on compliance. Confer with internal and/or outside regulatory counsel, if necessary.
Is the company prepared to comply with Reg BI by the June 30, 2020 deadline?
- Potential issue(s): Currently, the compliance deadline for Reg BI remains June 30, 2020. The SEC has announced that it will not delay implementation of Reg BI or Form CRS. Companies must implement Reg BI by June 30, 2020, which is also when companies must begin using Form CRS. According to the SEC, firms should prepare for some standalone Reg BI and Form CRS exams, as well as regular exams that incorporate Reg BI and Form CRS oversight. The SEC has indicated that, as of July 1, 2020, examinations will focus on whether companies have implemented policies and procedures in compliance with Reg BI. Next year, the SEC will turn its focus to whether firms and representatives are acting in their clients' best interest when making recommendations. FINRA has also stated that Reg BI reviews will be part of its overall exams in 2020. FINRA examiners will be looking at how firms approach implementing policies, procedures and controls to comply with Reg BI.
- General thoughts: Review the status of the company's preparedness now, and if preparations are behind schedule, engage a team, including outside legal counsel, to ramp up to ensure compliance. Monitor the SEC's news releases for any possible extensions or new guidance, in the absence of an extension. Keep abreast of state statutes that may prohibit ongoing work of a non-essential nature. Make sure the order trail for financial institutions has been properly maintained.
Is the company at risk for outside business activities/selling away/Ponzi schemes?
- Potential issue(s): During times of economic stress and low returns, Ponzi schemes abound. This potential raises issues of how the company can ensure that it has taken reasonable steps to prevent or detect such activities and to remedy any inappropriate activity.
- General thoughts: The prudent company may be well-served by reviewing field supervision operations (and making an internal record of having done so), and it might also consider sending a Field Supervision Alert reminding registered representatives: (i) of their duty to only sell approved products; (ii) of their obligations to disclose and obtain approval of Outside Business Activities; and (iii) that selling away is strictly prohibited by the company. The wise company might also send an investor education reminder to customers that: (i) investors should review all recommendations and disclosures carefully, including making sure that the company's name appears on all paperwork associated with the investment; (ii) when purchasing an investment from the company, investors will not be asked to and must not write a check or wire money to any person or entity other than the company; (iii) investors must promptly review their account statements to make sure that all investments they purchased through the company appear on their account statements; (iv) investors should not purchase any investment they do not understand; and (v) if an investment sounds "too good to be true," it probably is. Additionally, the company should document all such procedures that have been followed. A robust supervisory structure with written documentation is the company's best defense to a selling away claim. See "Is the next big Ponzi scheme around the corner? And are firms at a higher risk for selling away activities?"
Has any specific contractual obligation been excused or delayed due to the outbreak?
- Potential issue(s): COVID-19 may have impacted breach of contract issues, notice issues, other concerns and potential litigation.
- General thoughts: In addition to the above general information regarding business interruption and impossibility and/or force majeure clauses, review the company's contractual obligations (e.g. lease agreements, vendor agreements, etc.) to determine whether performance has been impaired, rendered impossible or impracticable, or excused and/or whether impossibility and/or force majeure clauses have been triggered. Comply with any contractual notice requirements or other obligations. Confer with outside legal counsel, if necessary.
Special considerations for the insurance industry
Do insurance companies need to provide an updated Own Risk and Solvency Assessment (ORSA)?
- Potential issue(s): In light of COVID-19-related claims or potential claims, companies that are responsible for maintaining an ORSA process may need to provide an updated summary report as part of their solvency regulatory compliance.
- General Thoughts: Insurance companies should evaluate claims and potential claims and consider whether they need to update their reserves, disclosures and/ or their risk and solvency assessment. It is also wise to confer with internal and outside legal counsel, if necessary.