Law

PRESS RELEASE

March 14, 2020

THOMAS W. CROESSMANN

Admitted: VA, D.C., & MD

Direct: (540) 272-9775

twc@cwattorney.com

Coronavirus’ Effects on Contracts

 

The COVID-19 Coronavirus pandemic has already had a devastating impact on the economy. As a result of its increased spread, President Trump declared Coronavirus a National Emergency. Several States, including Maryland and Virginia, and the District of Columbia declared a State of Emergencies as well. With many companies closing their businesses for periods between two weeks to a month, a question arises amongst business owners: “How does this impact my current contracts and my contractual obligations?”

Before we discuss the contractual impact, it is important to note that the first priority should be to keep you and your employees safe. The CDC and many organizations are doing a great job of getting information out on how to protect oneself and deter the spread of COVID-19, but once health and safety plans are in place, what’s next?

 

FORCE MAJEURE CLAUSES

Many contracts contain a “force majeure” clause, also known as a “Act of God” clause. A force majeure clause excuses a party’s performance of the contract because of some unforeseeable circumstance that is out of the party’s control. These causes usually include fires, floods, epidemics, riots, strikes, labor disputes, freight embargoes, electrical outages, computer or communications failures, and severe weather. Governmental activities and legislation can also be considered a force majeure.

Many contractors believe that because of the Coronavirus and the fact that a National Emergency has been declared, that their contracts are unenforceable. This is incorrect. The force majeure has to actually impact the contractual performance. For example, if a material could only be sourced from Italy and due to the Coronavirus, the Italian manufacture shut down, this would likely be considered a force majeure. The reason is because it actually impacted the performance of the contractor to receive the material for the project.

Another example of what would likely be considered a force majeure would be if the state or local government implemented a ban on having a certain number of people in a gathering at one time. For example, if Virginia declared a ban of people gathering in greater numbers than 20, and a contractor has 50 people working on a project at one time, the contractor would likely be entitled to a delay due to the Virginia ban.

Examples where the contractual obligations of the parties would not likely be considered a force majeure would be where the homeowner did not want the contractor to work on the property because of a “fear”, without any indication of diagnosis or symptoms of Coronavirus, that the workers may be ill. As long as the contractor was willing and able to perform the task, this would not likely be considered a force majeure. If the homeowner prevented the contractor from coming on the site, the contractor may have a claim of breach of contract against the homeowner.

On the other hand, if the homeowner had symptoms or was diagnosed as having the Coronavirus, this would likely be considered a force majeure that would excuse the contractor’s performance of the contract.

As one can see from the above examples, whether a party’s contractual performance is excused because of a force majeure is highly fact specific. It is important to remember that the mere fact that a National Emergency or State of Emergency has been declared, without any direct impact on the project and the performance, does not allow a party to be excused from preforming their obligation under the contract. If the homeowner stops the project without legal justification, the contractor may be entitled to recover time delays to complete the contract and delay costs, such as office overhead, cancellation/rescheduling fees for materials, and increased costs from subcontractors as a result of the breach of contract.

It is critical during this time to have your contracts reviewed by competent legal counsel to ensure that you have an enforceable force majeure clause. Also, it is advisable that you speak to legal counsel before these issues arise to know how to handle certain situations.

 

WHAT IF I SUFFER LOSSES FROM A CORONAVIRUS RELATED EVENT?

If you are suffering losses due to the Coronavirus, you will want to consult your business insurance policies. Some insurance policies include “Business Interruption Insurance” and/or “Civic Authority Shutdown of Business Insurance”, which will pay a business for the losses as a result of a covered event. Some insurance policies specifically exclude these types of coverage, but it is worth investigating. It is expected that the insurance industry will take a heavy impact as a result of paying out for losses related to the Coronavirus. Therefore, do not accept the insurance companies’ denial of coverage without having a third party, such as an insurance broker or attorney, give you their opinion on your insurance coverage.

CONCLUDING THOUGHTS

It is critical in these early stages of the Coronavirus pandemic for contractors to be as prepared as possible. You should consult your insurance companies/broker to discuss your policy coverages. You should also consult a competent legal counsel to review your contracts for force majeure clauses and their impact, as well as discuss what your contractual obligations are under your current contracts, and examine other business-related aspects of the Coronavirus, including employment issues. Being prepared now can be the difference between keeping a business going through this pandemic or becoming one of the Coronavirus’ victims.

PRESS RELEASE

March 22, 2020

THOMAS W. CROESSMANN

Admitted: VA, D.C., & MD

Direct: (540) 272-9775

twc@cwattorney.com

Families First Coronavirus Response Act: What Employers Need to Know 

On March 18, 2020, President Trump signed the “Families First Coronavirus Response Act” (“Act”) into law. The Act deals with several issues such as immediate public health related matters and funding. However, the Act also contains several provisions relating to paid family and medical leave and paid sick leave. This Press Release is focused on the provisions that affect small businesses. This Press Release includes a summary of the Act’s provisions regarding paid family and medical leave and paid sick leave. This is only a summary of the provisions and we suggest that you consult with your legal and accounting team to understand the full impact that this law may have on your business.

PAID FAMILY AND MEDICAL LEAVE

• These provisions only apply to employers who have fewer than 500 employees.
• The Act allows the Secretary of Labor to exclude employers with fewer than 50 employees if the required leave would jeopardize the viability of the business.
• The Act provides for 12 weeks of, job-protected, paid leave under the Family and Medical Leave Act, of which the first 10 days of the leave may be unpaid.
• There is an exemption for the job protection requirement of the Family and Medical Leave Act but only if the employer: (1) has fewer than 25 employees; (2) where the employee’s position is eliminated because of economic slowdowns related to the declaration of a public health emergency (COVID-19); and (3) the employer attempts to restore the employee’s employment within a year.
• Employees may, but are not required to, use accrued personal or sick leave during these first 10 days.
• This leave benefit covers employees who have been working for the employer for at least 30 calendar days prior to taking the first day of leave.
• The Act states that the only qualifying need that triggers this provision is if the employee is unable to work, or telework, to take care of the employee’s child (under the age of 18 years of age) if the child’s school or place of care is closed or the childcare provider is unavailable to due to a public health emergency (COVID-19).
• After the first 10 days, employers must compensate full-time employees in an amount that is not less than two-thirds of the employee’s regular pay. The Act limits the pay entitlements to $200 per day and $10,000 in the aggregate per employee.
• Employees that are not full-time employees are entitled to compensation based on the average number of hours the employee worked for 6 months prior to taking the leave. Employees who have worked for less than 6 months prior to taking the leave are entitled to the employee’s reasonable expectation, at the time of hiring, of the average number of hours the employee would normally be scheduled to work.
• It is illegal for an employer to retaliate against the employee for using the leave.
• The paid Family and Medical Leave provisions will become effective April 2, 2020 and expires on December 31, 2020.
• The Act provides some relief for the employers through the use of tax credits. Each quarter, employers that pay employees under the provisions of this Act will be entitled to a fully refundable tax credit equal to 100 % of the qualified leave pay actually paid by the employer.

 

PAID SICK LEAVE

• The paid sick leave is intended for employees to use when they cannot work or telework because they:

1. are subject to a federal, state, or local quarantine or isolation order related to COVID-19;
2. have been advised by healthcare providers to self-quarantine due to COVID-19;
3. are experiencing symptoms of COVID-19 and seeking a medical diagnosis;
4. are caring for an individual subject to a quarantine order or self-quarantine;
5. are caring for children if schools are closed or their caregivers are unavailable because of a public health emergency; or
6. are experiencing substantially similar conditions as those specified by the Secretary of Health and Human Services.

• Employers will be required to provide full-time employees two weeks (80 Hours) of paid sick leave. However, if the employees leave is a result of numbers 4, 5, or 6 above, then the employer is only obligated to pay the employee two-thirds of the employee’s regular pay.
• The Act provides a cap on the amount of compensation for paid sick leave. Paid sick leave wages are limited to $511 per day up to $5,110 total per employee for their own uses (reasons 1, 2, and 3 above) and up to $200 per day up to $2,000 total per employee to care for others and any other substantially similar condition (reasons 4, 5, or 6 above).
• Part-Time employees are entitled to receive paid leave based on the average number of hours the employee worked for the six months prior to taking paid sick leave. Employees who have worked for less than six months prior to the leave are entitled the average number of hours the employee would normally be scheduled to work over a two-week period.
• The employee may immediately use the paid sick leave, regardless of the length of time that the employee has been employed (i.e. no 30-day requirement like the Family and Medical Leave Act provisions above).
• The employer must post a notice informing the employees of their rights to leave. This notice must be in a conspicuous location on the premises, job site, or office. The Department of Labor is expected to publish a model of the notice for employers to use shortly.
• The Secretary of Labor is permitted to exempt employers with fewer than 50 employees from the paid sick leave provisions if the requirements would “jeopardize the viability of the business as a going concern.”
• The Act provides some relief for the employers through the use of tax credits. Each quarter, employers that pay employees under the provisions of this Act will be entitled to a fully refundable tax credit equal to 100 % of the qualified leave pay actually paid by the employer.
• The Act specifically states that the employer may not retaliate against the employee for use of the paid sick leave.
• The paid sick leave provisions will go into effect April 2, 2020 and expires on December 31, 2020.

CONCLUDING THOUGHTS

These above provisions can create a challenging situation for small businesses. Although there is a mechanism to help compensate the employer, that relief does not come until months later. It is important for business owners to be in contact with their accounting and legal professionals to understand the company’s obligations under the Act and its impact.