Despite some apparent setbacks in other regions of the country, Northeast states and businesses are well on the way to “reopening” after the initial phase of the coronavirus (Covid-19) pandemic. You probably do not need yet another law firm memorandum on the immediate things to be thinking about in preparation for reopening (i.e., workplace safety, customer safety, employee screening, PPE, and work from home policies, etc.).* Instead, we thought we’d take some time to look forward over the next six months or so to consider some of the medium-term legal and strategic implications of the pandemic for businesses. We can help advise you and your business on these matters.
Intellectual Property Protection – Since intellectual property (IP) protection is an important part of our practice and a source of significant value to most businesses, we of course lead off with it. Many businesses in the last few months have pivoted to new ways of operating, new products, and possibly even new lines of business. Have you reviewed your IP protection to see if it is up-to-date and reflects any changes to your business? New products and business lines might lead to new brand names, suggesting the need for new trademark protection. You might also want to consider protection for new inventions – either patents or trademarks. Nicole recently published an article on trade secret protection, which can be found here. And with the explosion of on-line content, many businesses should be thinking about copyright protection. These are just a few of the IP issues we have seen in companies’ responses to Covid-19.
Work From Home – For many businesses, undertaking wide-scale working from home was a response to an emergency situation that warranted quick and possibly less than totally secure technological solutions to implement. If work from home is going to constitute a continuing part of your business’ plans, have you gone back and reviewed your technological solutions and policies and procedures to ensure that you have appropriate and robust controls over who has access to your confidential business information, including your trade secrets? The risk is not just from third-party actors, but also unfortunately from employees and consultants.
Automation – Whether to address a need to reduce staff (or an inability to hire qualified individuals to replace staff previously let go) or to facilitate working from home, many businesses have turned to automating any part of their business that is susceptible to automation. If you have not done so, you should be actively considering whether automation can help your business. Automation can involve complex licensing, intellectual property and personal privacy issues.
Tax – We expect that cash strapped states and, where applicable, local jurisdictions will be very aggressive in trying to collect income taxes from out-of-state employees while they are working at home. Some states may also try to assert that an employee working from home during lockdown is sufficient nexus to the employee’s home state to subject the employer to taxation in that state even if the employer otherwise has no operations there. This is a complicated issue, and the tax outcome will be heavily dependent on specific facts and tax laws of applicable jurisdictions. However, at a minimum, both employers and employees would be well advised to keep detailed records concerning when and where employees worked, if employees are not working in their employer’s physical space.
Management Succession Plans – To the extent you have not done so, businesses should create plans to address the temporary or longer-term absence of all key employees as a result of a next wave of Covid-19 or other event. This may include written policies and procedures covering key functions. Have all key employees designated and trained personnel who can take over their critical functions in the event of an unexpected absence?
“Second Wave Plans” – Many businesses were caught flat-footed by the initial Covid-19 outbreak and the quickness of resulting lock-downs and stay at home orders. That can be excused by the rareness of a once in one-hundred-year event. But you have no excuse if before a vaccine is developed a second wave (or resurgence of the first wave) causes more restrictions or lockdowns. Have you prepared your business for that possibility? Hopefully, we have crested the Covid-19 wave, but what if we are in the eye of the storm? Is your business prepared?
Business Disputes – While no one wants to end up in a business dispute, stressful times like these often lead to an increase in such disputes. With Covid-19, companies may need to seek relief from contractual obligations, including leases or when their supply chains fail. Employees who have been let go may be subject to covenants-not-to compete – for the employer, these covenants remain important especially if they are intended to protect the company’s trade secrets or other confidential information. But for the employee who is able to find a new position in this time of high unemployment, the covenant-not-to compete is at best a hinderance in their job search if not a barrier to new employment. Given that many state courts were shut down entirely for months or, even in federal court, are otherwise dealing with an extension of schedules and thus a backlog of cases, the justice system is going to be severely overburdened for months if not years. While it is always best to negotiate an amicable resolution to a business dispute if at all possible, that is even more important now.
Acquisitions – For well capitalized companies, there are likely to be good opportunities for acquisition targets. Not all of the targets may acknowledge (to themselves, even) that they are for sale, so proactively engaging candidates may make sense for companies with the resources and courage to make acquisitions.
Liquidity – Does your company have the requisite liquidity to withstand another 12-24 months of economic uncertainty and possible reinstitution of lockdowns? While eligibility to apply for funds under the Paycheck Protection Program is expected to expire on June 30, 2020, funds are still available under the Small Business Administration’s Economic Injury Disaster Loan program. And of course, traditional third party sources of capital may also be an option.
Reorganization/Work-Out/Bankruptcy – For some businesses, the status quo may be untenable and extraordinary measures may need to be considered. This may include some type of in-court or out-of-court restructuring of a company’s obligations. If this may make sense for your business, you should consider your options early and proactively. Waiting to the last minute decreases the probability of a successful work-out. Importantly, the founders and/or management team will likely want to continue their involvement in the industry or in no businesses even if the company closes its doors. The earlier and cleaner a work-out situation is resolved, the easier it will be for these individuals to move on to their next opportunity.