In ordinary times, companies facing a product safety recall have numerous issues to navigate. These issues include deciding upon a remedy, mastering reverse logistics, and managing public relations.  But today, as the country deals with COVID-19, new issues have emerged for companies facing recalls—interruptions in the supply chain precluding the obtainment of replacement product, retailers working around the clock to save their businesses, office building, call center and retail store closures, and consumers who are focused on keeping their families safe from this deadly virus rather than potentially defective products.  As all of these issues converge, many companies are wondering how the U.S. Consumer Product Safety Commission (CPSC) will respond to and handle forthcoming recall announcements.

Earlier this week, the CPSC provided some initial clues as to how it will handle recalls.  In guidance entitled “CPSC Recall Remedy Notice Due to COVID-19,” the agency states that:

“[d]ue to extraordinary circumstances surrounding COVID-19, some of the remedies identified in recall press releases may not be available at this time. Consumers should check with recalling firms for further details.  It is important to remember that CPSC and recalling firms urge consumers not to use recalled products.”

While companies are ordinarily required by the Commission to be in a position to offer consumers a remedy for a recalled product upon announcement, in these uncertain times, the agency appears to be providing some leeway to firms who are unable to execute immediately on their offered remedy.  To date, the agency has shown flexibility and cooperation given the business challenges regulated parties face given state emergency orders and mandatory quarantines.  This is undoubtedly rooted in practicality and the precarious situation in which much of industry finds itself.  However, other issues remain unaddressed that are sure to arise if they have not already.  For example, will the Commission require the recalling firm to re-announce the recall when the remedy is available?  Or, will delaying the recall remedy anger consumers and lead to business complaints, negative social media campaigns, and even lawsuits?

Firms are already dealing with other important issues that impact recall execution and effectiveness, such as what to do if they are unable to staff a phone line to receive incoming consumer calls because of office closures; what to do if key personnel working from home need to access office supplies to effectuate the recall; how to handle retailers who are preoccupied with keeping their businesses afloat; and how to reach consumers who are, quite frankly, not paying attention as they focus on staying healthy.

It is yet to be seen how the Commission plans to handle forthcoming recalls that involve some of these issues beyond the timing of a remedy. Will the agency be amenable to delaying recall announcements that do not involve the most serious potential injuries until some of these COVID-19-related issues are resolved?  The answer is likely yes, although the CPSC has already made clear that they may require firms to make a public safety announcement that warns consumers not to use the recalled product in the interim.

As firms prepare to announce a recall, they should keep the following things in mind:

  • The health and safety of your employees, colleagues and business partners, comes first. Many product recalls involve very low incident rates and risk much less severe than what epidemiologists are tracking with COVID-19.  In most, if not all, cases, COVID-19 is a much bigger immediate threat to public health and safety than a delay in recalling products;
  • Communication with the CPSC is always key—inform the CPSC frequently about supply chain and workforce issues and timing changes;
  • Use technology, including email, voicemail messages, video, and apps, to keep consumers informed of your effort to fulfill the recall and the status of their remedy; and
  • Document destruction of recalled products with photos and not just certificates of destruction if CPSC field staff is unable to travel and witness product destructions.

It is important in these uncertain times that practitioners, industry, the CPSC, and other product safety stakeholders, communicate effectively about these and other issues of importance to our community.  We hope our clients, readers and friends remain safe.

With the current health emergency retailers face unprecedented issues. Closing stores, limiting hours, changing order patterns, remote work — all of these issues have joined basic survival as retailers contend with sudden and unpredictable challenges during the coronavirus pandemic. And while retailers are most likely not liable for any legal exposure, there are legal and ethical issues presented by the current crisis that need retail attention regardless of size and legal expertise.

“If you’re a company that has an HR department, make sure you have a checklist of your concerns and what you think will be your employee concerns,” said Eric Su, partner at New York City-based Crowell & Moring’s Labor & Employment Group. “If you’re a company that does not have those resources, understand that you’re making business decisions first and legal decisions second. And know that there are resources from state, federal and private organizations if you need them.”

Here are three big areas of concern that lawyers say retailers need to be aware of:

Issue No. 1: Employees

The first business decision retailers currently face concerns employees. Regardless of a company’s size, employees are worried right now about job security, and retailers need to make sure they’re acting in a transparent and informed fashion. Su said the basics are most important. Communicate with employees frequently, even if the stores are closed, as most non-essential locations are. Remind them of paid time off they’ve accrued and other benefits, be honest about the current situation and be informed about any rights that they have regarding benefits like unemployment. According to Su, at this point, engagement is just as important as employment.

“There’s usually a disconnect between what employees expect at a time like this regarding employee rights and benefits, and what a company is able to deliver,” he said. “So be engaged, communicate and keep records. Make sure you’re providing evidence of compliance and know what your state and federal government offer in terms of sick leave and family leave. Voice is important. Let employees know you’re committed to your business and their health. The bottom line for many companies is that there’s no revenue right now. Connect your messages to your business and employee health.”

Issue No. 2: Building Lease

Even if there’s no revenue, there’s still overhead. Leases hang over the heads of so many retailers that even most national chains have requesting a deferral of rent until June 30 — and with thin margins, small retailers may be even more at risk, said Katy Welsh, senior director of retail services at Colliers international, a Canada-based global commercial real estate services firm. Landlords are granting temporary moratoriums on rent, which could help businesses survive.

“Landlord groups are all having meetings trying to determine how to handle this,” said Welsh. “More than likely, the landlords are going to go along with it. They will have to in some fashion because tenants simply can’t pay rent.”

Again, Su encourages retailers to approach leasing issues from a business perspective first. Read the fine print in the lease. Determine if there any clauses that apply to the current situation and have a conversation before assuming the landlord will be inflexible.

“Start picking up the phone if you haven’t already,” Su says. “From a general knowledge perspective I would say that there are local laws that would cover evictions at this time. And I would also caution that if you are able to renegotiate terms with a landlord, don’t look at it as a free pass on rent. You will still need to plan on catching up with your bills. It’s similar to renegotiating a mortgage. The terms are different; the commitment is the same.”

Issue No. 3: Liability If Someone Gets Sick

Retailers that are open don’t seem to be liable for customer health in many states. A sweep of legal advice columns shows that adequate warnings are sufficient when the risks are considered obvious.

“However, given the difficulty of completely avoiding infection and the high standards being set for businesses during this crisis, courts may later find that more was required, including reasonable preventative measures,” said an analysis of the coronavirus situation from a legal perspective in Law 360. “Expect that essential retailers, assuming they follow best practices to reasonably inform and protect their guests, may limit liability for infections allegedly originating on their premises. These businesses would be well advised to document the steps they are taking now to protect visitors. This may be a tall task in the middle of a crisis, but it can make all the difference if they are later forced to rely on an unreliable memory of events from the chaos of a pandemic.”

What advice should other retailers follow? “Ultimately, retailers facing potential liability based on a decision to remain open will be judged against the hypothetical reasonably prudent person in the same circumstances,” the analysis said. “Courts will look to government guidance, industry best practices, the actions of similarly situated businesses, and other points of reference to determine how the prudent person should have acted.”

This article originally appeared on PYMNTS.com.

The current COVID-19 pandemic has created myriad lease issues for retail tenants who have either closed stores or are contemplating doing so imminently, and are analyzing their ability to abate rent during the closure.  We wanted to share initial thoughts.

Top level conclusions:

  1. Potential arguments depend on lease language, the law of the applicable jurisdiction, facts relevant to the specific location and will need to be considered on a case-by-case basis.
  2. Retail tenants have strong intuitive arguments regarding rent abatement in the event that a shopping center is closed and/or the tenant space cannot be used by a tenant to operate its business. The argument is basic—the tenant is not getting what it bargained for, which is a shopping center and tenant space where it can operate its business.  A straightforward analogy provides insight: where a supplier contracts to provide ten widgets a month, and can’t provide the widgets for one month, even if it is not the supplier’s fault, the purchaser does not pay for the ten widgets that were not supplied.  Here, there is no real “shopping center” provided, because there are no customers or operations to support a shopping center as an ongoing concern.
  3. This intuitive argument is consistent with the language of many leases through language that explicitly or implicitly places an obligation on landlord to provide a “shopping center,” and to provide a space in which the tenant can “operate” its business. If a landlord fails to provide either, then there is a breach and the tenant is entitled to a variety of remedies.  Provisions to consider are provisions requiring landlord to operate a “first class shopping center,” provisions entitling tenants to “quiet enjoyment,” and certain warranty language.
  4. Co-tenancy provisions may also provide a basis for at least partial abatement of rent. Some leases provide for an immediate right to pay substitute/co-tenancy rent in the event that co-tenancy occupancy thresholds are not satisfied.
  5. Many leases have force majeure provisions that need to be examined. Questions to consider are whether the current COVID-19 crisis is within the definition of a force majeure event, and how the force majeure language might impact payment obligations.  If there is language limiting the impact of force majeure on the ability to pay, tenants will need to be clear that the impact of the force majeure event is on the failure to operate a shopping center and provide a space in which tenants can operate their business.
  6. Many leases also have landlord default provisions which vary and should be considered.
  7. Retail tenants may also have arguments regarding impossibility/frustration of purpose. These arguments rely on the intuitive framework discussed in point 2, above.

We have identified four general issues, which will be discussed below:

  1. Are landlords in breach of leases?
  2. Do co-tenancy provisions permit the abatement of rent?
  3. Do force majeure provisions excuse payment (or, in the alternative, do not prohibit tenants from abating rent)?
  4. Is performance excused under the doctrines of impossibility/frustration of purpose?

* * * * *


I. Breach of Contract
Overview:  Depending on lease language, landlords may have obligations to operate their shopping centers in a certain manner or, more likely, to operate the common areas in a particular manner.  If breached, lease language will inform whether immediate abatement of rent is available as a remedy. 

A. What rights are created under the leases: 

  1. Tenants will want to argue there is an obligation on landlords to make space available for tenant to operate its business as described in the leases. The leases should be reviewed for specific language and for an implied obligation.
  2. If the tenant can no longer operate its store consistent with the purpose set out in the lease, tenant can claim that is a material breach of the contract.
  3. Some leases have requirements regarding a landlord’s obligation to operate the shopping center more generally (and may require that the shopping center be operated consistent with a first-class shopping center).
  4. Many leases require landlords to operate shopping center common areas (sometimes consistent with a first-class shopping center).
  5. If a shopping center or common area closes, there is a strong argument these duties are breached.
  6. If a shopping center does not close, the tenant might nevertheless argue that the shopping center is not truly “retail in character” if customers are not there and other businesses are not operating. The tenant could also argue that it does not have access to common areas under these conditions.
  7. Governmental orders prohibiting nonessential activities may strengthen this argument.
  8. Leases may also contain quiet enjoyment provisions that grant tenants the right to the store without any hindrance or interference to the tenant’s possession and use.
  9. Tenants may also argue that landlords have violated warranty provisions regarding the continuing operation and conditions in the shopping centers.

B. Remedies for breach:

  1. Remedies for breach will in many cases include those provided by common law, and will be lease-specific.
  2. Regarding any lease-specific remedies, the leases will in some cases give landlords the opportunity to cure, and the right and time period allowed to cure should be considered in evaluating any lease-specific remedies.
  3. Common law remedies are not subject to a cure period and, if allowable under a lease, provide a potential basis to abate rent for the period landlord fails to provide either a shopping center or a space for tenant to operate its business.

C. Effect of force majeure:

If there is a breach, landlords will likely argue force majeure excuses the failure to perform, as discussed below.

D. Equitable considerations:

  1. The benefit that retail tenants expect to receive under a lease is a shopping center with a space for a retail tenant to operate a store.
  2. Under the current circumstances, there is effectively no “shopping center,” because there are no customers or operations to support a shopping center as a going concern.
  3. Tenants are therefore currently not receiving the benefit of that bargain, and it would be inequitable for landlords to receive full payment under these circumstances.
  4. The strength of this argument may depend on whether leases include provisions including: (1) whether the tenant’s premises are part of the shopping center; (2) whether the landlord must provide and maintain a first-class shopping center; and (3) whether the landlord has an obligation to operate common areas in a condition suitable for their intended purpose.

E. Further lease-by-lease analysis of breach should include the following questions: 

  • What are landlord’s specific operating obligations?
  • Are they breached? (Easier if shopping center or common areas have closed.)
  • Does force majeure excuse these obligations? (See below.)
  • Are there lease provisions that support equitable arguments?

II. Co-Tenancy
Overview:  Given the increasing number of store closures, it is very likely that co-tenancy thresholds will not be met.  This could be an effective argument for rent abatement.  However, some co-tenancy provisions may contain language attempting to exclude closures for force majeure events, or may not provide relief until a certain length of time (90 days or more) passes.

A. Co-tenancy rights:

1. Types of Provisions

            a. No lag time: remedies ripen as soon as the co-tenancy thresholds are not met.

    1. These may provide timely rent relief.
    2. Retail tenants will need to consider whether an alternative rent measure is in lieu of all payments owed, including minimum rent, CAM and the like, or only minimum/percentage rent.
    3. Retail tenants may have an argument that rent is abated because sales are 0.

b. Lag time: Other leases may have a longer lead time before the right to abate rent ripens.

    1. In this scenario, co-tenancy requirements may not provide relief unless closures exceed the lag time.

     2. Certain leases may attempt to exclude force majeure closures from being considered closures for co-tenancy purposes.

B. Further lease-by-lease analysis of co-tenancy should include the following questions:

  • Is the co-tenancy threshold met?
  • Is there a delay before the rent abatement remedy ripens?
  • What charges are abated?
  • Is there a force majeure exclusion in the rent abatement remedy?

III. Force Majeure
Overview:  There are two primary arguments related to force majeure provisions in leases.  First is the issue of whether retail tenants can use force majeure provisions to their benefit.  Second is landlords’ ability to use force majeure as a defense to performing their own obligations. The answers will need to consider the specific lease language.

A. Preliminary consideration – whether the epidemic qualifies as a force majeure event:

  1. Force majeure events are typically construed narrowly.
  2. Some authorities have concluded that if public health events are not included in the force majeure language, they were not intended to be covered.
  3. However, landlords may argue this is an unprecedented event in commercial leasing, and therefore that it is similar to other “acts of God.”
  4. If governmental orders require cessation of operations, there may be a stronger case for force majeure if government orders are specifically included as a force majeure event.

B. Depending on lease language, force majeure provisions may be asserted as a tenant’s basis to abate rent, or as a basis for landlord’s defense:   

  1. If the current situation falls within the definition of a force majeure event, tenants can use the force majeure clause to argue that tenant obligations are stayed while the force majeure event continues.
  2. An issue that will likely be disputed is the impact of any language that provides something like “payment obligations are not to be impacted by force majeure event.” Landlords will argue that such language means that tenant cannot use the current situation as a basis not to pay rent.  Tenants will argue that such language was intended to deal with force majeure events that impact the ability to pay, not situations impacting the specific location and the provision of a shopping center and space for tenant to operate its business.  Tenants’ argument is supported by the breach argument discussed above and frequent language in force majeure provisions that provide that the impact of a force majeure clause is to extend the lease for the period of the force majeure event.  The tenant argument will be that the impact of a force majeure event is that tenant still gets to operate for the period of time in the lease and pay rent for that same period of time.  The parties did not intend for tenant to pay rent for a longer time than it is able to operate.
  3. Further, where landlords close shopping centers or cease operations of the shopping centers or common areas, retail tenants may argue that landlords have failed to provide a space for tenants to use and operate, thus providing an equitable argument for rent abatement.

C. Further lease-by-lease analysis of force majeure should include the following questions:

  • How is a force majeure event defined?
  • Does the force majeure language reference payment obligations?
  • Does the force majeure language extend the lease by the period of the force majeure event?

IV. Impossibility/Frustration of Purpose
Overview:  Retail tenants could also assert arguments regarding temporary frustration of purpose/impossibility.  Considerations include that the law is not as developed with respect to “temporary” circumstances, and  these doctrines may be construed narrowly.

A. Argument

  1. Leases typically identify the use intended for the premises (e., retail store).
  2. Tenants might argue that:
    1. With regard to operating the store, performance is impossible (especially in light of government restrictions).
    2. With regard to frustration of purpose, the purpose of the lease – to operate a retail store – has been wholly frustrated on a
      temporary basis.
  3. Tenants could argue that these facts excuse full performance under the leases – e., operating continuously and paying rent.
  4. There is at least some legal authority that suggests these doctrines may be invoked on a temporary basis – e., temporary frustration of purpose.  However, this area of the law is not well-developed.  The majority of cases involve situations where the impossibility or
    frustration is permanent, and termination is the remedy.
  5. These doctrines may be applied very narrowly by the courts.

On Tuesday, March 24, the Prime Minister of Japan and the International Olympic Committee (IOC) announced that the 2020 Tokyo Summer Games will be postponed for one year. In a statement, IOC officials said the Games would be “rescheduled to a date beyond 2020 but not later than summer 2021, to safeguard the health of the athletes, everybody involved in the Olympic Games and the international community.” The announcement is likely to set off a wave of claims for refund or contract repudiation to and from frustrated advertisers, sponsors, travelers, entertainers, service and technology providers, and any other entity that planned to participate in the Olympics.

This seismic cancellation could well spark substantial litigation, much like occurred in the aftermath of 9-11.
This alert outlines the key legal considerations for advertisers and other companies that had been working to purchase or provide services or events around the 2020 Tokyo Olympics.

Advertisers

A variety of advertiser agreements are impacted by the IOC postponement:

  • Official sponsors of the IOC. Top sponsors have the broadest rights for all Olympics games. Considering the $100 million sponsor fee for a four-year cycle sponsorship, all top sponsors are likely already heavily immersed in responding to these issues.
  • Official sponsors with Tokyo Host Committee. The IOC rights flow down, but each host city may set unique, local terms and restrictions. Some of these may be implemented in local laws and regulations. We recommend consulting with Japanese counsel for further advice on these issues.
  • Official sponsors of the U.S. Olympic Committee (USOC). There are different levels among the domestic sponsors, who typically pay less than IOC top sponsors. These include:
    • Official sponsors of individual U.S. Olympic teams. These require smaller rights fees and usually include separate athlete endorsement deals as discussed below.
    • Athlete endorsement agreements. The amateur status issue (Ted Stevens Act in the U.S.) makes these agreements more complicated, but sponsors help cover the costs and expenses of the athlete’s training and receive exposure during the Games.

From the sponsors’ perspective, and depending on their level of sponsorship, they will lose a slew of benefits as a result of the postponement of 2020 Tokyo Games:

  • Activation during the 2020 Tokyo Games, including in arenas and Olympic Village signage and branding, sponsor hospitality and tickets, experiential events around Tokyo, with athletes and partners that were to have created content and brand exposure.
  • Lost opportunities, plus sunk costs and expenses.
  • Lost media rights, because there will be no broadcast of the Olympic Games for 2.5 weeks. NBCUniversal recently reported that it had obtained roughly $1.4 billion in television advertising commitments for the Tokyo Olympics, a record advertising haul. The U.S. ratings for the Olympics rival those of the NFL (for some of the Games) with a few events breaking into the Top 10 for most-watched programs during the year. Therefore, this is considered premium inventory.
    • Because of the unique nature of the inventory, it makes it hard to provide “make-goods” (i.e., replacement media) during this calendar year. Networks are likely to ask advertisers to roll over their investment to next summer’s Games; they may offer incentives to advertisers for the year in-between.
  • Lost athlete activation. Some of the athletes that would have competed in Tokyo 2020 Games will not compete in 2021 for various reasons. This is a potentially big loss for their sponsors. Also, many athletes are deeply integrated with products; some have their images on packaging. All of this was timed to maximize exposure during July-August, 2020, which is now gone. This creates production, supply chain and related issues for sponsors, all of which involve additional costs.
  • Beyond these direct investments, corporate advertisers are likely to have spent significant sums in the preparation of advertising in other media. They may have created event-related packaging, out-of-home (OOH) materials, point-of-sale, social media, and other specialized marketing collateral in anticipation of the games, all of which is now likely unusable.

Travel/Hospitality

The postponement creates a new nightmare for the hospitality and travel industry, already hard hit by the virus. Not only will travelers seek to cancel existing bookings for Japan-related travel, if they attempt to reschedule for next year, they may run into conflicting prior bookings for the time. Japan’s tourism industry will suffer an extensive blow, as many travelers would have moved on after the Olympics to explore other parts of Japan. In addition to guest bookings, hotels also will likely have to address event cancellations, vendor contracts that no longer are needed, and possible staff reductions from anticipated levels.

Related Services

Production of an event as vast as the Olympics requires armies of specialized service providers, from construction, carpentry, and food, to telecommunications. These providers will likely demand to be paid for services rendered, and potentially also seek the entire value of their contracts in light of irrevocable commitments of manpower and equipment, including lost opportunities, made in reliance on the Olympics moving forward on schedule.

Entertainment

Entertainers who had been booked to appear, either officially or through private arrangements (e.g., for a private corporate event), may seek to be paid for the booking despite non-performance. They may deny reimbursement of any advance fees already paid. The entertainer may claim that he or she had foregone other opportunities, and had also booked various subsidiary service providers (makeup, hair, management, roadies, etc.), all of whom should also be paid in reliance.

Real Estate and Event Space

Numerous brands had made arrangements to obtain space at or near the various Olympic venues in the form of immersive experiences and “pop-ups” and pavilions featuring their products. These short-term leases are also rendered temporarily useless.

What Next?

As we have written, the analysis of what to do next should follow 5 basic steps.

First, analyze whether COVID is the direct cause of the disruption or whether it may be due to a third-party response.

Here, government and IOC actions in response to COVID-19 likely might be characterized as rendering performance of the contract unlawful or impossible. Moreover, cancellation of the Olympics obviates the need for performance of the contract. There may also be other factors contributing to the nonperformance, such as curtailment of transportation modalities or facilities and shortage of supply and/or raw materials required to perform under the agreement.

Second, analyze the applicability and coverage of any force majeure provisions in the relevant contracts.

The first task is to gather all of the relevant contracts and subcontracts. You may not only have a claim under the primary contract for service, but may owe subcontractors that were engaged to provide components of the service. Consider, for example, the advertiser that has contracted to put on an Olympics-related event, engaged talent, catering, and obtained real-estate rights. The fallout from cancellation will affect all of these ancillary business deals.

Importantly, not all force majeure clauses are the same. The relevant clauses may exclude certain types of situations, like unprofitability. Specific clauses may reference coverage or exclusion of force majeure in situations of pandemic. Indeed, the IOC’s own contracts typically insulate it from exactly such events, providing the IOC with broad protection from interruptions beyond its control.

Case law examples of litigation over concert and event cancellations abound. For example, in 2014, a concert promoter sued singer Rod Stewart for refusing to return a $2 million performance guarantee after the singer cancelled a concert due to medical issues. In another typical case, a hotel operator sued a business for attempting to renege on hotel conference bookings, which were rendered inadvisable due to September 11-related travel restrictions. In another example, a sponsor sued a race car team for refund of guarantees it had paid for sponsor-branded cars when the underlying race was cancelled due to threats of terrorism. The key issues in these cases involve interpretation of the force majeure provisions of the governing contracts, as well as analyses of which of the parties had contracted to bear the risk of cancellation due to unusual events that made performance difficult, if not impossible.

Third, determine the governing law.

With respect to the Olympics-related cancellations, there is a possibility that Japan law may govern in the absence of language to the contrary. Japan law may differ from U.S. law in the handling of contract interpretation and potential remedies.

We asked our friends at the leading law firm of Anderson Mori & Tomotsune in Tokyo to provide us a preliminary, high-level list of Japanese legal considerations:

  • Termination. In Japan, it can be costly and time-consuming to terminate so-called “long-term suppliers.” Whether a given relationship involves a long-term supply arrangement is fact-specific. Also, termination triggers relating to bankruptcy, insolvency, and the like might not be enforceable.
  • Force Majeure. In Japanese practice, we sometimes see force majeure clauses that expressly include epidemics. Rarer are clauses that include governmental acts. However, regardless of the wording of the actual provisions at issue, in our experience, parties typically engage in intensive negotiations over whether a force majeure event has occurred.
  • Frustration. Japanese law includes the concept of termination for frustration of purpose, but it has a high bar. In general, the relevant performance must have become physically impossible. There is no binding authority on the extent to which a pandemic might so frustrate performance.
  • Damages due to Breach of Contract. Japanese law in general requires that damages be reasonably related to the underlying breach. Japanese law does not recognize punitive damages and excessive liquidated damages. Generally, Japanese courts are conservative in quantification of damages.
  • Request for change of contractual terms. This typically arises in the context of real estate lease rents.
  • Damages about Failed Contract Negotiations. In some (but not necessarily every) case, a dead deal leads to damages compensation.
  • Employment. Dismissals are generally difficult, as is cutting salaries.
  • Bankruptcy and Accounts Receivable Collection. The area of creditors’ rights is a relatively mature area of Japanese law, but cases can take years to be resolved.

Fourth, determine immediate actions to protect your rights.

The contracts may require notice be provided within a specific period. The notice should be carefully crafted to avoid creating an admission that may later restrict rights under relevant contracts and the governing law. Think strategically about the operational needs and legal risks and possibilities that the business faces. Consider how the arguments you are making in this dispute could impact other corporate disputes, including those in which the roles may be reversed. Be sure to collect documentation relied upon and keep correspondence and emails between the parties.

Fifth, determine what rights you have in light of other parties’ actions.

Can you stop performance? Would any such cessation put you at risk of litigation for breach of contract by subcontractors? The occurrence of a force majeure event may or may not be, in and of itself, sufficient to excuse non-performance. Whether or not non-performance is excused will depend on a careful reading of the clause itself and an analysis of the applicable law.

* * *
The postponement of an event as central to advertising and marketing as the Olympics is a rare cataclysm that is certain to spin off significant legal battles. We are assisting a variety of clients in analyzing their rights and actions in the wake of this event.

Two important developments from the Environmental Protection Agency (EPA) are potentially significant to the retail industry, but may have escaped widespread attention in light of recent worldwide events. Somewhat unusually, both proposals are administered by EPA under TSCA, despite the fact that TSCA typically applies to chemical products, not manufactured articles.

Comment and compliance deadlines are rapidly approaching, meaning that potentially affected manufacturers and importers should consider action now.

The first of these developments involves proposed restrictions on imports of textiles and other articles with certain long chain PFAS coatings (or “LCPFAS,” as they are called in the rule).  The proposed regulation is referred to as a “Significant New Use Rule” or “SNUR”. This is the first time that EPA has used its SNUR authority to regulate consumer articles since TSCA was significantly revised in 2016. This SNUR, which would require notification to EPA prior to importing any article coated with LCPFAS, is predicated on two conclusions: that the LCPFAS coatings may degrade into harmful substances, and that use of these coatings on imported articles is “new” (i.e., that import of these coated articles was not ongoing at the time the SNUR was proposed).  While most LCPFAS have been phased out in domestic manufacture, the SNUR could cause significant disruption for importers of textiles, cookware, and outerwear from China and Southeast Asia where LCPFAS chemistries are still in widespread use.  Comments on the SNUR are due April 17, 2020; it is unclear whether the current pandemic may affect this deadline or require additional time for businesses to query the supply chain overseas.  More information on the SNUR can be found here.

The second development is a new notification requirement for importers of articles containing “high priority” substances. Under TSCA’s 2016 revisions, EPA may designate some chemicals “high priority substances” (“HPSs”) for purposes of risk evaluation. TSCA rules require that businesses that manufacture or import HPSs undergoing risk evaluation are responsible for paying the $1.35 MM fee associated with EPA-initiated risk evaluations. On December 30, 2019, EPA designated a list of 20 HPSs and identified a preliminary list of affected manufacturers and importers, available here. The new regulation also requires that  all manufacturers and importers of these substances  must self-identify and/or comment on the preliminary list by May 27, 2020. Importantly, EPA cast an extremely broad net in requiring self-identification as an “importer” – to include importers of articles containing the HPS, expanding the list of businesses that may be affected by the requirement.

In a late-breaking development, EPA announced on March 25, 2020, that in response to concerns expressed by numerous stakeholders, the Agency is exercising “enforcement discretion” to excuse importers of articles from the self-identification requirement. In addition, the EPA plans to initiate rulemaking shortly to make this relief permanent. Thus, importers of consumer articles do not need to comply with the self-identification requirement and will no longer be liable for a share of EPA’s risk evaluation fees.

These two regulatory initiatives by EPA this year may be a signal that we can expect more activity from EPA on the article front. RILA is creating a small HPS-related workgroup to inform comments and is considering requesting a deadline extension for the proposed SNUR. RILA and the team at Crowell & Moring are watching these changes carefully and we will alert you of any new developments.  Please reach out to RILA with your concerns and for more information as we move forward.

 

California businesses have been nervously waiting for the first class action asserting a violation of California’s now-infamous California Consumer Privacy Act (CCPA).

The wait is now over.

The CCPA, a consumer privacy law that Crowell & Moring has analyzed and written about at length provides California consumers with a private right of action when their “nonencrypted and nonredacted personal information” is “subject to an unauthorized access and exfiltration, theft, or disclosure as a result of the business’s violation of the duty to implement and maintain reasonable security procedures.” Cal. Civ. Code § 1798.150(a). The CCPA’s private right of action allows plaintiffs to collect statutory damages—per breach, which can quickly add up—without proof of actual damage from the unauthorized access. The law broadly applies to any for-profit business doing business in California that collects, shares, or sells California consumers’ personal data, and: (1) has annual gross revenues in excess of $25 million; (2) possesses the personal information of 50,000 or more consumers, households, or devices; or (3) earns more than half of its annual revenue from selling consumers’ personal information.

On March 9, 2020, plaintiffs in a putative data-breach class action filed an amended complaint against Hanna Andersson and Salesforce, its e-commerce platform, alleging a claim for violation of the CCPA. The amended complaint alleges hackers scraped personally identifiable information (PII) from Andersson’s and Salesforce’s platform from September 16, 2019, to November 11, 2019, and used that information to steal the customers’ identities and make fraudulent purchases. According to the amended complaint, neither Andersson nor Salesforce uncovered this breach; instead, law enforcement agents notified both of the breach on December 5, 2019. The amended complaint further alleges that Andersson failed to protect consumers’ data because it did not have an executive in charge of cybersecurity, based on the fact that, after the malware was discovered and removed from the platform, Andersson posted a job opening for a “Director of Cyber Security,” who would be “responsible for safeguarding all systems end points and network infrastructure from all forms of intrusion.” The putative class plaintiffs seek between $100 and $750 for each California resident affected by the alleged breach, along with injunctive relief and attorneys’ fees and costs.

The amended complaint presents a host of novel issues that courts will grapple with as the CCPA makes its way through the judiciary, including:

  • Whether a class action can be based on a data breach that occurred before the CCPA went into effect;
  • Whether the failure of a businesses to have a cybersecurity lead at the time of the alleged breach is relevant to a liability finding;
  • How courts will interpret what is “reasonable” in safeguarding PII; and
  • How will courts interpret the “cure” requirement under CCPA to mitigate liability.

This suit is an important test case for how courts will interpret the CCPA for both the plaintiff’s bar and for businesses. Crowell & Moring will continue monitoring and providing updates to this case, as well as to Attorney General Xavier Becerra’s continued modifications to the proposed regulations implementing the CCPA.

Other Crowell & Moring CCPA alerts can be found here.

On March 15, New York City Mayor Bill De Blasio announced his intention to sign an executive order requiring restaurants and bars to limit services to take out and delivery orders.  Similar operational limits are also in place in other jurisdictions around the country, with several more sure to come.  Retailers such as Apple, Nike, Urban Outfitters, Abercrombie and Fitch, Patagonia and Lululemon also announced that they were either temporarily closing their retail stores or significantly limiting their hours and scope of operation.  Teleworking is quickly becoming the trend to encourage social distancing and reduce the risk of exposure to COVID-19.  The Coronavirus has made the previously unthinkable option of business closure the new reality, with no end in sight.

Businesses are suddenly faced with the decision to alter, streamline or close their operations as the pandemic is bringing about unpredictable challenges that require quick and thoughtful decision making and immediate action.  Closing offices or places of operation is never an easy decision, and execution of such decisions requires consideration of a wide variety of factors.  The following key considerations must be kept in mind:

  • Determine the triggers for office closure and/or telecommuting and establish authority of decision making and approval process invoking these triggers
  • Monitor federal, state and local legislative and regulatory developments and health and safety guidance
  • Appoint a single individual or department as the point(s) of contact
  • Maintain and update employee contact and emergency contact(s) information
  • Develop emergency communication protocol and consider implementing hotline/dedicated webpage/email address/text messaging system
  • Establish Telework Policies:
    • Evaluate and determine eligible positions
    • Establish protocol and procedures in advance (g., data security, remote access, confidentiality safeguards, company-issued equipment)
    • Establish or revisit policy regarding compensable time and timekeeping for telecommuting
    • Maintain pay practices in compliance with the FLSA/state and local wage laws
    • Implement policy for teleworking employees to apply for reimbursement for reasonable expenses incurred to the extent required by law
  • Assess financial impact of office closure in advance and prepare personnel decisions accordingly
  • Designate essential and non-essential positions in advance:
    • Essential positions
  • Consider feasibility of staggering or alternate schedule (g. persons 1-5 working Monday, Wednesday and Friday;  persons 6-10 working Tuesday, Thursday and following Monday)
  • Determine location of work to be performed?  Offsite or onsite
    • Designate individual(s) who must remain onsite
    • Designate individual(s) who can work offsite
  • Assess the Company’s remote access capability and determine whether safeguards exist to ensure data security and confidentiality
  • Regardless of exempt status (eligibility for OT pay), consider having everyone below the executive and senior management level to log in specific dates and time of work
  • Non-essential positions
  • Designate those occupying such positions and consider reduction in their schedule or taking time off
  • Consider relaxing restrictions in taking available PTO
  • Consider supplementing current PTO once available PTO is exhausted
  • Consider allowing unpaid leave for limited duration
    • Establish communication to employees in non-essential positions about office closure and leave (with/without pay)
    • Establish practice prohibiting those holding non-essential positions from performing work (both exempt and non-exempt)
    • Establish a system to provide cross-training and coverage in event of staff shortage
  • Evaluate the need to comply with predictive scheduling laws
  • Assess WARN Act (and mini-WARN Act) triggers (in the event of longer term closure, reduction in force or mass layoffs)
  • Ensure that payroll and other essential HR functions will continue to operate—set up emergency procedures in advance (including coordination with third party vendors)
  • Keep employees informed throughout closure about planned reopening
  • Prepare notices to the public, vendors and customers regarding closure

These issues and others that may relate to your workplace must be carefully considered in order to ensure that you are best prepared for the uncertainties ahead.  We strongly encourage you to work with your counsel or a Crowell & Moring LLP attorney with whom you work to place your business in the best position in dealing with these difficult times.

When diseases become newsworthy, advertisers may be tempted to profit, claiming that their products can help prevent, treat or cure the disease.  Some advertisers did exactly that as the recent COVID-19 pandemic became a regular part of the news cycle.

In January 2020, GOJO Industries, Inc., the makers of hand sanitizer brand Purell, received a warning letter from the Food and Drug Administration (FDA) for claiming that Purell hand sanitizers could prevent or reduce the spread of illnesses such as MRSA, influenza and Ebola.  Hand sanitizers like Purell are marketed as over-the-counter (OTC) Drugs and as such, they are limited to the claims in the monograph 21 CFR 310. The FDA warning letter states that GOJO’s disease prevention claims are unapproved new drug claims because there is no scientific evidence that Purell can kill viruses, and the claims do not comply with the tentative final for hand sanitizer. The FDA, unlike the Environmental Protection Agency (EPA), has not released a list of products that are effective against viruses, making such claims difficult to substantiate.  Thus, while advertisers may claim that some surface cleaners are effective against specific viruses, such claims are likely unsubstantiated for the vast majority of products.

In a January 24 statement on the GOJO website, the company issued a corporate statement that it was taking steps to update its website and digital content to comply with the FDA’s guidance.  Nevertheless, just a few weeks later, a class action complaint was filed in the Southern District of New York alleging that GOJO advertised Purell products as a viable means of preventing the transmission of diseases, including Coronavirus. Gonzalez v. Gojo Industries, Inc., Case 1:20-cv-00888 (S.D.N.Y. Feb. 2, 2020).

Since then, as Coronavirus has spread, regulators have looked more closely at some of the most egregious claims in the marketplace. On March 9, the FTC announced that it sent joint warning letters to seven companies for claiming that they can treat or cure Coronavirus without any support for their claims.  The letters make clear that “[t]here currently are no vaccines, pills, potions, lotions, lozenges or other prescription or over-the-counter products available to treat or cure Coronavirus disease 2019 (COVID-19).” See, e.g. Letter to Herbal Amy, Inc. To support such claims, competent and reliable scientific evidence, including well-controlled human clinical studies are required.  Id.

And, on March 10, the state of Missouri announced that it filed a lawsuit against the Jim Bakker Show for falsely claiming that the Silver Solution, a product marketed on the show, could treat Coronavirus.

What does this mean?  If your product isn’t on the EPA’s list of registered disinfectants for use against COVID-19, don’t make express or implied claims that your product is effective against preventing or curing Coronavirus. Absent competent and reliable scientific evidence:

  • Do not make claims linking the ability of a product to kill germs more generally to any specific virus or disease, including Coronavirus.
  • Do not imply that a product will prevent any particular disease. For example, do not share in social media a news article about the spread of Coronavirus in combination with a comment suggesting that a product might be helpful to prevent it.
  • If there are third party articles that suggest that consumers could use your product to prevent Coronavirus, do not share them in social media and do not post them on your website.
Want to learn more? Visit Crowell &Moring’s Coronavirus Resource Center.

The World Health Organization, on March 11, 2020, officially declared the spread of COVID-19 a pandemic. By now, most multinational companies have already been grappling with the effects of the coronavirus and are considering the steps they should be taking to ensure the health and safety of their employees.

As most global employers are aware, when it comes to employees located around the globe, one size does not fit all. Implementing local workplace policies in response to COVID-19 is no different, and employers should seek legal advice before taking measures that may affect its employees. We identify below considerations for any global employer in the face of the pandemic.

1. Understanding the company’s baseline obligations

  • Governments have issued various orders, directives, guidance, and mandates in response to the spread of the coronavirus, and more are being issued every day; employers need to stay updated on local developments in real time.
  • Many countries impose reporting requirements on employers and businesses relating to employee travel history and health status of employees and visitors.
  • Local laws continue to apply, including data privacy laws that may restrict the sharing of personal information.
  • Local company policies continue to apply, and changing them may require employee, union, or works council consultation and/or consent.

2. Imposing specific company measures to combat the spread of the coronavirus

  • During these trying times, companies should remember that employees are looking to their employers for assurances and guidance; any communication to employees should demonstrate compassion and the measures to be implemented should be conveyed in a clear manner.
  • Health and sanitary programs that do not affect the terms and conditions of employment and may support the employer’s obligation to provide a safe and healthy workplace, such as installing hand sanitizer stations, requiring employees to keep a certain distance apart when interacting, and encouraging the use of telephone and video conference, are generally acceptable in most countries.
  • Health checks are likely acceptable, especially when they further the local government’s coronavirus directives and are not overly disruptive, although employers should be aware of any data privacy requirements that may apply.
  • Remote work arrangements (and in cases where remote work is not possible, flexible work hours may be considered) should be discussed with employees or their representatives as work hours and work location generally are considered part of the terms and conditions of employment; consultation and consent may be necessary for local law compliance.
  • Travel restrictions should be reasonable, and employees should not be forced to undertake any travel if an alternative arrangement (such as video conferencing or postponement of the meeting) is possible.
  • Employers should direct managers to allow for flexibilities that take into account personal obligations such as caring for sick family members and dealing with child care issues when schools are closed; governments may have guidance or requirements in place that are relevant.

3. Using paid and unpaid leaves

  • There is no uniformity in each country’s requirements with respect to the use of paid and unpaid leaves during quarantine; employers should confirm local requirements.
  • Generally if the quarantine is mandatory (such as when the employee is showing symptoms or is traveling back from high risk countries), the employer is obligated to pay at least a part of or full salary until the quarantine ends.
  • If the quarantine is self-imposed, it may be possible for employers to require employees to use paid leaves (annual leave or sick leave), and if the paid leaves run out, use unpaid leave, although some countries have issued specific guidance that should be followed.

As the COVID-19 pandemic continues, the economic impact on multinational companies may become severe. We have already seen employers pulling expat employees out of high risk areas, delaying the start of expat assignments overseas, and suspending new hires. One effect of the pandemic we expect to see is the acceleration of plans to reevaluate supply chains, the process of which began during the trade wars over the last couple years. As employers prepare for global redundancies and closures, it is important to keep records of the adverse economic impacts as justifications for the employee redundancies and terminations.

Given the different requirements among various countries, employers should seek legal counsel advice before putting in place policies or measures in response to the impacts of the COVID-19 pandemic.

 

 

On March 10, 2020, the Occupational Safety and Health Administration (OSHA) issued Guidance for employers to prevent occupational exposures to the coronavirus. In doing so, OSHA reminds employers that while no specific standard governs occupational exposure to the coronavirus, the Occupational Safety and Health Act’s General Duty Clause, 29 U.S.C. § 654 (a)(1), requires employers to provide their employees with a workplace free from recognized hazards likely to cause death or serious physical harm.

The Guidance contains recommendations and describes safety and health standards that, if followed, could help employers reduce potential enforcement actions for employees who may be exposed to COVID-19 in the workplace. While recognizing it may not be possible to eliminate a COVID-19 outbreak hazard, the Guidance lists what OSHA believes to be effective protective measures (from most to least effective): engineering controls, administrative controls, safe work practices (a type of administrative control), and personal protective equipment (PPE).

The Guidance directs employers to “plan now for COVID-19” and states that “[e]mployers who have not prepared for pandemic events should prepare themselves and their workers.” OSHA is advising employers to:

  • Recommend employees take personal measures to prevent exposure, such as frequent hand washing.
  • Assess the hazards to which workers may be exposed.
  • Evaluate the risk of exposure.
  • Develop an infectious disease preparedness and response plan, and policies and procedures for prompt identification and isolation of sick employees.
  • Select, implement, and ensure employees use controls to prevent exposure, including physical barriers to control the spread of the virus; social distancing; and appropriate PPE, hygiene, and cleaning supplies.

The Guidance also advises that employers with workers living or traveling abroad plan appropriately for travel restrictions and consult OSHA’s “Business Travelers” COVID-19 webpage.