Navigating Uncertain Times in Manufacturing and Distribution

The statistical impact of the Coronavirus continues to spike in many affected areas of the country. This rapidly spreading virus has adversely affected the global economy in unprecedented ways, and the totality of its damage remains to be seen. By now, most manufacturers and distributors have taken great measures to obtain relief through many of the federal, state and local programs and new legislation, including the Paycheck Protection Program (PPP). Yet even as businesses are clamoring to hear from lenders, and others, on relief or subsidies, the IRS, DOL, SBA, EEOC and the Treasury are continuing to issue guidance to aid affected businesses, including continuing guidance on the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

Many manufacturers and distributors are deemed essential businesses by state stay-at-home or shelter-in-place orders, forced to continually modify their operations to address the constantly changing state of the law, along operational and employee challenges. Others deemed non-essential are exploring how they will operate to continue necessary operations and employee management. The situation is challenging, not only on the human front, but also the economic and legal landscape that may well change our economy, as we know it, in everlasting ways.

For businesses and their constituents (e.g., supply chain and other key partners), there is an ongoing and substantial demand for legal advice as this pandemic marches-on. The diverse issues are, of course, novel and include, without limitation, numerous labor and employment laws; contracts (such as leases, labor, staffing, vendor temporary labor and insurance coverages); personal and employer liability; corporate responsibility, health liability, cyber-security, and supply chain legalities; and litigation of all sorts. Our Firm has provided relevant guidance on many of these legal issues here: COVID-19 / Coronavirus Resource Center.

Here are a few suggestions for manufacturers and distributors to navigate these uncertain times:

1. Maintain Your Business Relationships

Regardless of your business, business is still about people, and people matter. In these challenging times, there is a need to take stock of your business relationships, but work within those relationships, to better the outcome of this crisis for all businesses. On the other hand, many business parties are challenging their business partners by, for example, engaging in hard bargaining, leveraging contract rights (e.g., Force majeure clauses [superior force in French], statutory and common law defenses, etc.), and taking legal action when necessary. We have written about force majeure clauses and other contractual issues here: "Force Majeure" Clause or Other Legal Defenses May Excuse Contractual Obligations Due to COVID-19. While maintaining business relationships seems critical at this juncture, how they are maintained is a matter of choice, as we discussed here: Navigating Uncertain Government Action.

Ultimately, while now is a good time for manufacturers and distributors to build on their supply chain relationships, it is also important to inventory and reassess contract portfolios. This list of contracts is endless – and can be readily assembled by your executive management team, and then evaluated by counsel to determine how to handle specific legal circumstances that evolve from the pandemic.

2. Ensure Business Continuity and Operations

Increased emphasis on the areas of estate and succession planning have emerged, particularly for manufacturers, distributors and others inextricably tied to the supply chain.  This is because, in the wake of COVID-19, business continuity is critical and invokes consideration of a myriad of laws, and rights and obligations, as well as risk assessment and management.  Proper planning is essential in these uncharted waters to maintain production, distribution and sales in the supply chain (especially for essential businesses and for those now closed, to reopen) and, importantly, to avoid business disruptions or the (hopefully, temporary) suspension of operations.

For those manufacturers and distributors who believe they can clear these hurdles, ensuring compliance with the FFCRA (both sick and emergency FMLA relief) is key. We have written about FFCRA and subsequent guidance in our COVID-19 Resource Center here: COVID-19 / Coronavirus Resource Center. Manufacturers and distributors should also take advantage of federal, state and local relief programs which we have discussed here: Update: Congress Passes CARES Act to Stimulate Business Efforts.

Importantly, so too is OSHA compliance and ensuring that each business that continues to operate has in place a documented COVID-19 Preparedness and Response Plan (a term of art for addressing business operations in these perilous times). Many manufacturers and distributors may identify strategic business and financial opportunities amidst the gray of COVID-19.

3. Stay Current on New Obligations and Opportunities

While there has been a great deal of aspersions cast on the quality of information being disseminated from all sources, it is critical to ensure that you follow the laws that are actually enacted and take advantage of the opportunities that are actually available. Therefore, it is essential to operate based on reasonable data and comply with the multitude of obligations businesses face in light of COVID-19. At the same time, it is critical that businesses, generally, keep accurate records not only of historical processes, financial obligations, sales, expenses, etc., but also information about ongoing statistics that affect your business as a result of COVID-19, including to file insurance claims. I detailed a great number of these costs and data-points here:
Business Interruption Insurance Claims: Nuts & Bolts and Business Interruption Insurance Coverage For COVID-19 Losses.

Manufacturers, distributors and all businesses must track the separation, leave rights utilized and other benefits or actions that affect employees; employees affected directly or indirectly by the pandemic (including as much legally permissible information) obtainable; document dissemination of proper information to an existing employee workforce, if warranted; document exemptions claimed from legislation like FFCRA; and any losses and extra expense that has been incurred from the pandemic. Guidance on the information employers must collect for FFCRA purposes is discussed further here: Helpful FFCRA Guidance for Employers from IRS and EEOC.

For PPP and other relief efforts, manufacturers and distributors must itemize and detail payroll, rents and other costs that play into calculations for relief. Further guidance from the SBA on the PPP was released on April 8 and is discussed here: SBA Issues Guidance on Paycheck Protection Program.

4. Prepare for Litigation, If Necessary

In the wake of the pandemic, lawsuits are already surfacing. Putting aside that most if not all court systems have implemented emergency orders and taken other steps to avoid crisis at the courthouse, lawsuits continue to be filed at a relatively regular rate, despite that their resolution may be substantially delayed. Recently, the Supreme Court issued an important opinion in an ADEA case (age claims under federal law), and several suits have been filed addressing insurance coverage for closed or distressed businesses – the hospitality sector of course is at the center of this litigation.

But employer liability, too, has surfaced as evidenced by a recent suit filed in Federal Court in Chicago against Walmart for failing to take proper sterilization and social distancing procedures to provide safety equipment, such as masks and gloves, to their employees. In that case, at least one employee is alleged to have died from these failures. Ultimately, the litigation landscape is ripe for the plaintiffs’ bar to assert claims, both for and against business casualty losses, plus a myriad of other claims – from landlord/tenant disputes, construction disputes, to violations of new laws (e.g., FFCRA), employer liability (negligence/wrongful death), and likely a number of class action suits, seeking recovery for those persons alleged to be similarly situated and adversely affected by specific conduct. Within the last week, a suit was filed in Chicago seeking recovery for all businesses with business interruption coverage issued by Society Insurance.

As each manufacturer and distributor works through the various issues inextricably intertwined with the laws that emerge from COVID-19, obtaining sound and prompt legal counsel is an absolute requirement to navigate these uncertain times. The attorneys are Burke, Warren, MacKay & Serritella, P.C. are available to assist with any of the issues addressed in this article.