Is COVID-19 an Act of God for Contract Purposes?

Is COVID-19 an Act of God for Contract Purposes?

It is well-recognized that ‘acts of God’ may provide legal justification for a contract’s nonperformance. However, defining an act of God for the purposes of contracts has proven to be tricky. There is a fair degree of variability across the states in this country in terms of what constitutes an act of God. The term itself comes from ancient law, which defined it as misfortunes and accidents arising from the inevitable necessity which could not be foreseen or prevented. Modern definitions frequently cite natural disasters such as tornadoes, earthquakes, and floods as acts of God.

Legal Issues Surrounding Acts of God

Many legal precedents have established elements that are not considered acts of God, as well. Included in these are economic downturns. These two ideas are relevant when it comes to determining how COVID-19 is treated for contractual purposes. And between the concept that unforeseen weather phenomena are an act of God and economic downturns are not is a spectrum of circumstances that are a bit harder to determine.

In addition to this, global pandemics are incredibly rare, meaning that there is a lack of existing case law regarding whether pandemics and viral outbreaks are considered acts of God. As it currently stands, a number of factors in a specific case could impact how it is treated. Individuals who were unable to meet contractual obligations due to circumstances related to the coronavirus pandemic may argue that the unknown and unexpected phenomenon impeded their ability to deliver on their contracts. And that since the circumstances were unknown and unpredictable, they should be considered an act of God.

Those who would like contracts enforced or to impose liability could take the position that in many of these cases, it was the economic downturn that impeded the ability to deliver on contractual obligations, not the pandemic itself. Given these different philosophies, it is likely that the courts must consider the specific misfortunes that caused a breach of contract are. They will also have to assess the details in the contract language, the circumstances of nonperformance, and determine what may have been preventable.

Contract Language and Force Majeure

Force majeure clauses are contract provisions that alleviate responsibility from the party’s obligations when certain unforeseen and unavoidable events occur. They often include acts of God but can also be broader in scope. Some astute attorneys may include pandemics and epidemics, worker strikes, acts of war, and other events in their contracts. Contracts that have a clause that includes pandemics or epidemics or one that includes a scenario otherwise caused by COVID-19 and included in the Force Majeure clause would have a strong legal argument for nonperformance of a contract.

Impossibility & Impracticality

For contracts without a force majeure provision, the parties may be able to use the common law doctrine of impossibility of performance as a defense for nonperformance. Some states have statutory language to justify this defense. For instance, the state of Georgia includes a statute that states, “if performance of the terms of a contract become impossible as a result of an act of God, such impossibility shall excuse nonperformance, except where, by proper prudence, such impossibility might have been avoided by the promisor.” This example applies to one state but serves to demonstrate variability in how enforceable the doctrine of impossibility of performance may be in a given area.

Related to the impossibility defense is the impracticality defense. It can be used to justify an unanticipated circumstance that had made carrying out contractual obligations vitally different from what the reasonable expectation was by both parties when they entered into the contract. Not all states recognize impracticality as common law doctrine. The federal Uniform Commercial Code has codified it, though and commercial impracticality in this legislation specifically references acts of God. But to employ this defense of commercial impracticability, the party must demonstrate that the event -whether an act of God or an act taken by a third party – made performance impracticable. Further, the act could not be foreseeable or attributed to the fault of either party.

As you can see, depending upon the unique circumstances surrounding the contract, performance expectations, and the direct effects of COVID will heavily impact whether any court would consider it an act of God. In force majeure clauses, COVID may fall directly under the outlined circumstances. In other contracts, it may be harder to determine.

If your company may engage in commercial litigation related to the pandemic and contracts, it’s a great idea to contact the professionals at Grellas Shah to determine your best path forward in these unprecedented times.

Employment Litigation: When to Seek Representation?

Employment Litigation: When to Seek Representation?

When it comes to employment, the employee has many opportunities to feel as if they have been treated unfairly, even if the employer feels that they have been fair. However, not all of these disagreements rise to the level of litigation. Employment laws are continually evolving too, which adds to the complexity and uncertainty many feel when discussing employment litigation.

Employment litigation refers to the circumstances when an employee or former employee takes legal action against an employer due to an issue related to work-based activities. It does not include circumstances in which there was a mere disagreement; the employee or employer must have initiated legal recourse to be considered employment litigation.

Employment litigation can arise from a number of issues, such as:

  • Discrimination
  • Harassment
  • Wage disputes
  • Overtime violations
  • Wrongful termination
  • Benefit access
  • Unfair competition
  • Sharing of trade secrets/confidential information
  • Safety violations
  • Defamation
  • Union disputes
  • Covenants

While this is a broad list of common employment litigation topics, it is not comprehensive. Employees may also consider legal recourse for a variety of other issues.

On top of this list, violation of federal employment regulations can also initiate employment litigation proceedings. Federal laws that employers must adhere to include:

  • Title VII of the Civil Rights Act
  • The Americans with Disabilities Act
  • The Fair Labor Standards Act
  • The Family and Medical Leave Act
  • The Age Discrimination in Employment Act
  • The Dodd-Frank Act
  • The Occupational Safety and Health Act
  • The Genetic Information Nondiscrimination Act
  • The National Labor Relations Act

Employers that work in specific industries may also be subject to additional federal, state, and local regulations.

When is Legal Representation Necessary?

With the dizzying amount of laws and regulations that most employers face, many employment issues can arise. And it can be hard to determine when to seek legal representation or if you need it at all. Some basic guidelines for when representation is a good idea include:

  • Creating Policies: Many employment litigation disputes can be avoided entirely when sound policies and procedures are adopted and followed. Employment attorneys can review these policies to ensure that they are compliant with all applicable laws. They can also provide feedback on ambiguous language that may be open to interpretation and areas where you don’t currently have a policy but need one.
  • Developing Contracts: Similar to creating policies, it’s always a good idea to have an attorney review and provide feedback on any contracts or agreements made with current or prospective employees. They can verify that the contract is legally binding and enforceable. They can also help you to determine when a contract is not necessary or when it could create additional problems down the road.
  • Complaints: Employees often complain about an employer’s actions to an administrative or regulatory body. Employee complaints are some of the most challenging circumstances when determining whether to work with legal representation. These complaints are not as clear-cut as lawsuits, and the punitive repercussions may be wide-ranging (depending upon the nature of the complaint and the type of agency it is). It is generally a good idea to consult with an attorney during these circumstances, even if they do not end up representing your company throughout the complaint process. An employment attorney can help you to understand if the complaint could result in an award of damages. They can also be a great assistance if you expect that the employee’s next step is to file a lawsuit.
  • Lawsuits: Meeting with an attorney should be the first step in the event that an employee (current or former) sues your company. There are certain actions that can be taken to document evidence immediately, which is harder to do after time has elapsed. Additionally, many courts require a legal response quickly after a lawsuit has been filed.

Employment litigation can be complex and often includes legal activities other than a direct lawsuit. Achieving resolution in these disputes requires extensive knowledge of employment laws and regulations, applicable case law, and a sound legal strategy. In many instances, a knowledgeable employment attorney can help the parties settle a suit before a trial through a summary judgment. This scenario often benefits both parties.

While it is good for the complainant to settle a suit and move forward, it’s also great for the employer to quickly resolve legal proceedings. Trials can be costly, and verdicts often award damages when a law has been violated. The damages can also be incredibly expensive, particularly in class action lawsuits. It’s a great idea to contact an experienced employment attorney who can help you avoid potential employment litigation or deal with it once legal proceedings have begun.

Are You Compliant with Your Counties Minimum Wage Adjustments?

Are You Compliant with Your Counties Minimum Wage Adjustments?

Paying employees at least the minimum wage is one of the most basic legal requirements that most employers have to meet. And while most employers are generally aware of changes to the minimum wage rate in their state, there can be local or county requirements that they are not aware of, and failure to meet these requirements can result in costly litigation.

One reason for non-compliance is that, while state regulations often take effect on January 1 of a given year, counties may impose additional requirements that take effect on a different date.

Statewide Minimum Wage in California

In California, the statewide minimum wage rate changed on January 1, 2020, to $12 an hour for employers with 25 or fewer employees and $13 an hour for employers with 26 or more employees. This change reflects the state’s goal to reach a $15 hourly minimum wage rate by 2023. The statewide rate will increase by $1 every year on January 1 (January 2 in 2021) so that by January 1, 2023, the rate will be $15 for all employers.

Variances in Some California Counties

But to make matters further complicated, many counties or cities in California have set their own minimum wage rates, some of which also took effect on January 1, 2020. However, other areas have minimum wage changes that later took effect on July 1, 2020. This trend of exceeding the state minimum wage is particularly popular with counties in and around Los Angeles and the Bay Area/Silicon Valley, where the cost of living is higher than in other areas of the state.

In 2020, there are 13 cities and counties that have made local minimum wage ordinances that take effect on July 1, 2020. Employers in these jurisdictions must be aware of the changes and have made adjustments when necessary. A failure to do so could result in legal ramifications.

A list of the 13 areas with changes that took place on July 1, 2020 includes:

City/CountyRate Effective July 1, 2020
Alameda (County)$15.00 for all employers
Berkeley$16.07 for all employers
Emeryville$16.84 for all employers
Fremont$13.50 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

Los Angeles (City & County)$14.25 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

Malibu$14.25 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

Milpitas$15.40 for all employers
Novato$13.00 for employers with 25 or fewer employees

$14.00 for employers with 26 or more employees

$15.00 for employers with 100 or more employees

Pasadena$14.25 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

San Francisco (City & County)$16.07 for all employers
San Leandro$15.00 for all empoyers
Santa Monica$14.25 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

Santa Rosa$14.00 for employers with 25 or fewer employees

$15.00 for employers with 26 or more employees

 

In addition to these changes, two other cities – Hayward and San Carlos – have postponed their local minimum wage changes until January 1, 2021, to minimize the economic burden that many businesses have felt related to the spread of COVID-19.

Also related to COVID-19 is the rise of remote working. Remote workers are entitled to receive the minimum wage rate as determined by the employer’s location, not the employee’s. For instance, if the employer is based in San Francisco while the remote worker resides in Emeryville, the applicable minimum wage would be $16.07 rather than $16.84.

Employers must be cautious about following state minimum wage rates and any local laws or regulations. If the local rate exceeds the state rate, then employers must comply with the local rate.

Minimum wage laws can be confusing. They are also subject to change at any time, which means that employers should also be very proactive about educating themselves about any local regulations that may impact the way they do business. This process can also be complicated since the state minimum wage rate is set by the state legislature, while local ones may be assigned by either a County Commission or City Council.

Failure to meet either state or local minimum wage requirements can be costly for employers. Many business owners find that they are too busy to track all of the changes that may apply to their company. In many of these instances, it may be better to consult with an employment litigation attorney to ensure that you are compliant with all applicable wage laws.

COVID-19: How It Has Affected Venture-Backed Companies

COVID-19: How It Has Affected Venture-Backed Companies

To say that the COVID-19 pandemic has had a profound impact on all financial markets is an understatement. And in many regards. We are just beginning to understand what the long-term implications of the pandemic will be.

Early 2020 offered an excellent opportunity to enter a market that had been growing steadily for many venture-backed companies, and it showed no sign of slowing down. But in the matter of a few weeks, many of these companies had to shift gears quickly. Rather than seeking growth capital, they started focusing on mere survival.

The circumstances forced many companies to make quick decisions about whether to move forward with existing plans or delay them. Similarly, investors also had to make investment choices in a climate marked by uncertainty.

The United States is now over seven months into the pandemic, and there is no end in sight. Given this, we can now understand some of the most significant impacts the pandemic has had on venture financing markets.  

Investors are Still Interested

In the immediate aftermath of COVID’s arrival in the US, there was a sharp decline in the number of venture capital deals. In the months between March and June 2020, there was an overall decrease in deals by 44% when compared to data from 2019. Much of the early speculation predicted that interest in venture capital investments would drop sharply during the pandemic. It was frequently compared to the recession of 2008-2009.

But it hasn’t turned out to be quite that bad. Most venture capital firms are signaling to startups that they are still quite interested in investing, and they are optimistic about the future. Many VC firms are reporting that half or more of their portfolio companies are either unaffected by COVID or benefit from it. And many savvy investors understand that downturns can often generate some of the most promising investment opportunities. Even if the economic recovery is projected to be long-lasting, VC opportunities will likely remain high.

Some speculate that seed-stage companies are in an incredibly desirable position since investment interest is high, but they are still several years from the market. Overall, while some venture-backed companies may be reluctant to move forward with raising capital right now, given the initial speculations, those haven’t panned out. By all accounts and available data, now appears to be as good a time as any to seek capital.

Optimism Abounds

Investors are optimistic, but the pandemic has also inspired many startups. Many of these fledgling companies recognize that the world is changing. We are working differently, consuming differently, seeking education differently, and entertaining ourselves differently. Moreover, some of these changes will likely be permanent. And any period marked by rapid and transformation growth presents tremendous opportunities.

This tenet is especially true for tech startups. The pandemic caused a massive surge in demand for solutions that enabled remote working and contactless solutions. Innovative models for grocery and take-out meal delivery grew exponentially. In the world of venture capital, we all understand that not all startups will become unicorns. But in periods of massive transformation, some of them will be. And many companies are confident that they can present something better than the existing options to the market.

The Value of Different Variables

Many companies – even established companies – went under during the pandemic. Some simply didn’t have enough liquidity, while others could not compete, given the change in consumer demands and priorities. One thing that became obvious to all very quickly is that companies that were able to respond to market changes adapt to new needs, and re-tool their team in a short amount of time were in a far better position than those who could not.

Despite what the pandemic does or how long it remains, tomorrow’s market will still demand flexibility, agility, adaptivity, and efficiency – now more than ever. Investors will scrutinize these aspects of any startup. And more immediate concerns stemming from the pandemic itself will emerge, such as a focus on the stability of supply chains, anticipated demand, technological integration, and even workforce management practices. Startups should be prepared to answer tough questions on these variables because investors will be asking them.

Venture-Backed Companies and a Lingering Pandemic

Venture-backed companies have been mostly immune from the most severe economic impacts thus far, and interest in startups is high. But investors will continue to be discerning in what startups they choose to back. No matter what stage of growth your company may be in, it’s crucial to understand how the pandemic has shaped investor needs and priorities. This will help you to better position your company for future fund-raising. 

How a Well-Timed Solution Could be Key to Getting Your Startup off the Ground During COVID

How a Well-Timed Solution Could be Key to Getting Your Startup off the Ground During COVID

Starting a business is scary. It is even scarier to think of starting your business during a pandemic, especially in light of all of the companies that have had to recently scale back their operations, lay off some workers, or even shutter their doors for good. The economy is fragile right now, making starting a business in the current business climate a significant risk.

But if you consider it through a different lens, it could also be the perfect time to start your business, particularly if you have a solution that meets the evolving needs of people during and after the pandemic. Major events like pandemics and recessions often reveal weaknesses in the operational models of businesses and spur innovation. But even in an environment with ample room for innovation and new entrants, it’s always a good idea to properly assess the market. If you are considering opening a business amid the pandemic, one of the best moves you can make is contacting a startup business attorney to help you gauge risk and ensure the proper structure.

COVID-19 is no different than any other major economic event that forced change, and we are already seeing massive changes in how people choose to live, shop, and work. There has been a tremendous increase in remote working, delivery services, and e-commerce. Businesses that operated under traditional methods are scrambling to evolve to meet the demands of their customers and their employees. On top of that, there are increasing regulations to promote public safety and health in many areas. All of these changes mean that the needs, habits, and preferences of the markets are also shifting.

Rapid societal change often presents windows of opportunity for visionaries. Individuals who can think outside the box and develop solutions that meet the changing needs of people can find a high degree of success during normal market conditions. But when they can get their solution to the market during a time of increased need – such as a pandemic – they can skyrocket to success even more quickly. Startup business attorneys often have the knowledge and skills necessary to help you navigate all of these hurdles successfully so that your product or service hits the market at the most opportune time.

In addition to the current changing consumer preferences, there are also many financial benefits to starting a business during the pandemic. Interest rates are incredibly low, and there are many grants and low-interest loan opportunities right now. On top of that, many traditional businesses have given up their physical locations, meaning most markets have a slew of properties available for lease at reasonable prices. Your startup may also find that there is less competition for resources now too. For instance, it may be easier to find qualified employees simply because there have been so many other companies that have had to lay employees off recently.

But the key to starting a business successfully during COVID is understanding how the solution fits the market needs, both immediate and long-term. It would be best if you matched the solution to the problem. Many problems were revealed in the early days of the pandemic. Health care facilities faced supply shortages; many companies lacked the infrastructure needed to enable remote collaboration; there weren’t enough delivery services to meet demand. These are just a few of the large-scale problems that came up, and many innovators can likely dream up solutions to meet these challenges.

It’s crucial to remember, though, that your solution – whether it be a product or a service – must also meet long-term market demand. A study by CB Insights revealed that lack of market demand is the most common reason for a failed startup, and 42% of failed companies note that it is a contributing cause to their demise. Many founders of failed startups have realized that one of the biggest mistakes they made was to focus on the solution, product, or technology itself and not spend enough time considering what customers want and how the solution might be used in their life.

While there are some startups that will result in meeting a need caused by the pandemic, there are others that may not be directly related to it – but that doesn’t mean that these companies can’t find success in challenging market conditions too. It may require rethinking your business model and playing a more active role in identifying and reaching your target market. But if the solution meets current needs, there is a good chance that your startup will be successful.

Since COVID-19 first began to spread, it has sent shock waves through the global economy and impacted millions of families and individuals. By all accounts, we also likely face a long, slow, and difficult economic recovery period. While the pandemic has led many companies to financial ruin, it also presents opportunities for innovation. There will be businesses that thrive under the new normal. It’s simply a matter of having a solution that meets the market needs now – which are vastly different from what they were even a year ago.

There is no doubt that starting a business right now is incredibly risky. A reputable and knowledgeable startup business attorney can help you make sure that you start your business out on the right path.