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COVID-19: Current Legal Trends and What Companies Can Do to Avoid Litigation

Computer Forensics, eDiscovery, Information Governance, Information Security

Angela T. O'Neal, Director of NEXTRA Solutions

With more than 100,000 COVID-19 related deaths in the United States, and millions more infected, the possibility of COVID-19 related litigation is a real threat to organizations. In this article we will discuss current legal trends and what companies can do to avoid litigation.

Legal Trends

Several class action lawsuits have been filed as a result of COVID-19. These actions cover a wide range issues. In a class action filed against eBAY, it is alleged that eBAY’s pricing policy allows and encourages sellers to charge huge markups on essential products such as face masks, hand sanitizers and disinfectant products used to combat COVID-19. See Mercado v. eBAY, Inc.,No. 5:20-CV-03053 (N.D. Cal. May 4, 2020). According to the plaintiffs, a three pack of N95 face mask went for close to $585.00, while one can of Lysol sold for $45.49; “Not only is such gross misconduct unfair and inhumane, it is a criminal offense. . . .” Compl. ¶ 1.

In Mardig Taslakian v. Target Corporation, et al, No. 2:20-CV-02667 (C.D. Cal. Mar. 20, 2020) the claim is made that Target is misrepresenting its store brand hand sanitizer as being able to kill “99.99% of germs” and is similar to other hand sanitizers which state they are able to prevent the flu and other viruses. Compl. ¶ 3–9.According to the plaintiffs, sufficient evidence does not exist to support Target’s advertising claims that their hand sanitizer can presumably kill the flu and other viruses. See Id. ¶ 5. The plaintiffs point to a recent action by the Food and Drug Administration who sent a letter to Purell stating that there is no evidence to support their claim that it is intended for reducing or preventing viruses. Id. ¶ 6.

Walmart has been hit with a wrongful death by the family of an employee who died from complications related to COVID-19. According to the surviving family members, Walmart failed to provide its employees with protective gear such as gloves and masks. Evans v. Walmart Inc., No. 2020L003938 (Ill. Cir. Ct. Apr. 6, 2020). Additionally, the lawsuit claims that Walmart’s behavior of not adequately cleaning the store and not sending workers home who are displaying symptoms of COVID-19 amounts to “willful and wanton misconduct.” Id.

Two California restaurants owned by chef Thomas Keller filed a lawsuit against Hartford Fire Insurance over claims that their “all risk” policies should cover financial losses caused by business interruptions due to the COVID-19 shutdown. The lawsuit states that “[u]nder the policy, insurance is extended to apply to the actual loss of business income sustained and the actual, necessary and reasonable extra expenses incurred when access to the scheduled premises is specifically prohibited by order of civil authority. . . .” French Laundry Partners, LP dba The French Laundry, et. al, v. Hartford Fire Insurance Company, et al., (Cal. Super. Mar. 25, 2020); Compl. ¶ 15. The restaurants allege that their business interruption insurance policies should cover government-mandated closures. See Id. ¶ 27.

On a more local front, an employee of Pruitt Health-Bamberg, LLC alleges violation of S.C. Code Ann. § 44-4-530(E) that states “[a]n employer may not fire, demote, or otherwise discriminate against an employee complying with an isolation or quarantine order. . . .” Dent v. Pruitt Health-Bamberg, LLC, No. 2020-CP-05-00060 (Bamberg Ct. Common Please Apr. 7, 2020. After reporting a possible exposure to COVID-19 and being placed on a 14 day quarantine, the employer allegedly took punitive action and terminated the plaintiff. See Compl. ¶ 21, 27.

Risk Mitigation

The pandemic has given rise to an increased focus on force majeure clauses to avoid damages and liabilities. The question becomes whether COVID-19 qualifies as a force majeure event thereby allowing relaxation of contractual obligations of a party. Force majeure is defined as a superior or irresistible force or an event or effect that cannot be reasonably anticipated or controlled. Generally, in circumstances that render one’s contractual performance impossible, force majeure serves to excuse, or occasionally modify the required performance. The party who wishes to claim force majeure must prove the following:

    •  that the event was beyond their control;
    •  that the event has prevented, delayed or hindered the performance of the contract; and
    •  that they have taken reasonable steps to avoid the event and/or mitigate the consequences of the event.

Complicating the current state of affairs is the potential for changed working conditions as a result of COVID-19. Thus the challenge to force majeure claims relate to the continued impact and mitigation responsibility. Things to consider are: a reduced labor force; reduced labor productivity; and shortage of materials. All three have a direct impact on a duty to mitigate. To avoid ambiguity, any future contracts should contain detailed and reasonable force majeure clauses.

If a contract does not contain a force majeure clause, all hope is not lost. Another potential defense for breach of contract due to COVID-19 is the doctrine of impossibility of performance. Mere unexpected difficulty, expense, or hardship does not excuse performance. Generally, this defense is available when performance is impossible or highly impractical by occurrence of an unforeseen contingency. Historically, South Carolina courts have excused performance when “rendered impossible by the act of God, the law, or other party.” Pearce-Young-Angel Co. v. Charles R. Allen, Inc., 213 S.C. 578, 50 S.E.2d 698 ( 1948). However, and consistent with the intent of the defense, our Courts have held that “[a] party to a contract cannot be excused from performance on the theory of impossibility of performance unless it is made to appear that the thing cannot by any means be accomplished, for if it is only improbable or out of the power of the obligor, it is not deemed impossible.” Hawkins v. Greenwood Dev. Corp., 328 S.C. 585, 593, 493 S.E.2d 875, 879 (Ct. App. 1997) (citation omitted).

And finally, COVID-19 is likely to lead to litigation pursuant to the frustration of purpose doctrine. In other words, the agreement’s purpose has been frustrated and the event was unforeseeable. To establish frustration of purpose, a party must show that:

    •  without his or her own fault;
    •  an event has occurred;
    •  the non-occurrence of which was basic assumption on which the contract was made; and
    •  the language of the contract did not contemplate the event or assign the risk of loss.

South Carolina courts are reluctant to excuse performance based on this doctrine unless the purpose that was frustrated was a principal purpose of that party in making the contract. Our courts are conditioned to follow well established principles that parties should condition performance and thereby assign risks at the time they enter into their contract. Thus, the best way to prevent this legal challenge is to efficiently allocate the risk into your contract. COVID-19 has presented the practice of law with uncertainty and questions of how courts will interpret force majeure clause and other defenses to breach of contract. COVID-19 definitely meets the definition of an unforeseeable and unavoidable event. As practitioners, in order to prepare for future pandemics, epidemics and everything in between, we must expect the unexpected and advise clients too carefully draft contracts using specific language relating to contract performance.

What else can businesses do to avoid liability when acting in accordance with government and local authorities recommendations?

  •  First, document your processes for employees and visitors to the workspace in order to demonstrate compliance with public health officials at a later date.
  • Second, ensure that employees are adhering to all policies and procedures pertaining to protective measures as recommended by OSHA; and have a documented policy for non-compliance.
  • Third, protect health data when implementing and administering employee symptom screening procedures. While COVID-19 has loosened the regulations pertaining to employee health questions, employers are not excused from maintaining employee privacy. CONFIDENTIALITY, CONFIDENTIALITY, CONFIDENTIALITY! Having a plan and implementing it in accordance with the CDC, EEOC and ADA recommended guidelines will help alleviate concern amongst the workforce and mitigate future liability. Things to consider are:
    • informing employees of the company policy, provide them with a copy and have them sign an acknowledgment of the policy;
    • maintaining records of all health questions related to COVID-19; and
    • if there is a confirmed COVID-19 case, be general with regard to the information that is communicated to the workforce – NEVER REVEAL THE NAME of the affected employee.

Depending on the size of your workforce, a contact-tracing app may prove beneficial when addressing privacy safeguards. The apps can be tailored to be active while present in the workplace and can be set up using specific identification tools to maintain employee anonymity. These apps should also have the ability to be automatically deactivated when the coronavirus threat has ended. COVID-19 has triggered more cyberattacks and employers need to be prepared to address any data breaches. Loss of personal information requires notice to employees and compliance with state breach notification laws. Obviously, contact-tracing creates a unique challenge in the workplace; but, implemented correctly it can be a cost savings and privacy protection resource for your business.

Education and communication are the keys to success as we face the fluidity of COVID-19. Each situation is unique and it’s critical that businesses, attorneys and employees act now and have plans in place before the 2nd wave of COVID-19; or another pandemic emerges.

Angela O’Neal is the Director of Nextra Solutions, the information management and eDiscovery services wholly owned subsidiary of Nexsen Pruet. She assists clients with mitigating risks associated with managing large volumes of data and works with in house and outside counsel to identify, preserve, collect, review and produce documents in a wide variety of legal matters.

This article was first featured in the ACC South Carolina Newsletter.

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