Webinar: COVID-19 Legal Watch – Top 10 Steps for Small and Medium-sized Businesses (SMBs)

Good afternoon, everyone. My name is George Futter. I'm a proud member of the class of '86. I'm a corporate and commercial attorney with the Ramon Law. I work a lot with startup and technology companies, and today I'm going to present to you on the subject of 10 steps that SMBs, that small and medium-sized businesses, should be taking now. Okay, since this is a legal presentation, you probably saw this coming. It has to have a disclaimer. So what I'm about to say today does not represent the viewpoints of my firm, probably doesn't even represent my own viewpoints. If you do need legal advice, do you seek out an attorney, but hopefully will convey a lot of useful information and give you some things to think about. So what are the goals for this presentation? Well, the bottom line is we are in a very uncertain environment. It's pretty pointless to predict what the world's going to look like in a week, much less in a month. So for small and medium-sized businesses, who always are living much more on the margin than larger, more established businesses, what are the goals? Well, first, we want to make sure that you are around when we return to whatever normal looks like in the future. We want you to be thinking about making the necessary cuts to your existing business, looking for ways to increase flexibility. Looking for ways to minimize liability while you're making those cuts and taking steps to increase flexibility. While you're doing and taking a lot of tough actions, we want to make sure that you're preserving and enhancing customer relationships and other stakeholders as well. And really, at the end of the day, we want to put you in the best position we can to kind of come out and thrive at the other end of this, whenever and however that is. Whatever— whenever that is and however it looks like. So at the risk of being a little clichéd, you know, assure safety. That's the first and foremost. That's the bottom line. It's the right thing to do. It's the important thing to do. And it has the added benefit of being the legally smart thing to do. By the way, I should point out that while I'm going to be doing a lot of presenting, really helpful to get questions and feel free to post them, and I will try to answer as many of them as possible. Okay. So in terms of safety, this slide kind of changes every time I give this presentation. In the early days when I gave this presentation, we were talking about locking down. Now in many states, we're talking about loosening. The guidance here is, is changing constantly, as I don't have to tell people. I still think the best course of action is limiting people in the office who absolutely have to be there and taking as many proactive steps as you can to promote safety in terms of distancing, staging people in shifts, Whatever you can do to make people safe, what social distancing steps you can take, what mitigation steps you can take, which today would seem to be taking people's temperature, but hopefully at a certain point we'll get to an environment where you'll be able to actually do testing. Now, you may have seen in the news that some of the battle in Congress around some of the financing. There have been attempts to couple that with legislation that would limit employer liability for workplaces that do open. I'm not going to try to predict where that's going to end up, other than to highlight that it does show the real risk that employers who open up do subject themselves to potential liability if employees become infected and it can somehow be attributed to the workplace. And there— while there's no absolute bars to liability at this point, there may be in the future, but at a minimum, if you are confronted with those kind of claims, you want to be in a position to demonstrate, one, that you were kind of deploying best, best practices for the environment at that time, and two, that you can point to kind of a whole list of mitigation steps that you took along the way. Okay, the flip side to, to lockdown is work from home. And work from home has really created a whole host of issues that are confronting many companies for the first time, even companies that previously had limited parts of their workforce working remotely. So you really should review your, your policies to make sure that they're keeping up with the actual deployment of your, of your workforce. You can change those policies, and you should feel free to do so. Just make sure that they don't look like they are in any way discriminatory against one segment of your workforce. You should also keep in mind that things like verification of employment or forms I-9, Form I-9, etc., new processes have been put in place to allow you to do that remotely, and you should take advantage of that. You know, H-1B visas, E-3 Visa filings often include specific addresses where people are going to be working. You should look to whether those forms require updating given where people are actually working today. And then, you know, your IT practices kind of have to address the new environment, especially when you're dealing with data which is governed by HIPAA or the privacy laws like GDPR or California's new CCPA regulations. You want to make sure that your practices remotely are deploying the kinds of security practices that are compliant with the statute. So it's much easier to control those variables where everybody is working from a fixed location or a series of fixed locations all connected by an intranet that you control. With most people accessing IT through the public internet, you want to make sure that both your practices as well as your actual security measures are up to the regulatory tasks— the regulatory requirements, excuse me— that apply to the data you're handling. And you should be scrutinizing your suppliers to make sure, because they're confronting the same set of challenges, that they've taken the same steps to ensure the security of data— of your data that they're handling. And again, particularly in situations where you're passing personal information, personal financial information, health information.

Sure, there is a question if I can go ahead and read that aloud to you.

Yes.

Since employees are working from home, how should we encourage them to take days off since they can still do their personal work during office time? We don't want to suddenly have employees taking a lot of days off together once they're back to the office, and we can't offer to carry over vacation days either. What would be the best practice to address this issue?

Right, so, so I think that's gonna, that's gonna vary widely based on office culture. I think actually the key point in the question was, was the concept that you don't want to, you know, you don't want to accrue days for next year. So hopefully try to maintain this as a 2020 issue. But, you know, you really can feel free, I think, in the current environment to put out policies that, as long as they're applied uniformly, change the way you've been doing, you know, doing business until now. And as long as they're on their surface reasonable, I think it's going to be tough for it to come back to bite you. I mean, We have a litigious society, so never say never. But, you know, if you basically say, listen, in this environment for the rest of the year, we want you to sign up, you know, pre-approved vacation days with your supervisor, and we may have to veto more than normal, or we want to make sure people are spacing, and so we request that people, you know, take only 2 days a month, you know, those kinds of considerations. I think that's all fair game. And as long as the requests on their surface are reasonable, I think— I don't think that's going to result in liability. You might have a problem thinking about it on the flip side, that nobody's taking vacation now, and you don't want people kind of rushing, assuming things open up to take vacations and vacations are possible. You don't want people rushing to take a massive vacation in November and December. And so you might want to put in some policies there to let people know that they should take downtime now. And it's probably a good mental health procedure for all companies to kind of encourage employees to have downtime when they're working remotely, because I think pretty much everyone has realized is remote work tends to blur even more than that, than, you know, cell phones, smartphones, and other devices tend to blur the work-office divide. I think working full-time from home tends to blur those lines even more. And putting some policies around it, particularly policies that give kind of junior employees reassurance that they're not going to be penalized by more senior, you know, by senior managers for not being accessible 24/7, especially, especially reassuring. Okay, now there's no way around it. This environment is going to require layoffs. It's already required a massive amount of layoffs, and the likelihood is those layoffs stopped. When you're terminating employees, do it in a systematic way. First, you want to understand the background to the termination, and so we're looking at all the relevant employment agreements, make sure you're experienced any required severance payments, as a requirement to continue benefits for any period, is there a accrued vacation time that needs to be paid out? What— how does this impact option vesting and exercise? Um, and keep in mind that when you're looking at the various termination provisions, which normally tend to, um, stratify terminations based on whether it's for cause or without cause or for good reason, termination in this environment in most cases is going to likely to be viewed as as without cause or with, with good reason. And, you know, the consequences for the employee and the treatment that they're entitled to will be driven by that. It's always a good idea, not just in these times, to try to have a release from any departing employee, which basically is most often a two-way document. You release the employee of any claims, they release you of any claims. And to do that, you typically want to give the employees some kind of payment over and above what they are contractually entitled to. That's called consideration. And the consideration is really what makes the release enforceable. It doesn't have to be huge sums of money, but it shouldn't be a trivial sum of money either. You want to, you want to have a communications plan. Hopefully one that can make it very clear that these layoffs are not reflections on performance, especially if you're laying off multiple people. You want to think about it from a logistics perspective. Will the people be told not to come into the office? You know, what else— what other steps logistically should people be following? Just looking at a question. Actually, the question that Gina posted just, just came across my system.

Okay, looks like we just had a question. Yeah, one, it just popped up on my end, so sorry for the delay there. What amount is considered trivial?

So, you know, I wouldn't be looking at in a very technical sense Giving somebody $10 is enough consideration to make an agreement valid. You know, there isn't going to be kind of a bright line rule. $100 is going to be better than $10. $1,000 is going to be better than that. The point here isn't to run up a large bill, but to give them something somewhat more meaningful. We have a question here. It'll take me a second to read.

I'm also going to read it aloud too, just in case the attendees can't see it. How should we handle employees that were temporarily laid off and the company is still paying their health insurance, and then we offer them their job back but they decline it? The reasons are fear, I found out I'm pregnant, I'm concerned for my health and I have health reasons, I'm making more money on unemployment, etc. This is a takeout restaurant environment, and in our case, this is preventing us from gaining enough trained employees. Employees to reopen?

So it, in general, when, when, you know, when you say somebody is temporarily laid off in this environment, it's kind of an open-ended termination. You know, sometimes called a furlough, though legally there's not formalistically a difference between the two. And unless you've kind of given them a length of time, you know, you're going to be laid off for 2 weeks and then you're going to be brought back. Even though you kind of expressed the interest of bringing them back, I think you— and certainly from an employer perspective, I think these open-ended furloughs are treated as termination events. And so as a result, you know, it's nice to offer the health— the payment for the health coverage. But if they, they don't agree to come back, you know, then I think you view it as a termination and You know, and as long as when you offered the health coverage, you didn't, you didn't kind of make it as some kind of guarantee of a certain minimum period of time, I think you're going to be within your rights, you know, to— and again, a lot of it's going to depend on how the initial offer was, was phrased. But I think you're going to be within your rights to say at a certain point, we're going to treat this like, you know, you've been offered reemployment, we are now going to treat this like a termination. And as a result, if you do continue to want healthcare coverage, you will have COBRA coverage, which extends in most cases for 18 months from the date of termination. The one area where I wouldn't want to comment and give kind of blanket advice on a conference like this is the question was raised, you know, I'm pregnant, I have healthcare concerns. That's going to be a little bit more sensitive, and you want to make sure that you avoid any potential claim of discrimination. And that's one that I would really talk through with counsel.

Another question did come in, and it is how to differentiate the employees of the same skill set but differing in the ROI due to the projects being assigned to. Say a project's abrupt closure is not reflecting an employee's performance in some cases but resulting in decline in revenue and hence cash flows.

So in general, employment in the United States— and this is a very different story if you have employees internationally— employment in the United States is employment at will, which means you don't have to have a reason for terminating somebody as long as you've complied kind of with your company policies and any agreements you have with them. So if an employee— If you're laying them off because they're not funding the projects that are most profitable to you, generally that's not going to be an issue. The question you have is how do you communicate that employee's termination? And I think, listen, in general, attorneys will guide companies not to comment on employee performance because it often can become the basis for claims. Let's not say often, but not infrequently become the basis for claims down the road. You terminate an employee, somebody calls you for a reference check, they don't get the job, and then there's a claim made that something you said during the reference check killed the opportunity. In this mass layoff environment, I think there's a lot less sensitivity to that issue. And I think to the extent, you know, you can make it clear that an employee termination was not performance-based, but really as a result of the macro conditions and the company's need to, you know, to limit the priorities it was following, you know, it is not going to be a situation that lands you in trouble.

There is one more question. Do you want to take one more and then— Sure. So how do you make sure layoffs are sensitive to employees in a more vulnerable situation? Should the layoff policy aim to treat everyone the same or meet each employee's individual economic situations? I'd like to ensure equity in layoffs.

Yes, so that, that, that's a tough one to answer on a blanket basis. From the legal perspective, your, your concern is just subsequent claims of discrimination that that the fact that a certain group got benefits and other groups didn't, or the reverse, that other groups got benefits but a certain group didn't get benefits, somehow it's discrimination. And so that's going to be kind of a case-by-case, and I think in some respects is going to be driven by how many people are getting the nonstandard treatment. So if there's an employee you know of whose husband just lost a job and— or wife just lost a job and you kind of want to let them keep them on payroll for a couple more weeks just to give the family some comfort, but in general, you've kind of laid off everybody in Department X, probably not going to be an issue. On the other hand, you know, if there's kind of, you know, what, let's say, just picking one out of the hat, you know, if you develop a different policy for expecting mothers, that's something you'd have to be— you'd have to consider very carefully in terms of how you roll it out. So it depends a lot on the scope, and I'd say the basis for making those distinctions. Okay, I think we've cleared out the questions, at least for the time being. The WARN Act is a requirement that's triggered, you know, when you do mass layoffs of more than 50 people at a given location. There's some question about how rigorously that's going to be applied. In this environment. As I mentioned before, the distinctions from a legal perspective between terminations and farewells are going to be kind of, in many cases, a distinction without a difference from a legal perspective. One area where you may, may find a difference is when you have certain service-based benefits that employees have built the company more than 5 years get X, employees that have been with the company more than 10 years get Y. You know, how is that furlough treatment— how is that furlough period treated? And you want to be very clear about that. Now, many small businesses use professional employment organizations like an ADVENTISTAP or— sorry, like a TriNet or an Insperity. In those situations, from a legal perspective, your employees are considered co-employees with the PEO. And they have their own termination procedures, and you want to make sure that you're coordinating with them. In my experience with them, when I was in-house, they actually tend to drive the show around terminations, and so you want to make sure you're in consultation with them. The termination drill is difficult enough, but there are going to be cases where it really can, can, can drive, you know, where the— where a person can be. I'm talking about situations where visas are tied to specific employment and decisions will impact visa status. Now, in some ways that's become a little moot because a lot of times these people just can't return to their, to their original country. But hopefully that situation in terms of the ability to fly again will start changing. But you'll still have situations around individuals who are in this country on various visas, and the jobs that were kind of supporting those visas are going away. So that's another area sensitivity that you need to work, work through. And finally, you know, keep in mind if you're running a 401(k) plan and allowing loans against it, those loans will usually terminate and need to be repaid if the employee is terminated. And again, that's another area that employers need to be sensitive to. Okay. Since I started giving this, this presentation, there have been a number of changes in government programs. Programs. The most notable one is the PPP, the Paycheck Protection Program, which is now on round 2. Let's be charitable and say the rollout of this program has not been the smoothest. And in particular for small businesses, 2 areas have, have really emerged as hot-button issues. First, you know, there are certain certifications you have to to make a PPP claim. And those are subject to the False Claims Act, which can include some pretty hefty penalties for companies that make misrepresentations as part of their loan applications. And these, these, these misrepresentations can touch on issues like necessity, how really critical is the loan to the survival of the company and the ability to make payroll. Is the company the right size? And there's been a whole controversy there in the venture capital world, whether the venture cap— whether the companies are considered affiliates of certain venture funds that are investing in them, and thereby increasing the size of the applying company to include other portfolio companies of the investors. You know, to begin, it's been quite a mess. There is an amnesty period which is expiring on May 7th, which is, which is, I guess, in 2 days, where if you return the funds, you know, there won't be any penalty. And if you have taken PPP funding and any doubts at all, this is a time to talk to counsel and make sure that you're on the good side of the law on this. The government has indicated that they're going to do auditing. Now, the initial indication is that it's going to focus on larger recipients, but it's, it's tough to judge at this point how this is going to play out. Also, keep in mind, a lot of states, the New Jersey EDA, have their own programs that are targeted at small and medium-sized businesses, and, you know, make sure you take full advantage of them. Okay, there are a lot of common mistakes companies are making these days with respect to employment law that are driven kind of by the necessity of the hour. So here are some things to keep in mind. First, employees cannot, even if they do so voluntarily, cannot work unpaid. It is just illegal. It violates minimum wage law. You cannot have employees that are coming in, showing up, and working for you that are not collecting or accruing unpaid wages. You can't offer them— for companies in the venture space, there's a temptation to offer equity instead of compensation. That is almost always not the case. Wages can't be paid late. You can't unilaterally reduce salary rates. Accrued vacation time is considered salary, as is contractually required severance. And if your company shuts down and is unable to do that, potentially it could be a basis of liability, personal liability against officers and directors of a company. Now, you can get employees to prospectively agree to work at a lower wage. In other words, you say to them, okay, listen, I'm running out of the ability to pay you. I'm hoping that this will just be a short period of time. If you come in next week, I want you to, you know, it's going to be for minimum wage only. That you can do, and it's within their rights to say no. And keep in mind, minimum wage laws still apply, so you have to check with the local minimum wages in your area where the employee is working. And you can make those offers, but again, only prospectively. In 2008, we saw a wave of companies hiring unpaid interns. That is pretty much always illegal unless there's an educational tie where the individual is getting academic credit. And, you know, this impacts— in 2008 impacted companies of all sizes. In fact, the company that got hit with the lawsuit that kind of set the warning sign to everybody was Condé Nast, and they were having a lot of interns in their various magazine publications. So even if the internship is helpful, and there's certainly a lot of people out there unemployed who at least are looking to build resumes, you can't take on in almost all circumstances unpaid interns. Now, there's a lot of mythology around, around independent contractors paying people on a 1099 basis. It is really almost impossible, at least in the United States, to hire somebody and pay them to their Social Security number and have them be anything but an employee. So I've done several of these calls in different settings, and I inevitably get some questions. Well, what happens if I If I bring a person back on a 1099 basis, or, you know, what happens if I, if I, if I bring in other people on a 1099 basis? As I noted in the slide, it's, it's never going to be the legal solution to most of your problems and will usually create additional, additional issues. And this, this 1099 issue was an issue that the states were going after very aggressively even before this crisis hit. And I suspect that it will be an aggressive area going forward as well. And the reality also is that because the United States has employment at will, as long as you, as you do it correctly, you can bring on individuals as temporary employees and fire them without notice unless there's a company policy to the contrary. So you can move people in and out of your workforce fairly flexibly, even by bringing them in as employees. And there's a bit of a mythology around 1099s that they're inherently more flexible. The one exception to everything I said is if you're hiring the 1099, the individual to a company that they have set up for themselves. So people will sometimes set up LLCs where they are essentially all the, the, where they are the sole employee engaging that LLC. And getting the services of the person who set up the LLC is generally not problematic. But again, bringing on a person on their, on their, on their own personal social security number on a 1099 is a problem. Okay. For most companies, their greatest fixed cost and their longest-term commitment is real estate. And, you know, and most landlords know that the future market is going to be worse for them than the market in which you signed your current lease, which, which creates a very bad environment for seeking extensions, but it's still worth doing. Courts are going to be likely to be more flexible with employees, with tenants that can't pay, at least for some hardship during that leniency is not going to go on forever. If your landlord is willing to extend you or give you some rent relief, make sure to document it. And the documentation should not only document what the relief is, but should make it clear for how long that relief is going to last. You should review, you know, if there are force majeure clauses in your agreements, Review them. Force majeure clauses can be, could be the subject for another program all by itself. Bottom line is they're read very literally by courts. So you want to actually, and you might need counsel to do this, to review force majeure and real estate contracts for that matter, any other contracts you have to see whether they could be potential sources for relief. Also, a lot of real estate contracts have time is of the essence clauses. You have to move out by date X, time is of the essence. In normal situations, that's an incurable breach. If you're a day late or some period late, you're viewed to have breached the contract. In the current environment, it's also likely that courts will be more flexible. Okay. Manage your customer and supplier risk. So you're a contracting party to a bunch of customers and a bunch of suppliers, and those relationships are going to change, and the risk profile of your customers and your suppliers are going to change. So for example, on the customer side, to the extent you can modify existing contracts, and for new contracts, you know, look to shorten payment terms. So if you've been net 60, go to net 45, net 30, even net 15. You, you don't want to be banking you know, serving as customer banks to the extent you can in this environment. View your credit approval process, you know, because again, during these next payment terms, you're acting as the customer bank. So do diligence on the creditworthiness of significant customers. Where necessary, seek, you know, cash on demand, you know, advanced payment or letters of credit to cover the obligations. Now, you should know, in some situations where your customer is really failing, if you can actually— you do actually have under the Uniform Commercial Code the right to demand reclamation of products you've already shipped if you do it within 10 days. The Uniform Commercial Code, which is kind of a— every state has its own implementation of it, but it's a generally uniform set of commercial principles that govern U.S. commercial transaction. You do have the right to adequate assurance of performance. So you— if you have a supplier that you think is in trouble and you need their products to produce your product, you can send them written notice saying, are you going to be able to perform on time, suspend your performance while you're waiting for them, and if they don't give you that assurance, you can go out and seek another supplier. And if they provide that assurance and then don't perform, they will likely be subject to additional legal liability. So you should be looking, you know, except for your most rock-solid suppliers, you should be looking to identify potential second source suppliers and where possible try to enter into agreements to at least start getting those relationships going. And in some cases that might mean going to existing suppliers and saying, listen, I know we're exclusive, but, you know, your supply chain is running through China. It's vulnerable. We need to have some additional secured source of supply. And we need at least a limited exception from our existing exclusivity. As I mentioned before, force majeure clauses are clauses in contracts that rarely get read. They're so-called acts of God clauses. They're clauses that typically suspend performance when one company or the other, when one contract party or the other becomes subject to some unforeseeable event. They are— because they get a lot— they don't get a lot of attention in negotiations. They're usually not as crisp as they should be, and in some cases might not even apply. Apply to the current situation. So when you have key contracts, you should work with counsel to review the force majeure clause, figure out whether it becomes a useful tool for you, or in situations where, you know, the other side may invoke it against you, whether it becomes a potential source of liability. But understand on key contracts where you stand on their respective force majeure There are other legal concepts called frustration of purpose and impossibility that even where contracts don't have force majeure clauses, these concepts may allow you to claim that because of the crisis, you're excused from performance. In general, courts don't like to use these clauses. They don't like to undo the negotiated agreements between parties. And that's why impossibility of performance shouldn't be confused with, you know, very changed performance. So in other words, even if it's dramatically more expensive to perform, courts generally won't declare performance impossible, and they'll insist on you performing. Force majeure and these related concepts of frustration of purpose and impossibility is really in extreme situations where the current situation is just really made performance either flat out impossible or very, very impracticable. And I suspect in the next year or so, you're going to see some significant litigation around commercial relationships gone bad, hinging on whether it was a proper invocation of a force majeure clause. As I mentioned at the beginning of the performance, you're going to be seeking flexibility going forward as much as you can. This obviously will include building in that flexibility in new contracts, but it's also going to include renegotiating existing agreements to the extent you can. And this is one area where being first in line is really helpful because lots of people are going to be doing that. And my guess is that flexibility to accommodate requested changes is going to decrease the later you are in line. And a lot of this has— involves trade-offs. So, you know, if you have volume commitments that you can no longer meet or that you're worried about meeting, you might extend the term of the agreement and maybe agree to a somewhat higher price. So, you know, there's kind of a balloon effect here where you can push in one area and another area expands. And, you know, there might be, if not true win-wins to construct here, at least lose less, lose less situations where you can horse trade a bit to get some flexibility going forward. Um, when you're done again, just like I mentioned, the real estate context, you know, document, document, document, make sure you have documentation of the amendment. Um, make sure it's clear on what change, what terms were changed and perhaps how long those changes will last, whether it's permanent or for some period during the height of this crisis. Also, there is a side note, which is if you do your job too well of scaring a potential customer, for example, of your ability to perform because of all the hardships you're enduring, there's a legal concept called an anticipatory breach where you basically plant a legitimate seed in your customer's mind that you won't be able to perform. Form. And that creates its own legal consequences. So there is a bit of a balancing act. But on the whole, this is the window where you should be reaching out to your key contractual relationships and seeing if there's opportunities to renegotiate better terms or more flexible terms. Insurance— this is the time to review your policies. Unfortunately, probably a lot of the insurances that you need to address COVID-related liabilities have probably already risen in cost, but you want to have an understanding of what your policies do cover and where there is potential for claims. And again, there are first-party policies of things that directly impact you, and then there are third-party liability policies that cover claims that third parties may have against you. One area that I want to highlight is D&O insurance. If you've accepted funding from investors, you want to make sure that you have good coverage in place because this is an environment where there will be a lot of second-guessing and there will be claims against officers and directors when companies go south. And one concept that might not be familiar to some is tail coverage. So if you have coverage which is on a claims-made basis of when a claim is made, and unfortunately your company goes out of business, right, investors may still claim against the directors of the now-dead company. So tail coverage, which can be bought for a period of years, covers a board for decisions it made while the company was alive for claims that are bought for the fight that are for claims that are brought in a defined period of time after the claims are made. So those are my 10 points. I wanted to raise one other issue, which isn't the point because unfortunately it's kind of the end of the story, which is insolvency. So there are a couple of flavors of insolvency. There's Chapter 7, which is liquidation. So the company's just sold off. That contrasts with Chapter 11, which is reorganization. So the company's debts are restructured, creditors agree to whatever they're getting in the restructuring, and then the company can move forward with its debt obligations significantly reduced and hopefully start with somewhat of a fresh start. In general, to even really enter the Chapter 11 process, you really can't be running on fumes because you're going to need to have some ability to cut deals with creditors, and that's going to require some degree of liquidity. So you really, you know, if you want to have kind of the opportunity to fight another day, you're going to want to start the Chapter 11 process. Unfortunately, that's where you're headed sooner rather than later to give you the greatest flexibility in dealing with creditors. Now, there's a relatively new innovation which actually was added to the bankruptcy code before any of the COVID-related craziness started called Subchapter 5, and that's a small business debtor flavor of Chapter 11 that can cover debts of up to $2.7 million in debts or so. It's a much quicker process. Chapter 11 processes can sometimes drag on for years, but it's a much quicker and less expensive form of bankruptcy that smaller companies with limited amounts of debt obligations may seek to pursue. And one important thing, if your company ends up unfortunately going belly up, always make sure that you have enough money in the bank to pay unpaid taxes and unpaid wages. As I mentioned before, these are areas where under some circumstances directors and officers of companies can be personally liable if their companies, you know, go out of business and haven't met those obligations. Why don't I stop now? I have one more point I wanted to cover, but what— are there any other questions? You know, I've stuck to kind of 10 points, but if there are any kind of current environment-related questions that anybody on the call has, and I'd be happy to answer them. Okay. Do we have a raised hand? Okay.

So we're going to— if you're okay with it, we can allow this person to talk that just raised their hand. Sure.

Hi.

Looks like your microphone is on. Oh, but they—

Can you hear me? I just posted.

Yes, we can hear you.

You referred to best practices for reopening. Do we know yet what those are? So the short answer is no. And to make the short answer even more frustrating, it's likely to vary place to place. I think, you know, I think level 1 is whatever the government specifies. So if the government in your jurisdiction— and that's going to unfortunately be a 50-state effort the way things look now, and may further vary by municipality. So if the government tells you people have to be at least 6 feet apart, make sure they're 6 feet apart. Where it's going to get more sensitive and really case by case, you know, are things specific to your business. So let's say, you know, you have to package orders and to do that, you just can't space people 6 feet apart. So then the question is going to be, You know, what kind of PPE do you need to provide your employees for you to have been deemed to have taken reasonable safety precautions, right? Is it going to be, you know, K95 masks? Will paper surgical masks be enough? And those are going to be, unfortunately, very case-by-case issues. You know, if you look at it, we have no precedence for anything. Something like this. But in general, when you look at kind of public safety-related precautions in other legal areas, cases frequently point to kind of industry standard practice or best practices that are put in place. So, you know, if you're looking to reopen a business, you know, probably if at all possible, try not to be the first one. And closely monitor what others are doing. Because, you know, if unfortunately somebody comes down with a case and wants to bring a case against you down the road and is claiming that it was workplace-generated, you want to be in a position to say, hey, you know, I followed the government guidelines, and based on what other businesses were doing around me, I was doing at least as much as they were doing. And even better to be able to say, and hey, I added these 3 additional measures to make sure. Thanks.

There are two more in the Q&A section too. So, the first one is, what happens if you are in a coworking space like WeWork?

Yeah, so, so WeWork, I have a couple of clients who have had these issues. You know, I don't, I don't want to single out WeWork, but the stuff that I'm talking about has been, has been, you know, pretty publicly reported. We work in a lot of locations, at least based on the public reports, have not been particularly flexible. You know, they are, they, you know, step number one is to read your agreement with them carefully. And to the extent you have outs, you know, use them. We're, you know, we kind of were in better grounds for WeWork tenants now in a situation where let's say in New York, where you're actually just not allowed to go to their locations. So I think you're in a stronger legal position. And I think, you know, I think talk to say, you know, I'm not going to pay you for month X because I'm not allowed in your business. Where I think it's going to start getting more complicated is with the gradual reopening. Well, now you're going to have a situation, maybe not in New York anytime soon, but let's say if you're going to— we work in Atlanta. I think Atlanta's still in the lockdown, but, you know, pick your jurisdiction which is reopening where where from a legal perspective you are allowed in the, in the WeWork facility and you're choosing not to go, I think you're going to have a much tougher time there.

And the next question is, do you have any general advice about how to hire vendors in the near future to best determine their financial stability? What about existing vendors who are showing signs of distress?

So, there are rating services and they're done at Dun Bradstreet where you can get some information on the creditworthiness. You know, it is particularly with smaller private companies, it's really hard to judge. And I think part of it is if they're, you know, there are a couple of pieces to this puzzle. First, if they're kind of commodity suppliers, you know, line up your second source as soon as possible and maybe even start some order volume there so you have the relationship in place. Rather than calling somebody up in a panic because your, your supplier failed. Uh, where your supplier is kind of unique to you, let's say they're manufacturing something custom for you, I think that's where you guys start having the conversations. And as I mentioned before, there is— again, I wouldn't— as a lawyer, there's a real temptation to kind of overwire the situation, which is going to have a lot of legal liabilities. So I think, you know, polite conversation is the first step. But in situations where the supplier is critical and you have genuine fears about them, mentioned before, there is a contractual right where you can actually send them a formal notice and say, hey, I have doubts about your ability to perform going forward. Please confirm to me that you will be able to do X, Y, and Z per our contract by date X. And if they fail, if they provide, if they don't provide that assurance, you can, and again, I wouldn't do this at home. I'd talk, I'd work this process through with counsel. But assuming the answer is, you know, assuming you've done it right and they don't confirm their viability, right? You should go ahead and start lining up the second source. If they come back to you and say, oh no, we're gonna perform, that's a trickier situation. And it's gonna be a little harder to build the case. But at the end of the day, You know, unless you have a contractual exclusivity with them, I would still, in most cases, if you have real fear about the viability of a supplier, get that second source up and running. It might have a financial impact, but if it's a critical sole source supplier, you know, you can't take that chance. Okay. Well, let me just— a couple of closing thoughts. First point is communicate. So, you know, in general, there's a natural human tendency to kind of hide bad news, and everybody's got bad news now. So you're not outstanding, you're not an incompetent manager for having bad news occur to your company. Everybody has it, and in a lot of cases, it has nothing to do with how well-run the business was prior prepared all this. This is just, you know, a different world. I told my sons, I said, you know, I must have missed this day in grown-up school because, you know, there is no playbook for what we're going through. So, understand that and overcommunicate. You know, let people know how you're doing, get a sense of how they're doing, because the earlier potential problems are surfaced, the more people have— the more time people have to mitigate against the resulting consequences. What you want to avoid is giving surprises or receiving surprises, because then your options are almost always going to be a lot, a lot narrower. And if you have, you know, for those of you that have investors and have boards, there's always a tension. You know, you don't like sharing bad news with the board. Here, I would, you know, be really upfront. Again, in a lot of cases, it's just not a reflection of you. It's kind of, it's not us. It's them, it's the environment that's creating all this. And hopefully you're blessed with a strong board of people that have experience and that can actually add value in advising you on these tough decisions. And, you know, hopefully if you don't have a board, but this is the time to lean on your mentors and get that feedback. Don't look to reinvent the wheel and benefit from the mistakes of others. Keep in mind, you know, that it's really hard to undo a bad reputation. You have tough decisions to make, but hopefully we're going to get to a new normal, and you know, you're going to want to pick up and continue to grow your business. A lot of the decisions you're gonna have to make now, candidly, don't have a lot of options. So it's, it's bad options to worse options, and people can get hurt as a result of your decisions. But the way in which you make those decisions, the way in which you communicate those decisions, those are the things that are going to kind of travel with you when we get out of all of this. And you should always keep that in mind, you know, to the extent you can show flexibility Show it. If you can't show flexibility, at least show empathy and recognition of the cost you're imposing on others. And be helpful to the extent you can. This is a time when reputations will be made and broken, and it's really hard to repair a bad one. I've kind of tried to capture— and I did this actually in another Princeton presentation that I made— to put this in a process. What you really should be doing is a constant process of evaluation of where you stand in action. So, uh, the acronym I came up with is RIAR squared. First R is reassess, right? All the business plans you had on February 1st, they're irrelevant. Throw them out. Figure out where you are now. I is inventory. Catalog your relationships. Make sure you have the agreements that govern those relationships. Inventory governance programs. Take stock of the different issues you need to address. A, get into the analysis phase, figure out, you know, which relationships you want to preserve, which ones you want to cancel, which ones you want to modify. The R is respond. Put those plans, that analysis, into, into action. And then the final R, which I can't stress enough, is repeat. You're going to have to keep on doing this. We're not going to be at a steady state where you can kind of even be— even in good times, you should never be on autopilot. But we're not even going to be close to comfort zones for this foreseeable future. And so this, this is a process you're going to constantly have to revisit. The safety environment will change, the economic environment will change, and you're going to have to respond in real time. As I said before, we've got a playbook. I've published a bunch of different content. Over the last few weeks of issues that, that relate to the fallout from all this craziness. Some of them are specific to startups, otherwise others are broader to any small business. We'll be distributing this presentation after the webinar is over, and if you do get a chance to read it, I think you'll find them helpful. So thank you for staying, staying through all 10 points. I hope you found it helpful. This is my contact information. And if you want to just run something by me, you want to ping me for a point, you know, feel free to do so. Or if you have any questions on this presentation. So thank you everyone. And most of all, stay safe.