COVID-19 has done catastrophic damage to small businesses throughout the United States. According to Main Street America, nearly 7.5 million small businesses are at risk of closing over the next five months, and 3.5 million are at risk of closing in the next two months. More than 35 million Americans who work for small businesses could lose their jobs.
If small businesses do survive, they will have to deal with a range of legal problems they may have never previously encountered. From specific issues due to COVID-19 itself as well as issues related to these tumultuous economic times, businesses are going to need to protect themselves legally upon reopening.
Here are some of the legal issues small business owners are going to contend with going forward.
Bankruptcies
In May, U.S. business bankruptcies increased 48%, according to The Wall Street Journal. If a business is deeply in debt and has no way of repaying back those debts, it may go into Chapter 13, Chapter 11, or Chapter 7 bankruptcy.
With Chapter 11 bankruptcy, businesses are able to reorganize and enter into payment plans with creditors, Chapter 13 bankruptcy allows business owners to reorganize without going into liquidation by filing a repayment plan with bankruptcy court and then determining how they will repay their debts. Chapter 7 bankruptcy entails liquidation, where the business’ debts are so unmanageable that restructuring isn’t even an option.
Real Estate
Many small businesses rent space, which means they have to follow the rules of their commercial leases. Some leases don’t allow businesses to “go dark” for a certain amount of time or state other rules that businesses may have had to violate in the wake of shelter-in-place orders.
Business owners across the U.S. are unable to pay their rent, so they may either have to break their leases and shut down their businesses or put off paying rent. According to The Washington Post, nearly half of commercial retail rents weren’t paid in April or May due to coronavirus. Business owners may face legal action from their landlords and could lose their business space once courts are back in session if they do not pay these rents owed.
Employment
If business owners had hired help, then they could face legal problems if they stopped paying them or laid them off unexpectedly due to COVID-19. They could be in violation of the Family and Medical Leave Act (FMLA) and the Families First Act; these acts dictate how employers must provide two-week paid leave (emergency leave) or 12 weeks of paid leave under certain circumstances.
Additionally, employers could be in violation of Occupational Safety and Health Administration (OSHA) standards by not providing PPE at all when requiring employees to wear personal protective equipment (PPE), or. While business owners need to follow state and federal guidelines for protecting workers, they also need to ensure they are not breaking employment laws.
Insurance
Businesses may have to deal with legal issues when they try to pursue business interruption coverage claims with their insurance companies. Most insurance carriers are denying business interruption claims, saying that COVID-19 was not anticipated when the policy was given.
Businesses – specifically in the restaurant industry – are now pursuing class-action lawsuits to clarify business interruption insurance. In light of this, business owners will have to review their policies and try to file claims, if they need to, in hopes of recouping at least some of the losses due to COVID-19.
Loans
Business owners usually take out loans to fund their ventures. During COVID-19, when they aren’t making money because they’re shut down, they may be unable to pay back these loans. While the federal government provided loans to business owners, the funds failed to reach all business owners who needed it, including many of the hardest hit from the shutdowns.
If business owners do not pay back their loans, banks could go after their collateral, like their homes or cars, and sue them to ensure they get their money back. This could force a business owner to potentially file for bankruptcy if they do not have any assets to pay back the loans.
Premise Liability
When businesses start to reopen, they will have to take special care to protect their customers. If they do not, they may be sued for not ensuring their premises are safe for customers. For instance, if a retail shop fails to enforce social distancing, a customer may have a case. As businesses put sanitary measures into place, they may mop up their floors more often but forget to install “Wet Floor” signs, causing customers to slip and injure themselves. This would also be a liability. A court would determine whether or not a business exercised reasonable care and would be held liable for a customer’s injury.
Reopening with Legal Issues in Mind
Business owners are already faced with hardships right now, but they must keep these legal issues in mind as well. If they do, they will protect themselves, their workers, and their customers, and guarantee they will continue to thrive after COVID-19 is over.
If you’re a business owner looking for help with any of these legal issues, contact a lawyer today to learn more about your options.
2 comments
Lemkin Law
It is quite sad how small business owners have been affected, not just in the states but all over the world due to Covid-19.
As a lawyer myself, I've also faced recession but luckily things are getting back to normal. I hope the second wave doesn't come.
Liz Tran-Wong, Avvo
These are definitely unprecedented times. We hope there's no second wave as well. Happy to hear you're faring better now during these challenging times.
Thank you for sharing your thoughts.