Virus Check: What do Businesses Need to Know About COVID-19 Liability?

Virus Check: What is Your Liability as a Business?

The current situation we are facing is unprecedented from a legal standpoint. The ability to enforce contracts, loans, leases and all manner of legal relationships is now in question based on financial hardships as well as our court system working at greatly diminished capacity. Reasonableness, negotiation and working cooperatively are now more important than ever before.

Businesses of all types are concerned about being sued. What do you need to know?

Negligence is your first concern.Can a business be sued if an employee or customer were to contract a communicable disease at the employer’s workplace, or from a co-worker or customer? It depends on whether the business took reasonable actions to protect its employees and customers in light of the information available to it – in other words, whether the business was negligent.

Tort law, or the law of negligence, applies in this situation. It holds that a person can be liable to another person to whom the first person owes a duty if the first person commits an act which is unreasonable (or fails to take a reasonably necessary action) which could reasonably be anticipated to cause damage to the second person, and the second person did not help cause the wrongful act or omission.

For example, the Governor of North Carolina had previously prohibited all “mass gatherings” of 50 or more people (since reduced to 10); therefore, it was legal at that time (at least in most counties) to have mass gatherings of less than 50. But would this be reasonable in light of the CDC’s warnings against gatherings of more than 10 people? It depends on the situation, but a strong argument could be made that such would not be reasonable - in other words, we could not assure you that you would not get sued if someone got sick from such a gathering.

You owe a duty of reasonable care to your members, customers and employees; failure to take reasonable care to protect these parties from infection could result in liability. Reasonableness is the touchstone, based upon all the facts and circumstances involved. Failure to abide by local orders or regulations when they are directly intended to preserve public safety, as well as customary standards of care, have been held to constitute actionable negligence in other contexts. Cruise ship operators are already facing numerous lawsuits from those sickened while onboard based on this legal theory. Please contact us if we can help you work through liability issues of concern.

Workplace safety is also obviously very much in play today. In addition to the above negligence standards, workplaces of all types must abide by federal and state occupational health and safety requirements, typically as determined by OSHA. Employers must take efforts to maintain a hazard-free workplace, while still safeguarding the privacy rights of any affected employee.

OSHA requires that employers provide a safe workplace for all employees which is "free from recognized hazards … likely to cause death or serious bodily harm."

OSHA has not adopted specific regulations regarding COVID-19 in the general workplace at this time, but has instead recommended that employers follow CDC guidelines regarding personal safety, as well as any state or local guidelines or requirements - North Carolina's being found here.

The North Carolina Department of Labor, like OSHA, has not adopted specific regulations, but has emphasized the need to follow social distancing guidelines, maintain a clean workplace, and work from home where possible, and has emphasized the importance of proper personal protective equipment. Both the

NC Department of Labor and OSHA have especially emphasized worker safety with regard to respiration - in other words, being sure workers working with the public wear face masks, or more intensive respirators for those in healthcare, janitorial staff working with hazardous cleaning materials, and the like.

OSHA’s "free from recognized hazards" standard places much discretion in the hands of federal and state regulators if they feel an employer has not taken all reasonable steps to provide a hazard-free workplace for its employees. To be safe, employers should also implement procedures designed to promptly identify and isolate potentially infectious workers, per OSHA guidance. Illness or potential illness by employee must be kept confidential to the extent possible per federal ADA requirements; contact us if you run into this issue.

Contract law and force majeure clauses. Many contracts contain a force majeure clause, which translates from French as “superior force.”  It refers to uncontrollable events that are not the fault of any party and which interfere with a party’s ability to complete its end of the bargain or receive what it bargained for in the deal. Common examples are hurricanes, riots, labor stoppages and war. At first blush, it would appear that a pandemic would constitute a force majeure, but the terms of the contract control. You must review the specific language of the contract in question. Language such as “circumstances outside our control” is very broad and will cover the current situation and allow the party benefited by the provision to avoid the contract.  More specific language such as the common “acts of God, war, insurrection, civil strife, riots or labor disturbances” may not be as helpful depending since the list arguably excludes pandemics. If you are facing language which may not cover the current situation, you may have to negotiate and reach an agreement with your opposing party. If you do so, please, please document the agreement. Obviously, we can help. But even an exchange of emails can be sufficient to amend a contract if both parties agree.

Common law force majeure, or the doctrine of impossibility, may also apply if it is impossible or illegal for the parties to carry out the purpose and intent of the contract. Send your contract to us for review if you have issues or concerns. If upon reviewing your contracts, you find provisions which do not suit your needs in the current climate, do not forget that you may amend the current contract or at least change it going forward.  We can quickly supply you with alternative language and have already done so for some of our business clients.

Agency Law and Your HOA or Small Business

A client recently posed this question:

"If a singular board member of an HOA incorrectly tells an owner that a requested fence installation is approved, does it bind the HOA?  I recently had a board member tell an owner he was approved incorrectly."

Seems simple, right? If an architectural review request did not go through the right procedure and was not properly approved by the board or the Architectural Review Committee (aka the "ARC"), then no approval can be valid, right? Or, if an employee signs a contract on behalf of a company, but that employee had no authority to do so, the company is not bound by the contract, is it? Well, it depends.

This question involves the legal theory of agency. Agency law addresses under what circumstances one person (the "agent") can legally bind another person or an entity (the "principal"). Unfortunately, agency issues come up all too often in the practice of HOA and small business law because HOAs and other small businesses are generally run by volunteers or others without legal training who sometimes speak when they should not.

(Note: We are not talking about the law applicable to real estate "agents" here. While the law applicable to real estate agents, more commonly called "brokers" nowadays, certainly includes agency law, we are speaking here of agency law in general - i.e., the legal ability of one person to legally speak or act on behalf of another person or entity - and not with regard to any particular type of agent.)

There are generally two types of agency authority: actual authority and apparent authority. Actual authority is of two types - express and implied. From an HOA perspective, actual authority occurs, for example, where the board has met and considered whether to approve a fence request, has approved it, and has authorized the president of the HOA, as its agent, to communicate the approval to the homeowner. The president has actual, express authority to legally bind the HOA, the principal, as its agent in communicating the approval to the homeowner. The approval is binding on the HOA.

Implied actual authority to legally bind an entity as its agent is the authority that naturally and reasonably comes with an officer's position in a company. For example, the president of the company or HOA has the natural ability to sign checks, issue purchase orders and the like in the ordinary course of business, and third parties who know that person is in fact the president need not worry whether the president has the actual express authority to do such things - they can rely on his or her implied authority as the holder of that office.

Apparent authority is more problematic. This is the authority that a person appears to have from their words and actions, and which may appear to be reasonable to a third party, but which may or may not have been authorized by the board of directors or other governing body of the entity. 

The problem with apparent authority is that an agreement or commitment entered into with a third party by an agent of an entity who may have no authority may still be binding on the entity even if completely unauthorized, if the agent had apparent authority to do so in the eyes of the third party.

Apparent authority will arise when the agent appears to have authority and holds themselves out as having it, and when such authority would not be unreasonable for he or she to have when viewed by the third party, and when the third party has no reason to know that the agent may not in fact possess such authority. If the third party then changes their position in reasonable reliance upon the commitment of the agent - for example, spends the money to erect the fence in reliance upon the approval - the commitment of the agent will then be binding upon the principal even if completely unauthorized by the principal. This is also an example of the legal doctrine of "estoppel".

Back to our situation with the improper fence approval. This is how I answered my client:

"If it was just a board member and not the president or a vice president, or the head of the ARC, communicating the fence approval improperly, I would say it was clearly not binding upon the HOA. But the general rule of agency is, did the recipient have a reasonable belief that the speaker was authorized to bind the entity? If so, then the entity can be bound notwithstanding that the speaker did not have actual authority. Sorry to answer with an "it depends", but that is the law. Officers generally have apparent authority to bind the entity, even if not actual authority. So based on only the facts you gave me, the answer is no. But there could be more to the story..."

You can see how apparent authority can be an issue for HOAs and other small businesses. It is important to have clear roles established for officers, and where certain responsibilities have been delegated to committees, draw up a written committee charter which clearly specifies what that committee can and cannot do. Can the ARC chairperson communicate approvals or disapprovals to applicants? Bad idea. Have that done through the board, which is the governing body of the HOA. Make clear to officers what they can and cannot do without express board authority. And make sure that board and committee members know that serving on a board or committee gives them no authority whatsoever - only the officers of the company generally have authority to legally bind the company in any way.

Be in touch if you have questions or concerns regarding agency and your HOA or small business.