Business LawCOVID-19 and Updates: Contract Litigation Impacts

March 23, 20200

While the infection rates continue to climb, it is increasingly important to talk about the various impacts COVID-19 will inevitably have on people and businesses in Rhode Island. This includes potential future contract litigation. Since our last post, Rhode Island has been further impacted by federal and state decisions, detailed below.

Federal Updates

Congress passed the Families First Coronavirus Response Act, which has been signed into law and will go into effect on April 2nd. This is not the package which may include money for individuals affected by COVID-19, but rather a law requiring public and private employers with less than 500 employees to provide emergency paid sick leave and emergency family and medical leave for all employees. Length of tenure is not a factor; the law covers all employees provided they meet the other requirements. Employers will be allowed to apply for tax credits equal to 100% of the sick leave wages.

The details for applying for a hardship exemption (if it’s a small business with a minimal number of employees or if it’s a health care provider or first responder business) are forthcoming. Employers should take note of this change; it is similar to the Paid Family and Medical Leave Act in that employees cannot be required to use other paid leave before taking emergency leave time. This could result in contract litigation over an employment handbook that requires use of other leave time first. Consult the law or an attorney for questions regarding who can use this emergency leave time, when they can use it, and whether it is paid or not. Additionally, if your business would qualify for the hardship exemption, consider speaking with an attorney to follow the future legislation on how to apply for the exemption.

The IRS issued a Notice regarding COVID-19 relief measures on March 18th. It includes deferral of payments on certain taxes. That notice is available here. However, it is important to note that as of right now, your 1040 must still be filed on April 15th.

Rhode Island Updates

The state’s request for economic disaster relief funds was approved, and low interest loans are available for small businesses to cover operational costs. Businesses can call 401-521-4357 to learn more and apply for these loans.

Microsoft Office 365 tools will be available to businesses, municipalities, K-12, and other entities for six months for free.

Employers with labor questions can reach out to the Department of Labor and Training, or see their worksheet here.

The Public Utility Commission approved an emergency order suspending all gas, electric, water, and wastewater services shutoffs for customers with unpaid bills.

State courts will not process evictions from residential or commercial properties for the next thirty days. Landlords should be advised of this in relation to their currently rented real estate holdings. Contract litigation will thus be suspended for lease disputes related to eviction.

Because price gouging is illegal in R.I., businesses are cautioned against raising prices of essential commodities to “unconscionably high” levels before or during a state of emergency.

Contractual Considerations

With the closing of municipal offices and the courts comes impacts to contractual obligations which may eventually result in contract litigation. This would only be exacerbated if Rhode Island moved to a mandatory closure of all government buildings. For example, real estate closings will likely be impacted by a variety of delays, including inability to record the closing documents such as deeds and mortgages, unexpected illness delays, or a lender’s inability to finance a loan because of bank closures/delays.

These all could amount to a failure to perform by the closing date, so documents must be written to accommodate buyers and sellers where possible. For example, attorneys can draft language to: allow remote/digital signing, create COVID-19 termination clauses for delay or write provisions that allow for performance to be delayed, and amend previous documents to take these into consideration as well. Contract litigation may be used to settle failure to perform issues.

A variety of contracts should likewise account for delays and cost increases due to COVID-19 issues – construction contracts, contracts supplying goods or services, etc. – to avoid contract litigation later. Does your contract account for these delays and/or unexpected costs under a force majeure clause? If so, what happens under that clause as written? It would be prudent to review contractual obligations and language now for protection from COVID-19 impacts. Contractors, service providers, and goods providers can provide themselves with a safety net for unforeseen events if they comprehensively review contracts with this in mind, and avoid contract litigation over whether the virus would constitute a force majeure.

Our staff are all working remotely, with access to both telephone and email. Call or email us to ask about your specific questions surrounding COVID-19’s impacts to you or your business at 401.477.0023.

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