Welcome to our new series called Chamber Conversations: Trusted Advice in Challenging Times. Chamber Conversations are direct, simple conversations between the Frederick County Chamber of Commerce and experts in various industries for the purpose of providing valuable information and insight to our community.
Our guest today is Matt Johnston of Law Offices of Matthew S. Johnston, LLC discussing with us legal difficulties and situations associated with the COVID-19 pandemic as we begin to move forward through these challenging times.
In this interview Matt discusses…
- Employment law
- Realities of income replacement insurance
- Force majeure clauses
- The criticality of relationships with subject matter experts
Transcription edited for readability:
Rick: It is my pleasure to introduce the guest for today’s session, Matt Johnston.
Matt is an attorney here in Frederick County and he runs a very interesting law firm that caters to small business, to creative businesses, and basically anybody that needs the creative forward-thinking legal advice that Matt gives. I first got to know Matt during Leadership Frederick County, as Matt is an alumni that we are really proud of. It was during that year-long experience that I got to see and hear Matt interact with other people and share the kind of thoughtful and reasoned advice that he is known for. Matt, thanks very much for being with us on Chamber Conversations!
Matt: Thanks for having me!
Rick: I want to talk first about employment law. We’ve been through furloughs and layoffs and temporary displacements, and at some point we’re going to be talking about bringing people back. But, for right now we’re discussing things like paid sick leave, family and medical leave, and recent legislative inactions. Can you talk about that from the perspective of what a small employer is currently faced with?
Matt: Probably the most difficult thing small employers are facing right now is the massive uncertainty. Congress is legislating and the hard part about legislation is that Congress does not write all of the detailed rules, that’s left up to the agencies. I know it is extraordinarily frustrating to be faced with unanswered questions like how does paid sick leave work and, in turn, how does that work with my PTO policy and things of that nature.
These executive agencies are stuck in a situation where they have to create policy in a much shorter time frame than usual and there’s no “notice in common period” which is a common feature of regulatory action. The notice in common period allows people to compare things on a situational basis, and because that doesn’t exist the guidance has a tendency to evolve over time.
The most important thing right now for small employers to think about is to determine and to be aware that you are covered. Unless you employed more than 500 people you are covered and you have to then comply unless there is an exemption. A lot of small businesses may be exempt because it is too expensive for them to provide a paid sick leave or the expanded FMLA that is available.
Just as a quick overview, the federal paid sick leave, and the expanded FMLA apply only for COVID-19 related reasons. It is not covering elective surgeries or anything of that nature. So other than that people have to dig into their regular PTO or take up paid leave. It’s a very frustrating time for a lot of employers.
Rick: So as for insurance, I’ve been hearing that many people thought they were covered for business loss in this time only to find out that national insurance companies who have a trusted local agent are not going to cover that loss because it is a “pandemic.” Can you talk about the exposure and how to address it?
Matt: The exposure boils down to this unless your policy had income replacement – a loss of revenue – that is directly tied to a pandemic or public health emergency, chances are you’re not going to be covered. And because we haven’t really had a massive loss of revenue or economic activity because of a public health emergency in 100 years, most policies are not going to cover that.
I know that that is a decidedly disappointing situation at best, but most insurance companies are going to have a platoon of lawyers like me whose sole job is to get out of paying benefits and things of that nature. They are really going to start enforcing the letter of that insurance contract and unless you had something like that, chances are you’re probably going to be out of luck.
So what can you do moving forward? Well, there are insurances and there are going to be products (if they’re not available now they will be available soon) for most insurance carriers that will cover a loss of revenue or a partial loss of revenue related to a public health emergency where your operation shut down. It is probably going to be a requirement that you were shut down by an order of the government, a situation in which you were deemed a non-essential industry so, therefore, you are not open. The loss of revenue may be limited to X amount of dollars per day or some percentage of your approval income, ultimately I’m not sure how the actuaries are going to go about measuring that risk.
I suggest you start working with your insurance agents or an insurance broker to find out what some of those options are going to be. Some are going to be expensive while some are not, so you’re going to have to figure out where you stand financially. Certainly, businesses that have been deemed non-essential are going to pay a little bit more than you would if you were considered an essential business.
Rick: Great advice. The unique nature of this pandemic, with flu season’s re-emergence in the late fall and early winter, is that we could face this again. When you are able to reestablish operation it will be a really important time to look at things like loss of business income or another issue which is a force majeure clause.
Matt: Yeah, this is really the time to start thinking about a force majeure clause. Think about force majeure as events beyond the control of the parties in the contract. Traditionally this is almost a throw-away, boilerplate provision that’s usually buried in the back of a contract. This typically covers things like fires, floods, earthquakes, natural disasters of a certain kind. Sometimes they cover governmental action which is where a lot of the questioning is coming about now. Is a government ordered shelter in place a sufficient government action? A force majeure clause that simply says “we don’t have to perform” if one of these things happens, is not going to be particularly helpful.
For example, if you’re a service provider and the force majeure kicks in but you’re still owed six grand from work you already had done before if you say you declare that you don’t have to perform do you still get that six thousand? That’s a really important question. So ultimately the force majeure clause not only has to cover what events are outside the parties control but also what is going to be the action going forward. Are we going to have a discussion? Is activity before a declaration or a fire still compensable? What about deliverables?
All of those things should be considered in a forced maejor clause, but until now most people were kind of just settling for the standard of language and accepting it as “okay”. Well it’s really not going to be okay anymore and it’s going to heavily depend upon the nature of the business you’re in, the customers you have and the transactions that are being engaged in. If you’re going to be engaged in multiple sorts of business lines, you may have different force majeure clauses based upon the particular transition.
Rick: So these are things we haven’t really given a lot of thought to beforehand, this could even be the eye of the hurricane, the relief we are able to get when we come back on a limited basis with expanded testing and contact tracing. Taking that time to not celebrate reopening but to think about how the lessons we’ve learned at a great expense are things that we may have to deal with again and potentially in a relatively short term.
Matt: Yes, even if you’re a business that is deemed non-essential and you’re shut down, this is time to start revising these types of things. It’s time to huddle together with trusted advisors, mentors, and people like that to start working through these processes. It’s important to really start thinking about what we’re going to do if we have to go into another shutdown and how to manage employees if we have to go into another shutdown or continue to limit activity.
This is definitely a time to consider those things that may not require a great deal of action but are really good skull-session kinds of conversations to be having. You can do it by Zoom or exchanging emails, it doesn’t have to be a grand, expensive operational output. It really can be just a series of conversations and sketching these ideas out and working from there
Rick: We are really going to have to do another session with you because I want to discuss telework pitfalls and all of the other valuable information you have to share, some of which you’ve already put up online as resources for your clients.
As we approach the end of our conversation I’d like you to talk about relationships with subject matter experts. Can you talk about the criticality of that relationship and the things that you’ve done to help a client cement why establishing these relationships is extremely important?
Matt: For most small business owners, they are operating by themselves. Even in the case of you and the Chamber staff, there is the possibility to get isolated in your thinking. You guys don’t have a big team but there is a team there, and establishing a relationship with people outside the organization who have a vested interest in your organization’s success can help bring different ideas to the table.
I have a particular client who had to lay off their entire staff, they had no choice as there was going to be no revenue. This owner has taken the opportunity to really pivot how they’re going to go about running their business and the kind of work that they’re going to do, largely because they didn’t have this opportunity before. By having that relationship with an attorney, accountant, mentor, insurance broker, or banker, all these folks give you the opportunity to run new ideas by someone and just say “What do you think”?
I represent people in a variety of different industries and I can pick and choose to see what might be applicable to help someone else, even though it’s a different industry. Having access to people who are outside your normal circle of day to day operations gives you that input that you may need.
Some of it is required for expansion of your business, like working with an accountant because you’re going to need to know the impact of certain activities on your taxes or with a lawyer, you’ll need to know what you’ll have to comply with legally. Having those different and unique inputs is ultimately the purpose of the relationships. The actual mechanism is me rendering the legal services. The purpose of it is to put a business owner in a place where they can take advice from well outside their normal circle and expand their circle a bit in order to make better decisions and move forward with confidence that there will be someone to have your back.
Rick: We will definitely be doing a second session with Matt, but if you don’t want to wait till then, hit mattthelawyer.com for those questions. This stuff is truly invaluable and certainly going to be important as we start bringing people back to work.
Thanks a lot for your time Matt, I consider you one of my trusted advisors and I really look forward to having a conversation with you again soon.
Frederick Chamber Insights is a news outlet of the Frederick County Chamber of Commerce. For more information about membership, programs and initiatives, please visit our website.